Trade finance programme acknowledged

The African Development Bank (AfDB) has received the “Highly Commended” prize for the Best Development Finance Institution (DFI) in Africa at the Trade Finance Magazine 2010 Awards for Excellence.

There were more than 300 participants at the ceremony in London, in the UK, where some 50 awards including Deals of the Year and Awards for Excellence, were presented.

 

Facilitating trade

The Board of Directors of the AfDB Group approved on 1 July 2009, a US$500mn investment in the Global Trade Liquidity Program (GTLP) as part of the bank’s Trade Finance Initiative (TFI). Since approval of the TFI, the Bank has identified and is implementing several trade facilitation operations aimed at alleviating the market shortfall of short-term financing for trade.

The TFI, approved by the Board of Directors on 4 March 2009, is part of the Bank’s response to the financial crisis and followed a call for assistance from its Regional Member Countries (RMCs). The US$1.0 billion TFI is helping African commercial banks and other financial institutions to reinvigorate their trade finance operations.

The GTLP aims to mobilise US$5bn from the Participants. This will be used to generate up to US$50bn in trade finance operations over a three-year period, of which US$15bn will be targeted for Africa. To date, US$4bn have been raised, of which US$1.2bn were disbursed to support an estimated US$4.4bn in trade volume. The program is being implemented through major global and regional banks with extensive trade finance presence in RMCs (more than 350 smaller issuing banks).

The initial Partner banks in the GTLP include Standard Bank of South Africa (SBSA), Citibank and Commerz Bank. The LOC to SBSA is the first GTLP approved and disbursed transaction. It is a US$250-million facility (of which US$100mn comes from AfDB, 100mn from IFC and US$50 from the Commonwealth Development Corporation (CDC); and US$150mn from direct parallel loan agreement between Japan Bank for International Cooperation (JBIC) and SBSA. The Bank’s proceeds are playing a key role in allowing African financial institutions and major international banks operating in Africa to leverage their credit and cross-border limits and significantly enhance trade credit availability across the continent.

 

Collective actions

“Setting up the first AfDB Trade Finance Programme in a short period of time was a real challenge; however, for us, success was an obligation. As premier development institution in Africa, AfDB had an obligation to play a much needed countercyclical role supporting Africa in tackling the financial crisis. This award proves the relevance of this program to support private sector operations in Africa in difficult times,” said Ghazi Ben Ahmed, AfDB Lead Trade Finance Officer.

The market situation for trade finance had, by and large, been improving since the beginning of the financial crisis– although that assessment should be mitigated, particularly regarding low income and weak economies in Africa. Against this backdrop, the trade needs of African market banks call for an aggregation of considerable resources, and the AfDB, other DFIs and global and regional financial institutions are still uniquely positioned to assist in partially meeting the challenge of improving the availability of trade finance.

“The adverse impacts of the financial crisis that hit the world in 2008 became evident in Africa towards the end of the same year. Its severity and detrimental impact on investment and trade required urgent, collective countercyclical actions by the international financial community, using creative and pragmatic approaches that would support the recovery of trade flows as soon as possible,” said Bobby Pittman, AfDB Vice President, in charge of Infrastructure, Private Sector and Regional Integration. In particular, as many African commercial banks were experiencing severe liquidity constraints, the African Development Bank had an important role to play in helping the continent through the financial crisis.”

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