One of the first consequences of the global financial crisis has been the apparent drying up of liquidity in international markets which has, in turn, impacted adversely on the ability of banks to offer, inter alia, trade finance in emerging markets due to reduced appetite for risk and tighter liquidity management. Africa is not immune to such trends and as the crisis continues to spread, the ability to meet historical demand for trade finance is becoming increasingly challenging. At the same time, the cost to the global economy of failing to support trade finance in general - particularly short-term trade finance - could have drastic implications for exporters and importers around the world, mostly in Africa.
In this context, the African Development Bank (AfDB) Group recently formulated a comprehensive crisis response strategy, including a trade finance initiative to support trade flows and the provision of trade finance. The AfDB is also looking to collaborate on that front with other International Financial Institutions (IFIs) in order to join forces and maximize impact at a time when joint action towards leveraging the impact is vital, especially given the severity of the crisis.
To this end, the AfDB is organizing a meeting at the Residence Hotel in Tunis on Tuesday, April 14, 2009 to present the AfDB's trade finance initiative. This event will start with discussions on major constraints on trade finance in Africa followed by a formal presentation of AfDB's trade finance initiative.
The main objective of this meeting is to convene like-minded partners to better understand the effects of the current crisis on Africa's private sector and to craft a common approach to address the impact of the crisis in Africa.
Commercial participants, including a range of international and African Banks as well as other IFIs, have confirmed their participation. Expected outcomes of this event include (i) creating an impetus for a concerted crisis response effort to respond to the challenges posed to Africa by the intensity of external shocks and evaporating financial resources, and (ii) mapping out a framework for crafting concrete crisis response initiatives in anticipation of a joint communiqué by all Development Finance Institutions and International Finance Institutions at the Bank's Annual Meetings.
To date, the AfDB Board of directors has approved a US$ 1.0 billion Trade Finance Initiative, US$ 500 million of which will be used as a first tranche to boost trade finance through ongoing and new trade lines of credit operations with several African banks. The specific allocation of the second tranche of US$ 500 million is under consideration.
By: Onike Nicol-Houra
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