African Development Bank Report: Trade Finance in Africa
AfDB, October 2017 – The African Development Bank (AfDB) has released its second Trade Finance in Africa survey report: “Trade Finance in Africa: Overcoming Challenges”. Building on the findings of the maiden 2013 survey, this new report (covering the period 2013–2014) goes even further to discuss new findings within the trade finance landscape in Africa. The objective of this report is to deepen the understanding of the challenges facing bank-intermediated trade finance in Africa.
The report is therefore based on the combined data from the 2013 and 2015 surveys. This second report follows the major themes highlighted in the first report and examines some of the unanswered questions from the first survey, such as trade finance challenges faced by SMEs and commercial banks’ first time trade finance clients. The survey revealed that although banks support one third of Africa’s trade, the trade finance gap is still in excess of USD 90 billion annually. Secondly, despite the long-held view that SMEs are the most significant contributor to African economies, they account for just over a quarter of banks’ trade finance assets.
Particularly relevant to Barak that the report found was that SMEs account for only 28% of banks’ total trade finance portfolio in Africa. The relatively low share could be attributed to the higher risk perception associated with this client segment. Furthermore, first time applicants face significant challenges in accessing trade finance facilities from banks. Only 15% of banks’ trade finance portfolio is composed of new applicants. The report goes on to reveals that the major reasons why banks reject trade finance demands include poor creditworthiness and lack of adequate collateral.
The newly released report concludes that for Africa to improve its competitiveness, raise productivity, and achieve robust and inclusive growth, it is essential that African countries become more integrated into the global economy and have a strong and well diversified export base. For this to happen, trade finance must be genuinely accessible and affordable to those who need it.