African banks lost five billion dollars in the first three months of last year, according to a survey of several financial entities, which highlight the negative impact on African trade finance.
“Constraints in financial conditions caused by the covid-19 pandemic led to massive portfolio outflows from Africa, exceeding $5 billion in the first quarter of 2020, of which $3.1 billion was taken from South Africa,” the report reads.
The report comes from a survey sent to 14 African banks, led by the African Export-Import Bank (Afreximbank), in conjunction with the United Nations Economic Commission for Africa (UNECA) and the African Development Bank (AfDB).
The Africa Trade Finance Survey, involving 185 banks representing almost 60% of the assets held by these African financial institutions, shows that more and more international banks were reluctant to take on risky operations in countries where economic conditions were deteriorating.
Trade in Africa accounts for $1 trillion, but banks intermediated only $417 billion
“This massive outflow of capital drained African banks, many of which experienced sharp declines in foreign currency assets, exacerbating liquidity constraints and undermining banks’ ability to finance trade in Africa,” commented Afreximbank President Benedict Oramah during the presentation of the survey.
The report recommends greater involvement between central banks and industry, a set of incentives for digitalization and the adoption of new technologies, in addition to better financial information, and points out that those who have best weathered the crisis were those who managed to quickly invest in the digitalization of operations.
According to the document, trade in Africa represents one trillion dollars, but banks intermediated only 417 billion dollars, about 40%, while the global average is at 80%, proving the little financial inclusion of the continent, known for the high rate of informal economy, that is, direct exchanges without the intervention of financial institutions.
“Trade finance is the lifeblood of trade and will play a key role in the recovery and structural transformation of African economies to better prepare the region for future global crises,” concluded Afreximbank’s chief economist, Hippolyte Fofack.
