AfDB seals $250m deal for region’s trade financing

• Facilitates intra-Africa trade volume worth $938 million

African Development Bank (AfDB), in its push to facilitate inter and intra Africa trade, and reduction of trade financing gap on the continent sealed a new deal worth $250-million.Tagged: “Risk Participation Agreement (RPA) facility, the continent’s largest development bank courted a pan-Africa financial institution, ABSA, which has 12 footprints across the regional economies, for the realisation of the goal.

The three-year RPA facility was signed on November 12, on the sidelines of the Africa Investment Forum, through its trade finance operations.Under this three-year RPA facility, AfDB and ABSA will share default risk on a portfolio of eligible trade transactions originated by African Issuing Banks (IBs), and confirmed by ABSA.

Leveraging AfDB’s AAA rating, ABSA will underwrite trade transactions issued by African issuing banks across key sectors like agriculture, energy, and light-manufacturing with a special focus on Small and Medium Sized Enterprises (SMEs) in fragile and low-income African countries.

The bank’s commitment under the RPA is to assume up to 50 percent (and 75 percent in special cases) of every underlying transaction issued by the IBs, while ABSA will confirm such a transaction and bear not less than 50 percent of its underlying risk. Working with strategic partners like ABSA, the bank’s trade finance operations aim to facilitate inter and intra Africa trade by reducing the trade financing gap on the continent.

Since 2013, AfDB’s RPA programme has supported over 16 issuing banks with about $650 million limits in Southern Africa alone, with a special focus on SMEs and local corporate in manufacturing, agribusiness, import/export and energy sectors.

In the same period, the programme supported over $4billion in trade volumes across Africa, with $938 million of that being intra-Africa trade.Other trade finance instruments employed by the AfDB include: Trade Finance Line of Credit, funded line provided to banks for the financing of exclusively trade-related transactions in Africa; and Soft Commodity Finance Facility-funded instrument meant to support the financing of exports of soft commodities across the continent.

AfDB Vice President for Infrastructure, Private Sector and Industrialisation, Pierre Guislain, said: “The RPA facility is one of the tools employed by the bank to alleviate poverty and achieve robust economic growth and sustainable development on the continent through: increased trade facilitation of import-export activities of African local corporates and SME’s; enhanced inter and intra-Africa trade; and regional integration.“This is consistent with the bank’s High 5s focus to Industrialise Africa, Light up Africa, Integrate Africa, Feed Africa, and Improve the Living Standards of Africans.”

Source: The Guardian