Under the deal, Attijariwafa Bank will extend confirmation lines to African lenders whose trade finance activity has been constrained by international financial institutions cutting correspondent banking relationships, the AfDB says.

The deal will help SMEs operating in several African countries gain access to trade finance instruments, it adds.

The bank notes there is “growing demand” for trade finance in several key economic sectors such as agriculture, renewable energy, manufacturing, health, telecommunications, as well as transport and services.

The agreement, the second of its kind between the AfDB and Attijariwafa, follows a similar risk sharing deal signed in 2019. Under the previous unfunded €10mn risk sharing scheme, Attijariwafa confirmed letters of credit issued by local African banks with the AfDB covering up to a maximum of 50% of the total transaction values.

The partnership comes amid growing concern over dwindling trade finance supplies on the continent. According to the Bank of International Settlements, a heightened focus by banks on regulatory, reputational and financial risks has led to a 29% decline in correspondent banking relationships over the last decade, leaving local banks struggling to clear funds, access foreign currency and conduct cross-border payments.

This de-risking is also a contributory factor to the global gap between trade finance supply and demand, which is estimated by the Asian Development Bank to have grown to US$2.5tn, a jump of more than 50% since 2021.

During a summit last month in Morocco, the head of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, called on multilateral development banks to grow their trade finance business in low-income regions.

This was followed by the publication by the Bankers Association for Finance and Trade of an updated version of its guidelines for respondent banks, to help them maintain their correspondent banking relationships amid an increasingly complex regulatory environment.

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The AfDB also agreed a ZAR 1.7bn (US$90mn) sustainability-linked loan to the lender and an investment of ZAR 1bn (US$53.8mn) in Absa’s first social bond issuance, both of which will be classed as qualifying capital.

The trade finance facility will focus on promoting access to funding for businesses, improving trade facilitation in low-income African countries and fostering intra-Africa trade, the AfDB says.

It adds that the financing will enable Absa to increase its social and sustainable lending, particularly to SMEs, and support the provision of long-term affordable housing mortgage financing in South Africa.

Absa Group treasurer Parin Gokaldas says the deal will aid the bank’s efforts to close Africa’s trade finance gap.

“The financial close of this agreement will support our ambition to be an active force for good and strengthens our relationship with the AfDB,” Gokaldas says.

Leila Mokaddem, director general of the AfDB’s Southern Africa region, adds that the “comprehensive financing package will unlock financing including for youth and female entrepreneurs in South Africa, as well as for underserved female borrowers in the affordable housing sub-sector”.

Back in 2021, the International Finance Corporation provided Africa’s first green loan to Absa to fund renewable energy projects, with the bank’s interim group CEO Jason Quinn affirming its ambitions to be a leader in financing sustainable projects in South Africa.

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Under the deal, the World Bank agency will work with TDB and Moroccan fertiliser producer OCP to identify “suitable areas” for deploying Miga’s risk mitigation instruments.

The three parties will collaborate on trade finance transactions, where Miga will provide guarantees backing the import of strategic commodities such as fertiliser into Africa, which has been hard bit by the Ukraine crisis and the resultant disruptions to food supply chains.

“This collaboration aims to enhance food security, promote employment and farmers’ livelihoods, secure their access to international markets, bolster productivity, and increase foreign exchange availability and earnings by facilitating the export of commercial crops,” TDB, Miga and OCP say in a statement.

The agreement was signed during the annual World Bank Group and International Monetary Fund meetings – held in Marrakech – which brought together central bankers, ministers of finance and politicians.

African countries have faced a surge in fertiliser prices in the past few years, on the back of supply disruptions linked to the Covid-19 pandemic and more recently the fallout from the Ukraine war.

A June survey conducted by international charity organisation ActionAid found fertiliser prices had more than doubled in several African nations such as Nigeria, Kenya and Malawi, since February 2022.

This has “compelled farmers to reduce its use in their farms, resulting in loss of crop production in all surveyed countries”, ActionAid says.

US and EU-led sanctions have been designed to allow Russian agricultural exports to continue to flow, yet Moscow claims these supply chains have been affected by payment difficulties and a lack of insurance.  

Many African countries have a significant dependence on Moscow for their fertiliser needs, research shows.

A report published in late 2022 by African non-profit Akademiya2063 notes that the Central Africa Republic, Benin and Nigeria have all typically relied on Russia and Ukraine for over 45% of their fertiliser imports.

Niger, Senegal, Cameroon and Ghana are also considerably exposed at more than 30%, the report says.

OCP has also inked an agreement with another World Bank member, the International Finance Corporation (IFC), securing a €100mn green loan backing the construction of two solar power plants in Morocco.

The €360mn project will provide clean energy for OCP’s operations in the mining towns of Benguerir and Khouribga, home to Morocco’s – and the world’s – largest phosphate reserves, the IFC says.

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The reserve-based lending facility is expected to boost production from the Mengo-Kundji-Bindi II (MKB II) oil fields by 30%, Afreximbank says.

The facility will be used to “partially finance and kickstart a seven-year development programme on the MKB II permit area”, which is located between the port city of Pointe Noire, the foothills of the Mayombe mountains and the border with Angola’s Сabinda province.

Trident OGX Congo is a fully owned subsidiary of Singapore-based firm Trident OGX International. The country’s national oil company, Société Nationale des Pétroles du Congo, and Orion Group are also shareholders in the oil fields.

“This important project, which promises to bring investment of about US$1.5bn into Congo’s oil and gas sector, will generate significant revenues that will enable the government to create more jobs and provide more socio-economic infrastructure for the people of Congo,” Benedict Oramah, president and chairman of Afreximbank’s board, said at the signing ceremony.

“We are also pleased that operations at the MKB II oil fields will be conducted in adherence with best practices of environmental standards, by hydraulic fracturing process,” he said.

Oramah added that the deal is expected to increase business opportunities and grow GDP.

Other export credit agencies (ECAs) around the world have come under fire for continuing to finance the oil industry, most prominently the ECAs of western countries whose governments signed up to end international fossil fuel financing for new oil and gas projects.

But some claim that global efforts to drastically scale back oil and gas production disadvantages African nations that have not yet reaped the economic benefits of fossil fuels, a tension borne out in the struggle over financing the East African crude oil pipeline.

Speaking during a roundtable discussion on the sidelines of GTR Africa last year, Gwen Mwaba, director and global head of trade finance at Afreximbank, noted that African economies dependent on fossil fuel production were being left with limited financing.

“International banks are already pulling out of funding those types of projects, and people are looking to institutions like Afreximbank to step in and support reserve-based lending facilities on the continent. We’ve seen billions of dollars’ worth of demand,” she said.

While western economies have had years to prepare for ESG requirements, Mwaba said that there was now “an expectation for Africa to fall in line immediately, when the reality is that we also need time to find our way on this journey”.

“We should be given that space given how little we contribute to carbon emissions as a continent compared to the western world,” she said.

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Nigeria-headquartered Access Bank says the facility is expected to grow African trade volumes by as much as US$90mn, bolstering financing for imports of goods involved in manufacturing, construction and agriculture. 

The lender is targeting companies in DR Congo, Mozambique, Rwanda, Sierra Leone and Zambia, which face long-standing difficulties accessing trade finance as well as unstable currencies, rising interest rates and political uncertainty. 

The loan “facilitates the provision of systemic liquidity during a period characterised by a challenging macroeconomic environment”, it says. 

“Currency instability in Nigeria can hinder the wider proliferation of dollar-denominated trade loans across African markets, constraining countries’ ability to capitalise on opportunities opening up under the African Continental Free Trade [Area] agreement,” Access Bank adds. 

“By specifically targeting import-dependent economies… the improved availability of US dollar-denominated trade loans will ensure availability of key commodities and manufacturing inputs for the production and export of goods.” 

The facility also aims to boost financial inclusion by providing affordable financing to Black African-owned businesses and those that meet Access Bank’s gender commitments. 

Benson Adenuga, BII’s head of office and coverage director for Nigeria, says the agreement “comes at a time when Nigeria’s fragile economic situation needs additional funding, particularly from countercyclical investors like development finance institutions”. 

Admir Imami, director and head of trade and supply chain finance at BII, adds the loan is “a significant step closer to narrowing the trade finance gap in Africa”. 

“Access to finance in fragile states is hugely constrained, often these countries are buffeted by macroeconomic events far beyond their control,” he says. 

The trade finance gap in Africa – measured as the gap between demand and supply for financing facilities across the continent – is believed to total around US$81bn per year, according to African Development Bank estimates. 

UN research published in August found African SMEs are often perceived as high-risk or struggle to provide sufficient credit information, making the cost of financing prohibitively high. 

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Directed at helping the agriculture sector become more resilient in the face of flooding and drought, the Africa Climate Risk Insurance Facility for Adaptation (Acrifa) expands the AfDB’s existing disaster risk insurance programme. 

“Extreme weather patterns negatively impact the livelihoods of many millions of farmers in Africa, the majority of those being women. One way we can tackle this issue is to be sure that farmers have access to crop and livestock insurance,” AfDB group president Akinwumi Adesina said at the launch event during last week’s inaugural Africa Climate Summit in Nairobi.  

As well as seeking to raise US$1bn in concessionary high-risk capital and grants, the facility will provide credit insurance to investment portfolios related to climate and agri-food systems.  

It will also “engage primary insurers across Africa to ensure business opportunities flow through them to continental and international re-insurers,” and help national governments “more efficiently manage climate disasters”, the AfDB says. 

“Considering the frequency and impact of national disasters in African countries, Acrifa has come at a time when African countries are facing enormous challenges affecting agriculture, such as floods and drought. It will help us to strengthen our adaptation and resilience capacities,” says Azali Assoumani, chair of the African Union and president of Comoros.  

Ibrahima Diong, director-general of the African Risk Capacity Group and United Nations assistant secretary-general, adds that the initiative will help “build data that feeds early warning systems in Africa”. 

Also speaking at the climate summit, AfDB vice-president for agriculture, human and social development, Beth Dunford, said: “What we’re talking about today, isn’t just about policies. The impact of a thriving climate insurance industry in Africa is about lives.” 

Africa is expected to be disproportionately affected by climate change, despite accounting for less than 3% of the world’s energy-related carbon dioxide emissions, according to a 2022 report by the International Energy Agency. 

Securing agricultural insurance has long been an issue across the continent, with take-up low and the risks of livestock death and crop damage increasing significantly as the climate crisis takes hold.  

There were several announcements made at the Africa Climate Summit, billed as a chance for nations to agree positions on climate financing and adaptation.  

Prominent among these was the Nairobi Declaration for Climate Change, which calls for a “global tax regime to finance climate action at scale by crowding in and de-risking private capital”, including a financial transactions tax. 

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Under the agreement, the British International Investment (BII) and the FMO, a Dutch entrepreneurial development bank, have each committed to provide US$20mn, which Dashen Bank will on-lend in US dollars to Ethiopian farmers. Such support will cover the costs of importing machinery and ultimately boost export earnings, the BII says.

The majority of Ethiopians, as much as 80% of the population, work in agriculture and the sector is responsible for the bulk of export revenues. The country exported nearly US$1.2bn-worth of coffee in 2021, UN Comtrade data show.

The BII and FMO say they are the first foreign financial institutions to provide long-term funding under a National Bank of Ethiopia directive, first announced in 2020, aimed at the financial services sector.

Commercial lenders in Ethiopia had previously been forbidden from borrowing foreign currency from external sources but are now able to seek out loans in the form of US dollars, Canadian dollars, China yuan, Japanese yen and British pounds.

“We are proud to be amongst the first movers in a financial market opening up to international investment with this transformative commitment,” says Stephen Priestley, managing director and head of financial services at BII.

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Afreximbank says it will deploy the facility to smaller companies involved in trade, both externally and within Africa, as well as those engaged in productive sectors. Because the facility is provided by CDB at relatively low pricing, it says it can transfer that financial advantage to end beneficiaries. 

The facility has a seven-year tenor and will be distributed directly by the Cairo-headquartered multilateral financial institution or through local financial intermediaries, it adds. 

“African SMEs continue to struggle to access adequate and affordable financing for growing their businesses,” Afreximbank says. 

The difference between demand and supply for financing facilities in Africa is estimated to total around US$81bn a year, according to the African Development Bank. 

UN research has found limited company information and perceived high risk among lenders, as well as a low level of digitisation, mean African SMEs are often unable to obtain trade finance facilities at affordable rates. 

The facility – the fourth time CDB has collaborated with Afreximbank – will also strengthen ties between Africa and China, notes Benedict Oramah, the institution’s president and chairman of its board of directors. 

“It will also enable our two institutions to achieve our respective mandates and developmental outcomes, which include job creation, increased economic activity and increased extra-African trade with China,” he says. 

Though China’s development finance institutions have historically provided significant support to Africa, there are signs lending has been scaled back in recent years. 

A February study found the CDB and Export-Import Bank of China committed a combined total of US$10bn in support in 2020 and 2021 – down from more than US$37bn during the previous two years. 

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The market for payables finance in Africa grew to US$41bn last year, a 41% increase from the year before, according to a study published this month by the UN Conference on Trade and Development (UNCTAD). 

That growth rate is nearly double the global average, and far higher than the 28% figure for Asia, the next fastest-growing region. 

However, despite Africa’s increasingly crucial role as a supplier of critical minerals, the report finds that in volume terms its SCF market is a fraction of the global total of nearly US$2.2tn. Programme volumes are less than a tenth of those in Asia and Europe. 

“This is not enough,” UNCTAD says. “The continent can mobilise more funds by removing barriers to supply chain finance, including regulatory challenges, high-risk perception, and insufficient credit information.” 

SCF programmes could help improve access to working capital for smaller African suppliers, providing a cushion for purchasing inventory and investing in technology, ultimately improving growth and employment, it argues. 

The report says payables finance allows suppliers to take receivables off their balance sheets, improving credit metrics, while invoice factoring can transfer credit risk to a higher-rated buyer. 

However, there is a “disproportionately high-risk perception” of such firms. Credit information is often lacking, with suppliers unable to provide detailed financial records, credit histories or collateral, meaning the cost of carrying out due diligence proves prohibitively expensive for buyers. 

Another issue is limited use of digital technologies among SME suppliers. Integrating payables information into buyers’ procurement systems improves access to data and lowers costs, but funding gaps and skills shortages mean this is often not possible. 

“Across the continent, there is insufficient digitisation and adoption of technology in the financing process,” the report says. “Processing financing applications remains a highly labour-intensive process, with excess paperwork.” 

At the same time, a lack of harmonised regulatory frameworks means there are concerns among creditors over enforcement in cases of conflicting claims.  

“The legal framework is usually unable to facilitate the use of assets as collateral. This makes the expansion of supply chain finance, or generally credit financing, difficult,” it says, adding it is “essential” for African countries to create a more enabling environment for SCF. 

UNCTAD says optimising Africa’s supply chains could bring significant rewards as demand for consumer technology and renewable energy increases. 

In terms of raw materials, the continent has at least a fifth of the world’s reserves of 12 metals that are critical to the energy transition, including vast amounts of aluminium, cobalt, copper, lithium and manganese. 

African economies could also play a greater role in processing raw commodities locally, manufacturing intermediate products such as electric vehicle batteries and smartphone screens, it says – a long-standing ambition across the continent. 

In Kenya alone, the size of the potential market for SCF is estimated at nearly US$25bn – in terms of annualised value of payables, receivables and inventory – yet totals less than a tenth of that today. 

Nigeria’s estimated market for SCF totals a further US$6.6bn, driven by a growing manufacturing sector. 

To realise these opportunities, UNCTAD calls on financial institutions and governments to work on developing innovative credit assessment and financing tools, backed by guarantee schemes and sustainability criteria that could prove more attractive to investors. 

There are signs of progress. In June this year, the African Export-Import Bank (Afreximbank) agreed a memorandum of understanding with SCF company Fiducia.  

Afreximbank says the partnership aims to improve access to factoring facilities across the continent via Fiducia’s platform, and will explore opportunities to collaborate to bring payables finance to a wider market. 

In June last year, Citi signed a US$100mn master guarantee facility enabling British International Investment to act as a guarantor for SCF facilities provided to SME suppliers and underserved segments. 

Citi said at the time it planned to increase annual SCF volumes on the continent by as much as US$400bn. 

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The African Export-Import Bank (Afreximbank) is providing a US$120mn facility to Great Horn Investment Holding (GHIH), an investment entity owned by the Djibouti government, for upgrades to the Damerjog Industrial Development Free Trade Zone.

Proceeds will be used for the completion of an oil jetty, providing ships access to the free trade zone, and the construction of a 150,000m³ oil tank farm. Moroccan firm, SOMAGEC, has been selected to develop the projects.

An additional US$35mn is being provided by local lender Banque pour le Commerce et l’Industrie Mer Rouge.

The deal will bolster Djibouti government plans to make the East African nation a regional transshipment and logistics hub for global trade, Afreximbank says in a statement.

Djibouti, a country with a population of just over 1 million and limited natural resources, aims to capitalise on its position straddling the Bab‑el‑Mandeb strait, where it is estimated 30% of commercial shipping passes enroute to the Suez Canal and Red Sea.

The agreement will “also promote intra-African trade, given that Djibouti’s economy is largely based on the provision of marine services to neighbouring nations Ethiopia and Somalia, by offering them a gateway for ocean-borne freight”, Afreximbank says.

Djibouti is a key trade link for Ethiopia, one of Africa’s most populous nations and largest economies. Last week, the International Development Association (IDA) pledged a US$730mn grant to upgrade the Addis-Djibouti corridor, amid concerns over road quality and insufficient capacity to accommodate the growing truck traffic. Over 95% of Ethiopia’s import-export trade, by volume, uses the Addis-Djibouti corridor.

GHIH chairman, Aboubaker Hadi Omar, says the move will enhance the “efficient movement” of petroleum products, while developing a “core economic belt with Ethiopia and ultimately an industrial base for East and Central Africa”.

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