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(Ecofin Agency) – The cost of trade financing in Africa remains high. In addition, intra-African trade transactions are weak. To tackle both issues, IFC and Proparco want to bolster their efforts in increasing trade transactions on the continent and supporting local importers and exporters.
Proparco and IFC are considering joining hands to better finance trade operations in Africa. Proparco announced the plan on June 29.
The French Development Agency’s (AFD) subsidiary intends to invest up to 50% in “specific exposures” of IFC for trade financing in chosen sub-Saharan African countries, with a limit of $500 million. “An initial tranche of $200 million will be dedicated to food security. IFC will prioritize trade transactions within Africa when possible,” Proparco explained.
The partnership aims to increase access to trade financing in Africa, subsequently empowering and training African financial institutions in trade financing. Additionally, IFC and Proparco plan to mobilize funding to support importing and exporting SMEs. This will be achieved through training modules related to trade financing in Africa.
According to Proparco, trade accounts for over half of the GDP of the least developed countries. Yet, the cost of trade financing in Africa is six to seven times higher than in OECD countries (Organization for Economic Cooperation and Development).
Sometimes, trade costs can reach 300% of the value of goods traded in Africa. In addition, intra-African trade transactions remain very low. In Côte d’Ivoire, Ghana, Nigeria, and Senegal, the trade finance deficit is $14 billion per year.
It is worth mentioning that in 2006, IFC launched the Global Trade Finance Program (GTFP). It aims to facilitate trade-financing transactions in emerging markets. To date, this initiative is backed by more than 120 banks in 37 African countries.
Under this program, IFC claims it has issued over 15,000 risk coverage guarantees. This concerns trade operations conducted by banks.
Chamberline Moko
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