Business & Economy

AfDB signs $100 million deal to boost African trade

The African Development Bank (AfDB) has, signed a $100 million unfunded Risk Participation Agreement (RPA) with FirstRand Bank S.A. under which the two banks will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks in Africa and confirmed by FirstRand Bank.
This facility will help alleviate inadequacy of affordable trade finance in Africa by providing support for trade in vital sectors such as industry, services, agribusiness and manufacturing. It will foster financial sector development, regional integration, and increase government revenue generation ultimately improving Africa’s sustainable economic growth. The RPA is expected to support up to $1bn of trade in equipment, raw materials, intermediate and finished goods over a 3-year period
Most African banks have small capital bases which constrain their ability to secure sizable trade limits from international confirming banks and to undertake transactions that have significant development impact. Moreover, despite the growth in trade risk distribution globally, local banks in Africa have not significantly benefitted from this growth. The facility will also result in the provision of significant support to African banks and small and medium enterprises and is particularly expected to promote South-South trade in view of FirstRand’s role as an active financier of trade flows along the Indo African and Sino-African trade corridors. AfDB’s additionality lies in the use of its “AAA” rating to share trade risk and expand the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration.
AfDB’s vice-president in charge of infrastructure, regional integration and private sector, Solomon Asamoah, underscored that trade is a catalyst for inclusive growth and development and partnering with FirstRand Bank is a major step by the Bank to increase the availability of trade finance and help remove a major barrier to trade in Africa, especially for small and medium enterprises in low income countries. ‘We are delighted to enter into this partnership with FirstRand to address the trade finance needs of the continent and look forward to a speedy and successful implementation of the programme,’ he said.
Signing on behalf of the FirstRand Bank Group global head of financial institutions, Suresh Chaytoo, added, ‘This facility is important to boosting our business in Africa. With the funding, we are going to strengthen our business on the continent and provide support for trade across at least 45 countries. This signing is so important for us, for its intra-regional trade, and we want to congratulate AfDB for this meaningful partnership.’
The facility aligns with the African Development Bank’s Ten Year Strategy and core operational priorities of regional integration, financial and private sector development as well as its Regional Member Countries’ priorities to promote trade as was reaffirmed by the African Union at its 18th Ordinary Session in January 2012. Given FirstRand Bank’s position as an active provider of trade finance in Africa and its commitment to supporting Africa’s economic diversification, export growth and deepening of trade value chains, this facility will support trade-related activity in at least 35 countries and provide financing to more than 100 financial institutions, supporting over $1bn of trade in Africa over a 3-year period, thereby helping to deepen the financial sector and promote private sector development.

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