CDC Group, a publicly funded development finance institution, has moved to support the Eastern and Southern African Trade and Development Bank (TDB) with a new US$100mn finance facility.

The agreement aims to boost TDB’s capacity for providing credit to African businesses in need of short-term financing, and who are grappling with the economic impact of Covid-19.

According to a statement from the parties, the commitment will provide top-up loans and much-needed capital to new and existing TDB clients, which in turn will support the import, export and production of “strategic inputs” and agricultural commodity goods in the 22 members states where TDB operates.

There will be a “strong focus on those economies with the most challenging investment climates”, the release says.

Meanwhile, it adds that the deal “comes at a time when access to finance for local companies and importers is more limited across the African continent”.

Access to trade finance was already a major issue in Africa prior to Covid-19, with the International Chamber of Commerce estimating the trade finance gap to be as high as US$120bn.

The likes of TDB have previously said that financing strains have only gotten worse since the outbreak of the pandemic, which has seen “reduced liquidity and increased financing costs in the commercial bank market”.

In a report released in October last year, trade finance executives warned that unless multilateral development banks (MDBs) boost credit support to the continent a potential insolvency crisis could develop.

According to the paper – compiled by several African-focused MDBs and trade development institutions, including TDB – commercial banks said there needed to be an “urgent” switch in focus towards the private sector and MDB programmes that help smaller businesses.

Banks interviewed for the report noted that there were constraints on their ability to extend credit outside of their well-known or larger clients due to macro-prudential constraints, for instance, and called for MDBs to take on a greater percentage of risk loading.

Covid-19 has taken its toll on the African economy as a whole, with the World Bank forecasting growth in Sub-Saharan Africa to fall to -3.3% in 2020 – such a drop would leave the continent facing its first recession in more than two decades.

A number of economies in TDB’s region of operation have been acutely affected, including Zambia, with the country becoming the first nation on the continent to default on a payment since the onset of the pandemic.

TDB has been supporting exporters and importers in its regions of operation throughout the Covid-19 pandemic, striking two deals with the World Bank Group in July, for instance.

In one, the World Bank’s Multilateral Guarantee Investment Agency issued a €359mn guarantee with a tenor of up to 10 years to back a syndicated loan provided to TDB by a collection of international lenders.

At the time, it was noted that the facility would diversify TDB’s long-term funding sources and support critical food and fuel imports to its 22 member countries.

These include nations with some of the lowest GDP per capita figures in the world, some of which, such as the Democratic Republic of Congo, Burkina Faso and Somalia, are beset by conflict.