The Ecowas Bank for Investment and Development (EBID) has landed a dual-currency trade finance credit line totalling around US$130mn, marking the first time it has secured funding support from the African Development Bank (AfDB).
The funds will be used primarily to enhance food security and strengthen agricultural value chains across West Africa, the AfDB says in an announcement issued this week.
The AfDB is providing US$50mn and €50mn to the three-and-a-half-year facility, while the People’s Bank of China is providing a further US$30mn through the Africa Growing Together Fund – a facility sponsored by the Chinese central bank but administered by the AfDB.
Lamin Drammeh, the AfDB’s head of trade finance, says working with the EBID should help improve access to trade finance in the Ecowas region, which encompasses 15 West African countries.
“Regional institutions like the EBID complement the bank’s efforts to bridge the trade finance gap in Africa and serve as an effective conduit for channelling much-needed funds to underserved countries and sectors,” he says.
Drammeh says the facility will be used with a “special focus on the agriculture value chain, SMEs and women-owned businesses”.
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, with SMEs and domestic companies facing the greatest difficulty in accessing support, the AfDB says.
As well as supporting direct financing from the EBID, the facility will be used for on-lending to local banks. Ultimate beneficiaries will be SMEs, local enterprise cooperatives and farmers in the region, with a focus on agriculture, infrastructure and transport.
Joseph Ribeiro, the AfDB’s deputy director general for the West Africa region, hails the agreement as the bank’s first financing for EBID and says he expects “an even stronger partnership in the near future”.
The announcement follows the AfDB’s October approval of US$25mn trade finance facilities for FSDH Merchant Bank in Nigeria, which also targets SMEs via on-lending.
Although a long-standing issue, Africa’s trade finance gap worsened significantly during the initial months of the Covid-19 pandemic.
Research by the AfDB and the African Export-Import Bank found letter of credit refusals soared while vital correspondent banking relationships were cut, prompting warnings that further support would be needed to stop the gap widening further.