Amid a gloomy economic outlook for Africa and warnings of liquidity strains caused by the coronavirus, the Eastern and Southern African Trade and Development Bank (TDB) has struck two deals with the World Bank Group to bolster infrastructure and trade finance in the region.
Last week, the World Bank’s Multilateral Guarantee Investment Agency (Miga) 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.
Citi, MUFG, SMBC and Standard Chartered were the banks involved, with Standard Chartered acting as global co-ordinator and facility agent.
The facility will be used to diversify TDB’s long-term funding sources and support critical food and fuel imports to its 22 member countries.
Meanwhile, at least €50mn will help facilitate the import of Covid-19 equipment and construction materials for healthcare facilities through its structured trade finance business.
The guarantee agreement will also increase TDB’s ability to provide supply chain finance for international transactions to the low-income and conflict-affected countries it serves.
TDB’s members include countries 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.
Nations like these are “beleaguered” by a number of challenges when it comes to trade, the bank says, including “foreign exchange constraints, cumbersome non-tariff barriers, and weaker credit quality of buyers and suppliers”.
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.
TDB says 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”.
According to Miga, this is a “first-of-its-kind” guarantee, with the agency’s board approving a new type of credit enhancement to support the deal.
This protects the commercial banks involved against the risk of a payment default by a regional development bank under an unconditional financial obligation.
In a statement, the World Bank Group member notes: “This innovative product extension gives Miga the ability to leverage TDB’s credit rating – higher than that of its individual members – to mobilise long-term funding to countries that would normally be ineligible for such cover.”
In a separate but complementary deal struck this month, the World Bank board of directors has also approved US$415mn in long-term infrastructure financing for TDB.
As part of its Regional Infrastructure Finance Facility (RIFF), the World Bank’s International Development Association (IDA) will provide a 19-year scale-up facility credit line of US$400mn, and a 38-year US$15mn concessional technical assistance credit.
In a statement, TDB notes: “The need for long-term infrastructure finance has been further exacerbated during these disrupted times. Indeed, along with supply chains disruptions, risk perception and aversion have risen, and available liquidity from financial institutions has become more short-term.”
TDB adds that the facility will allow the bank to boost its financing of long-term infrastructure projects, particularly in the area of renewable energy, where it will target renewable generation and mini-grids for industrial and commercial enterprises that are working to increase electricity in nearby communities.
SMEs will also be able to apply for debt financing through the facility, with the technical assistance credit expanding TDB’s capacity in areas such as environmental and social management, project preparation and portfolio management.
Meanwhile it will help strengthen the Trade and Development Fund (TDF), a newly created sister institution which will undertake activities of educational nature and support non-commercial activities in TDB member states.