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Africa’s capital outflow hits $5bn

By BUUMBA CHIMBULU

CAPITAL outflows from Africa exceeded US$5 billion during the first quarter of 2020 owing to tightening global financial conditions.

This is contained in a report, which surveyed 185 banks in Africa, representing more than 58 percent of total assets held by African banks.

The African Export-Import Bank (Afreximbank), in collaboration with the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB) and Making Finance Work for Africa Partnership (MFW4A) prepared the report and realised it this month.

It provides a better understanding of the trade finance landscape across Africa and how it has evolved during the Covid-19 pandemic.

According to the report, the supply of trade finance was affected between January and April 2020, the period covered by the survey.

Tis was as a result of the pandemic and inherent tightening financing conditions, heightening balance of payment pressures and liquidity constraints,

Afreximbank president, Benedict Oramah, highlighted how the tightening global financial conditions triggered massive capital outflows from Africa, exceeding US$5 billion in the first quarter of 2020.

“These massive capital outflows strained African banks, many of which recorded sharp drops in their net foreign assets.

“This further exacerbated liquidity constraints and undermined the capacity of banks to finance African trade,” Professor Oramah said.

Afreximbank Executive Vice President, Business Development and Corporate Banking, Amr Kamel, highlighted the role of Development Finance Institutions during downturns.

Mr Kamel pointed out that Afreximbank’s Pandemic Trade Impact Mitigation Facility (PATIMFA) had provided timely support to banks, helping to clear payments falling due and avert payment defaults.

He shared some of the key initiatives the Bank was pushing through to address the challenges of liquidity constraints and boost African trade.

“These include the Pan-African Payment and Settlement System and Afreximbank Trade Finance and Trade Facilitation programme to increase the provision of correspondent banking services to African banks,” Mr Kamel said.

The report pointed out that African trade amounts to US$1,077 billion but that banks intermediate US$417 billion of this, approximately 40 percent, whilst the global average is 80 percent.

Standard Chartered Senior Vice Chairman for Africa, Bola Adesola, stressed the need to increase businesses on the continent, to help drive trade both extra- and intra-African trade and banks’ intermediation.

“The African Continental Free Trade Agreement (AfCFTA), she added, can provide a platform to help drive greater businesses,” Ms Adesola said.

The report made numerous recommendations such as a greater engagement between central banks and industry, push for increased digitalisation and take up of technologies and better data, which will help better understand and price risk.

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