Africa’s free-trade area to get $7bn in support from AfDB

TThe African Development Bank (AfDB) said it plans to spur economic activities in the Africa Free-Trade Area by supporting trade financing. This, it will specifically do, by guaranteeing loans given to companies that sell their products across the continent.

According to Bloomberg, the development bank will guarantee about 2,000 loan transactions (valued at $7 billion) over the next five years. The loans will enable the companies to engage in trades that will, in turn, bring the free trade zone to life.

The financier — founded in 1964 — will guarantee loans given to companies to sell their products across the continent in a move that will facilitate the development of the African Continental Free Trade Area that went into effect on January 1. The bank will back about 2 000 transactions, it said in an email.

Companies in 2019 faced a shortfall of $81 billion in financing trade, according to a survey done by the Abidjan, Ivory Coast-based lender. The gap has widened further following the coronavirus pandemic, which devastated demand and made it difficult for companies to meet credit conditions set by local and foreign lenders. That prompted multilateral lenders to pledge support.

The African Export-Import Bank, or Afreximbank, plans to make $40 billion in funding available over the next five years, while Africa Finance Corp. has also promised backing.

Trade within the continent, which stands at more than $350 billion a year, is expected to grow by 52% in the next decade if adequate support is given to businesses, according to David Luke, coordinator of the African Trade Policy Centre at the United Nations Economic Commission for Africa.

The AfDB, owned by 81 countries including 27 non-regional members, said it’s targeting small and medium-sized companies, climate-friendly enterprises and women-owned businesses for its various trade intervention facilities.

Particular attention will be given to organisations in “low-income and transition countries, where international banks tend to have a limited risk appetite,” according to the lender.

In Nigeria, it plans to provide about $500 million in financing this year for new investment projects in food processing, housing and technology industries, in a bid to strengthen infrastructure development in the continent’s most populous nation.

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