CDC Group has committed $75 million to its trade finance deal with Absa Bank, with the investment focusing on helping African banks recovered from the damage inflicted by the Covid-19 pandemic and propping up the supply chain.
The UK government-owned finance institution has since October 2019 had a trade finance deal with Absa aiming at, among others, boosting trade finance funding to some of Africa’s most vulnerable countries.
Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce, according to Investopedia.com.
Trade finance makes it possible and easier for importers and exporters to transact business through trade.
But the outbreak of the coronavirus disrupted most economic activities, which has prompted efforts to salvage the damage caused by the measures imposed to limit the spread of the respiratory illness that has killed people in millions.
The Absa-CDC deal will especially focus on the continuation of the supply chain in critical sectors like health and agriculture.
The commitment will also help maintain consumer access to a wide range of goods and services and allow businesses to continue operating by enabling them to import vital equipment and goods.
“CDC remains committed to closing Africa’s trade finance gap of $110 billion to $120 billion. By scaling up our trade finance agreements in Africa, we can protect vital supply chains that make a tangible impact on everyday lives," said Admir Imami, a director and head of Trade & Supply Chain Finance at CDC.
"Our commitment will also provide a lifeline to many businesses dependent on imports. By investing in them today, we can ensure they are well-positioned to weather the crisis and contribute to the continent’s economic recovery.”
Africa’s trade finance deficit is estimated by the International Chamber of Commerce to represent about 25 per cent of the demand for trade finance in Africa. CDC and Absa are playing a key role in bridging this gap by supporting local financial institutions to expand financing to businesses and sustain supply chains across the continent. Since 2015, CDC has guaranteed $3.3 billion, resulting in $12.5 billion of trade across its markets of Africa and South Asia.
“Absa has made a commitment to supporting entrepreneurs and business owners on the continent," George Wilson, head of Institutional Trade at Absa, said.
"With traditional global supply chains being disrupted, this transaction allows us to re-imagine the continent as a trade destination and capacitate businesses to allow them to create jobs and drive economic activity.”