CAPE TOWN - Financial services group Absa and the African Development Bank Group (AfDB) have signed a $250-million (more than R3 billion) risk participation agreement (RPA) which, when fully utilised, is estimated to mobilise over $2 billion (more than R29 billion) worth of trade business over three years.
The RPA was signed on November 12, on the side-lines of the African Investment Forum held in Johannesburg.
The group said this facility, through a 50:50 risk-sharing approach, would help to promote broad-based economic growth on the African continent through increased facilitation of import-export activities of African corporates and small and medium-sized enterprises. It would furthermore increase intra-Africa trade and regional financial integration in line with the AfDB’s High 5 strategic priorities.
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The RPA enables Absa and AfDB to equally share the risk of issuing trade finance facilities to African banks who have been unable to access trade finance support, due to a number of multinational banks exiting the continent through de-risking.
“Intra Africa Trade is crucial to harness the potential of Africa, which boasts 60 percent of the world’s arable land and an abundance of resources. AfDB and Absa are financial institutions that are intimately involved in the provision of financial services to support these flows,” said Temi Ofong, deputy chief executive of Absa regional operations and chief operating officer, Absa Corporate and Investment Banking.
Carmel Kistasamy, head, global development organisations at Absa Corporate and Investment Banking said the agreement would benefit many African banks and their clients who have been unable to access trade finance after the 2008 financial crisis.
Kistasamy said she sees demand for trade finance coming particularly from sectors such as agriculture and manufacturing. She added that the investment spending gap for Africa’s development continues to widen with latest estimates of between $130 - $170 billion per annum. Small and medium enterprises, which are seen as drivers for economic growth and job creation, require significant funding to expand their businesses and the private sector has a key role to play in cross border investment.
George Wilson, head of Institutional Trade Finance at Absa Corporate and Investment Banking, said AfDB has played a crucial role in assisting with reducing Africa’s trade finance gap.
“Not only does their involvement directly address their developmental mandate, it greatly expands the reach and capacity of Absa’s continental Trade Hub and has the potential to practically broaden the access to trade finance and developmental growth in Africa. We see this as a key stepping stone for even more impactful trade finance collaboration with the AfDB into Africa.”
“This deal is the result of what happens when you have the bravery to imagine and the will to get things done and we look forward to working with the AfDB to bring our clients’ possibilities to life,” Ofong concluded.