19 November 2019
Absa and the African Development Bank Group (AfDB) have signed a US$ 250-million Risk Participation Agreement (RPA) which, when fully utilised, is estimated to mobilise over US$ 2 billion worth of trade business over three years.
The RPA was signed on the side-lines of the 2019 African Investment Forum (AIF) held in Johannesburg.
This facility, through a 50:50 risk sharing approach, will 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, and increase intra-Africa trade and regional financial integration in line with the AfDB’s High 5 strategic priorities.
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% of the world’s arable land and an abundance of resources. AfDB and Absa are Financial institutions which are intimately involved in the provision of financial services to support these flows.” says Temi Ofong, Deputy CEO 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 says the agreement will benefit many African banks and their clients who have been unable to access trade finance after the 2008 financial crisis. Kistasamy sees demand for trade finance coming particularly from sectors such as agriculture and manufacturing.
She says the investment spending gap for Africa’s development continues to widen with latest estimates of between US$ 130 - US$ 170bn 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 says 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.” says Wilson.
“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.” says Ofong.
