A new report released by the International Finance Corporation (IFC) and the World Trade Organisation (WTO) indicates that Nigeria, Côte d'Ivoire, Ghana, and Senegal may make up to $26 billion by reducing costs and expanding access to trade finance (WTO).

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The report, Trade Finance in West Africa, identified the main barriers to trade finance in the sub-region's four largest economies.

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Even though the four nations have had increased trade flows over time, particularly during the COVID-19 pandemic, they still experience a trade finance shortage of up to $14 billion annually.

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“Global trade finance gaps increased during the pandemic. Supply chain pressures, inflation, and the war in Ukraine have only exacerbated the problem,” said Makhtar Diop, managing director, IFC.”

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Authors of the report believe that once trade restrictions are lifted and member nations of the Economic Communication of West African States (ECOWAS) are able to trade with other African nations as well as developing nations outside the continent, opportunities will present themselves.

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“This study couldn’t be [more timely]. There is enormous potential for an economic boost in West Africa by harnessing intra-Africa trade, but we will need coordinated action from the government. The private sector and the multilateral to build the capacity of local lenders and improve access to SMEs,” the report stated.

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While banks have supported consumer products and still do so, industries like agriculture and infrastructure are falling behind.

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Additionally, trade finance in the four nations the report investigated has fallen short of expectations.

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Only 25% of the merchandise trade in these nations is reportedly supported by trade finance.

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Given that, trade financing supports up to 80% of global trade and 40% of imports and exports in Africa.

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The limited coverage is a result of exorbitant services and high bank rejection rates, which disproportionately affect small and medium-sized businesses, especially those with female owners.

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Traditional banks are making issues worse by identifying a large number of loan applicants as high-risk and lacking in collateral.

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The financial institutions are also constrained by a lack of readily available low-cost funding and problems satisfying the requirements of international correspondent banks.

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Through initiatives like the IFC's Africa Trade Recovery Initiative, Nigeria, and the other three nations can seize the opportunity by broadening the pool of companies that have access to trade credit.

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In order to implement the African Continental Free Trade Area (AfCFTA), it is also necessary to increase the ability of local bankers and businesses, develop the ties between international correspondent banks, and support decision-making with better data and analytics.

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“Trade finance is the indispensable oil for trade, and the WTO is proud to be part of an effort to provide evidence-based solutions to help close the trade finance gap.”

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“At the WTO, we are happy to act as a conduit for a dialogue on trade finance, bringing together governments, banks, SMEs, and professional organizations. We look forward to partnering with financial institutions to transfer this knowledge locally,” the WTO Director-General Ngozi Okonjo-Iweala expressed.

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Source: The Independent Ghana

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