Driving trade finance critical for actualising AfCFTA

Africa is making significant strides towards achieving regional integration through the Africa Continental Free Trade Area (AfCFTA). The high cost of financing has always been a challenge, but efforts are underway to unlock more trade finance and accelerate the implementation of this transformative initiative. Admassu Tadesse, President of Trade Finance Development Bank, shared insights on the progress and the road ahead during an exclusive interview with CNBC Africa. The AfCFTA, a long-term initiative, aims to enhance cross-border interactions, streamline payment technologies, and facilitate the flow of people across the continent. Tadesse highlighted the positive journey so far, with Pan-African businesses, banks, and non-traditional institutions providing financial credit to customers with cross-border operations. However, he emphasized that there is still a long way to go in realizing the full potential of the AfCFTA. The conversation also delved into the importance of easing regulations and promoting new business models to finance Small and Medium Enterprises (SMEs), a vital segment of the African private sector. Tadesse noted the progress in leveraging digital technologies to reduce the cost of serving customers and expand credit extension beyond traditional methods. The evolution of mobile money and technology has played a pivotal role in enhancing financial services and reaching customers previously inaccessible through conventional means. Innovative payment and settlement systems are being developed to lessen dependence on hard currency, contributing to the broader goal of facilitating trade within the continent. Tackling the significant challenge of diversifying Africa's economy was identified as a key priority for regional leaders. Enhancing complementarity between countries and promoting industrialization, including agro-industry and lightweight manufacturing, are essential for fostering trade and economic growth. Tadesse underscored the role of policymakers in creating an enabling environment for businesses by addressing structural impediments and reducing costs related to finance, administration, regulation, and infrastructure. As a specialized financial institution, Trade Finance Development Bank is actively involved in supporting trade finance and SMEs. By collaborating with commercial banks and providing guarantees and liquidity, the bank helps facilitate funding for projects that require specialized financial solutions. Additionally, the bank supports export development initiatives and provides medium and long-term funding for projects in sectors like agro-industry and mining, where traditional banks may not meet the funding requirements. Despite facing challenges during the COVID-19 pandemic and subsequent economic shocks, the bank's portfolio has shown resilience and growth, with a 10% annual increase and a balance sheet of approximately $10 billion. The introduction of a concessional fund aims to assist projects that require additional support before accessing market-related funding, reflecting the bank's commitment to catering to diverse funding needs within the region. The outlook for trade finance is promising, with increasing demand expected as interest rates stabilize, paving the way for further growth and development.