Nigeria, Cote d’Ivoire, Ghana, and Senegal could earn up to $26 billion from lowering costs and increasing the availability of trade finance, a new report released by the International Finance Corporation (IFC) and the World Trade Organisation (WTO) has said.
The report, Trade Finance in West Africa examined the major barriers to trade finance in the four largest economies in the region.
The four countries face a trade finance deficit of up to $14 billion annually despite seeing increased trade flows over the years, especially during the COVID-19 pandemic.
The authors of the report predict that there are opportunities awaiting member countries of the Economic Communication of West Africa States (ECOWAS) once they can remove the barriers to trade and are able to trade with other African countries, and with developing countries outside the continent.
“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.
According to the report, trade finance in these countries only supports 25 per cent of merchandise trade. This is low considering that, trade finance support 40 per cent of Africa’s imports and exports, and up to 80 per cent globally.
The low coverage is being driven by expensive offerings and high rejection rates from banks, which fail disproportionately on small and medium-sized enterprises, particularly those owned by women. Traditional banks are not helping matters as they see many loan seekers are high-risk and lacking collateral.
WTO’s Director-General Ngozi Okonjo-Iweala, said: “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. 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.”
