By Babajide Komolafe
The Board ofÂ Â Directors of theÂ African Development Bank (AfDB) Group approved, Wednes-day in Tunis, a $500m investment in the Global Trade Liquidity Program as the second phase of its Trade Finance Initiative.
The first phase approved in March 2009 was a $500m in lines of credit to support trade finance by African banks, bringing the combined ceiling for both phase 1 and 2 to $1bn.
The initial $500m invest-ment by the Bank makes the GTLP the single-largest contributor to African trade finance. The Bankâ€™s presence helped increase the share of GTLP resources specifically targeted for Africa.
â€œThe Bankâ€™s Trade Finance Initiative is a temporary strategy to respond to the request by African ministers of finance to address current market constraints. There-fore the GTLP aligns well with both Regional Member Countries and Bank priorities,â€ says Bobby Pittman, AfDB VP for Infrastructure, Private Sector and Regional Integration.
â€œIn this period of crisis, the AfDB intends to use its maximum capacity, innovate and work in complementarity with other agencies to play a countercyclical role while continuing to finance long-term development.â€ he added.
The Global Trade Liquidity Program (GTLP) is a temporary crisis-response initiative among develop-ment finance institutions (DFIs) and donors to support trade finance in the developing world.
The GTLP will pool resources from DFIs and donors and will use two primary investment struc-tures: (i) a risk-sharing structure, whereby funding will be channeled to local trade finance banks through international banks; and (ii) direct dedicated lines of credit to local banks with regional coverage.
By providing liquidity and sharing risk with African financial institutions, the GTLP will facilitate Africaâ€™s exports and imports at a time when the global financial crisis is cutting off critical funding. The projected $15bn GTLP resources for African trade finance will thus support African economies and reduce job losses.
The GTLP is also expected to have a strong demons-tration effect to catalyze African and international banks back into the trade finance sector. The program is in line with the Bank Groupâ€™s response to the economic impact of the financial crisis, which comprises an Emergency Liquidity Facility; Trade Finance Initiative and Framework for Accelerated Resource Transfer to countries eligible for African Development Fund support.