July 2, 2009

AfDB boost trade African trade with $500m

By Babajide Komolafe
The Board of   Directors of the  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 Bank’s presence helped increase the share of GTLP resources specifically targeted for Africa.

“The Bank’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,” says Bobby Pittman, AfDB VP for Infrastructure, Private Sector and Regional Integration.

“In 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.” 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 Africa’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 Group’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.