New Initiative Aims To Close Africa's 80bn Trade Financing Gap

Last year the African Development Bank AfDB released a report analysing Africa's "trade finance gap". This refers to the financial tools, such as letters of credit or guarantees, which businesses need to conduct cross-border trade - but which companies in Africa often struggle to access.

Trade finance is essential - both for small and medium enterprises SMEs and larger companies - to reduce the risks associated with international trade, improve cash flow and ensure that imports and exports are conducted in a smooth way. According to the AfDB, around 80 of all international trade globally depends on some form of trade financing.

However, there is a massive shortfall - a shortfall which stifles companies' ability to trade and therefore, in turn, dents economic growth. In 2022, the global trade finance gap stood at 2.5 trillion - an increase of 47 from 2020. In Africa alone, the deficit was over 80bn in 2019.

There are reasons to suspect the trade finance gap could grow even larger on the continent. This is as a consequence of US President Donald Trump's decision to impose a universal 10 tariff on almost all countries, and the potential that he will reimpose higher "reciprocal" tariffs on African countries with which he claims the United States has a large trade deficit, following a 90-day pause.

Trade restrictions mean African countries are likely to export fewer goods to the US, which would lead to less hard foreign currency coming into African economies.