Nigeria’s small and medium-sized enterprises (SMEs) are set to benefit from a $20 million Trade Finance Facility Agreement signed by the African Development Bank (AfDB) and FSDH Merchant Bank. The agreement aims to support the industrial and manufacturing sectors of the country, which have been hit hard by the economic downturn caused by the coronavirus pandemic.
The facility consists of a $15 million Trade Finance Line of Credit to support SMEs and indigenous corporates and a $5 million Transaction Guarantee to support the confirmation of FSDH’s trade finance transactions. The AfDB will guarantee up to 100 percent of non-payment risks from letters of credit and similar trade finance instruments issued by FSDH for the benefit of local import and export businesses.
The agreement was signed by Lamin Barrow, AfDB’s Director General, Nigeria Country Department, and Bukola Smith, FSDH’s Managing Director/CEO, on Wednesday in Abuja. Barrow said the arrangement was a testament to the Bank Group’s commitment to help plug Nigeria’s trade finance gap by working with strategic partners like FSDH to provide critical support to SMEs.
“Lack of sufficient correspondent banking lines of credit and inadequate access to foreign exchange have been identified as some of the major reasons banks in Nigeria do not finance trade finance requests from their clients. That is why the African Development Bank established a dedicated Trade Finance Program in 2013 to provide critical liquidity and risk mitigation support to financial institutions in Africa for the benefit of SME and local corporate importers and exporters,” Barrow said.
He added that over the last decade, the Bank Group has supported more than 120 financial institutions in 30 African countries and catalyzed over $10 billion of trade.
Smith thanked the Bank for providing the facility and said women-owned businesses would be given priority when funds are disbursed. She added: “We have been looking forward to receiving this financing. Just like we did with the first facility we received from the African Development Bank, we promise that this one will be well utilized because it will help us grow our business and meet the needs of our clients, including women-owned enterprises.”
The AfDB extended a $50 million Trade Finance Line of Credit to FSDH in 2016, which supported 60 beneficiaries for over 370 trade transactions valued at $375 million in terms of volume traded in critical sectors, including energy, agri-business and health, and boosted intra-African trade.
The Bank estimates Africa’s annual trade finance at $81 billion, and the World Trade Organization and IFC estimate the annual gap in Nigeria at $7 billion. SMEs and other domestic firms are grappling with a lack of access to trade finance, which hampers their ability to participate in regional and global value chains.
The facility is expected to catalyze more than $200 million of trade finance transactions across several sectors, such as agriculture, manufacturing, and energy, over the next three years. It will also contribute to the Bank’s High 5 strategic priorities, especially Industrialize Africa and Integrate Africa, as well as the Nigeria Country Strategy Paper 2020-2024, which focuses on supporting the development of productive sectors and enhancing regional integration.
The agreement comes at a time when Nigeria is recovering from its second recession in five years, triggered by the COVID-19 crisis and low oil prices. The country’s GDP grew by 3.11 percent year-on-year in the first quarter of 2021, compared to a contraction of 1.92 percent in the fourth quarter of 2020. The AfDB is one of Nigeria’s largest development partners, with an active portfolio of 48 operations valued at $4.4 billion.
The facility is also in line with the Bank’s Trade Finance Strategy 2021-2025, which aims to increase the Bank’s trade finance footprint, scale up support for intra-African trade, and promote trade as a tool for economic resilience and recovery in Africa.
Source: Tribune Online
