AFRICAN DEVELOPMENT BANK. Financial Sector Development Department Trade Finance Division

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1 AFRICAN DEVELOPMENT BANK TRADE FINANCE PROGRAMME Financial Sector Development Department Trade Finance Division April 2018

2 Presentation Outline The African Development Bank Group Financial Sector Development Department Trade Finance Division Trade Finance Gap in Africa Trade Finance Programme AfDB Strengths and Comparative Advantages Trade Finance Programme Statistics Outlook Examples of Deals

3 The African Development Bank Group 1. History: Founded Mission: To promote sustainable economic development and social progress in its Regional Member Countries (RMCs), thus contributing to poverty reduction. 3. Constituent Institutions: a. The African Development Bank (AfDB): provides commercial loans to African middle income countries and private sector projects; b. The African Development Fund (ADF): provides concessionary loans and grants to African low income countries; c. The Nigeria Trust Fund (NTF): provides concessionary loans and grants to African low income countries and to private sector projects. 4. Shareholders: a. 54 African countries (Regional Member Countries); b. 26 non-african countries (non-regional Member Countries). 5. Credit Rating: AAA. 6. Authorised Capital: US$100 billion equivalent (Dec 2014).

4 Simplified Bank Organizational Chart Board of Governors Board of Directors President Chief Economist Regional Developme nt and Business Delivery Power, Energy, Climate and Green Growth Private Sector, Infrastructure & Industrialization Agriculture, Human and Social Development Finance Corporate services HR & Corporate services Private Sector Development Infrastructure Financial Sector Development Industrial & Trade Development Urban Development

5 OFSD Organizational Chart Financial Sector Development Department Financial Inclusion & Intermediation Division Trade Finance Division Capital Markets Development Division Senior & subordinated debt Partial risk & credit guarantees Direct equity investments Co-financing Trade Finance Lines of Credit Soft Commodity Finance Indirect Trade Finance Guarantees (Risk Participation Agreements) Direct Trade Finance Guarantees African Financial Markets Initiative (AFMI) Advisory services Policy based operations (PBOs) Bond guarantees Equity investments & credit enhancements on structured products Trust Funds & Technical Assistance

6 OFSD Strategy Vision Pillar I Increasing access to the underserved, particularly women and youth Pillar II Broadening and deepening Africa s financial systems Financial Stability and Governance Innovation Take lead in promoting technology toward universal access and innovative products and services Partnership Strengthen partnership with MDBs, regional development banks, and bilateral institutions for maximum impact in RMC

7 Trade Finance Division Mandate: 1 Financing solutions to address structural gaps in the trade finance market through: Funded and non-funded solutions; Equity & quasi-equity investments in trade finance focused entities; Partnerships with DFIs and financial institutions. 2 Capacity Building: Technical assistance to address skills gap; Training and internships, etc. 3 Knowledge work: Knowledge management, e.g. TF survey, Traders Database, etc.; Publications and research activities; Platforms to disseminate knowledge about the evolving trade finance products.

8 AfDB s Journey In Trade Finance DFIs GTLP 1.Support to regional DFIs active in TF: Equity Investments TFLOC TFP TFP Examples: PTA Afreximbank Response to global financial crisis $500m in GTLP $500m in TFLOC 3.Trade Finance Programme $1 billion Mainstreaming the trade finance operations 80s - 90s and beyond

9 Trade Finance Gap in Africa Trade finance gap remains significant: US$91billion. The main challenges financial institutions face: Inadequate forex liquidity Capital constraint & limited bank capacity The main reasons for banks rejection of trade finance applications: Client credit worthiness Single obligor limit Insufficient limits with confirming banks

10 Trade Finance Programme (TFP) The Bank s TFP supports African FIs in addressing ongoing constraints in financing international trade. The TFP is designed to complement the activities of commercial players as well as other MDBs. Trade Finance Programme Risk Participation Agreement (Guarantees) Trade Finance Line of Credit (Liquidity) Soft Commodity Finance Facility (Agriculture) Trade enabling policies, Infrastructure projects, T/As

11 Risk Participation Agreement 2 CB works with AfDB through RPA (no transaction approval required) 3 Submits monthly report detailing AfDB exposure 1 AfDB approves limits for IBs following CB s proposals Confirming Bank Issuing Banks AfDB activity Exporter Importer Transaction tenor: Maximum 2 years. Pricing: Market-based. Coverage: Up to 50% of credit risk. Currency: Mainly in US dollars & euros.

12 Trade Finance Line of Credit (TFLOC) 3 AfDB provides financing; assumes bank risk, not exporter/importer risk 2 Submits requisite documentation on its operations AfDB activity African Local FI Local bank activity 4 On-lends to exporters/importers 1 Request for pre- or post-export funding Exporters/Importers Tenor: Maximum of 3.5 years. Pricing: Market-based. Repayment: Bullet, balloon or straight line. Currency: Security & Collateral: Unsecured, senior debt.

13 Soft Commodity Finance Facility 3 AfDB provides financing, assumes aggregator risk, not farmer risk 2 Submits documentation detailing proposed transaction(s) Commodity Aggregator 4 On-lends to/pays farmers 1 Buys inputs or sells commodities Farmers/Purchasing Agents Tenor: Maximum of 2 years. appropriate collateral arrangements. Security & Collateral: A senior debt obligation, backed by Pricing: Market-based.

14 AfDB Strengths and Comparative Advantages The AfDB is the best partner to do business in Africa: 1. Strong balance sheet with AAA rating; 2. Unparalleled risk bearing capacity; 3. Strong relationships with the African authorities, institutions and business communities; 4. Proven ability to leverage partnerships with the public as well as the private sector; 5. Ability to empower and complement financial institutions and other IFIs; 6. Large array of financial products that meets the needs of the private and the public sectors.

15 Trade Finance Programme Statistics Total for the Trade Finance Programme ($ m) as at June 2018 Total Trade Supported Since Inception 6000 Total Intra-African Trade Supported Since Inception % Coverage % LICs/ Fragile states 40 Middle Income Countries 50 Others 10 The bank Trade Finance Programme : USD 6bn of supported trade transactions

16 Trade Finance Programme Statistics (contd.) Others Information 1% activities Other services 1% activities Construction 2% 8% Wholesale & retail trade, transportation etc 6% Mining & quarring 32% Manufacturing 22% Agriculture, forestry & fishing 28% 68% of the supported transactions are attributed to SMEs across sectors

17 Outlook 1 Widening the TF product suite and coverage by adding: 1. Direct guarantees that provide up to 100% risk cover. 2. Supply and value chain financing (incl. factoring & warehouse receipts, etc.). 3. Risk distribution agreements. 2 Looking ahead, the AfDB will endeavor to help: 1. Expand the body of knowledge on TF in Africa 2. Promote South-South trade by collaborating with other MDBs. 3. Support intra-africa trade. 4. Strengthen TF capacity of local banks by partnering with major international banks and other institutions.

18 Examples of Deals Package: USD million Soft Commodity Facility: USD 100 million Technical Assistance Grant: USD 0.5 million Beneficiaries: Ivoirian Cocoa small farmers Cocoa aggregators Package: USD 480 million Equity: USD 30 million TFLOC: USD 300 million RPA: USD 150 million Beneficiaries: African SMEs Target: supporting US$2.2 billion in trade in Africa over a four-year period RPA of USD 300 million Beneficiaries: African countries > 20 African FIs > 70 SMEs > 500 Equity Investment of USD 15 million RMC Membership Expansion of USD30 million supporting Ethiopia, Benin and Côte d Ivoire Beneficiaries: African- Countries African SMEs African FIs

19 Principal Trade Finance Officer Mohamadou BA 01 BP 1387, Immeuble CCIA, Avenue Jean-Paul II, Plateau, Abidjan, Côte d Ivoire Tel:

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