Lower commodity prices and scarcer demand have been pushing some African countries into deeper recessions, especially those heavily depending on the export of metals and oil. According to Global Trade Review (GTR), the risk of sovereign default has grown across countries in Africa because of currency risk and higher debt levels.
A country like Kenya, which is traditionally and historically very close to the Sultanate of Oman, had plunged into a current account deficit in 2015 and subsequently managed to recover half of the debt in less than 2 years. But Kenya is now back to 2015 level.
Despite the optimistic forecast of growth from 2021 to 2023, Kenya just recorded an annual drop in GDP to negative 5.7 per cent and a recent quarter decline of 9.1 per cent.
On a positive note though, the new decentralisation model of production that was forced on global trades by COVID-19 in 2020, brought a glimpse of hope for many African countries, including Kenya, where last May, the trade balance nearly hit parity for the first time in a long while. In other words, the country produced nearly as much as it produced.
A similar effect can be witnessed in Tanzania and Uganda: countries that are also very close to Oman. But out of the 3 countries in this instance, only Tanzania actually managed to reduce the current account deficit to one of the lowest in the past decade.
In the middle of October, 2020, a collaborative report that assessed the impact of COVID-19 on trade finance, Making Finance Work for Africa (MFW4A), was co-authored by the African Development Bank, the Arab Bank for Economic Development in Africa (BADEA), the International Trade Center, the International Chamber of Commerce, Islamic Development Bank, West African Development Bank (BOAD) and East African Development Bank (EADB).
Policy makers and development organisations are striving to help sub-Saharan African countries to be resilient in these challenging times. It is vital for both economic and social survival of millions of Africans to keep flowing trades of goods and services. Prior to the pandemic, the trade finance gap in Africa was already estimated to be above $100 billion.
To further demonstrate traction in these regions, recently the African Export-Import Bank (Afreximbank), the pan-African multilateral EXIM bank, partnered with the International Islamic Trade Finance Corporation (ITFC), the Trade Finance Arm of the Islamic Development Bank (IsDB) Group; and the Arab Bank For Economic Development in Africa (BADEA), to launch a $1.5-billion Collaborative COVID-19 Pandemic Response Facility (“COPREFA”) to support African economies with rapid financial assistance to reduce the impact of COVID-19.
Eng Hani Salem Sonbol, CEO of ITFC, commented: “Providing fiscal bandwidth and practical support to SMEs and medical communities in African countries will deliver immediate relief from the supply side restraints on personal protective equipment caused by the pandemic.
“ITFC has worked extensively since the very start of the COVID-19 outbreak to provide comprehensive support to some of the most vulnerable countries.”
We often hear that “it has to get worse, before it gets better” and this seems to fit clearly what is happening to Africa. Unlike the 2008/2009 crisis, this time banks can be part of the solution and not the problem.
(The writer is a member of the International Press Association)
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