CDC Group, the UK’s development finance institution and impact investor, has announced an additional $75m commitment to its existing trade finance facility with Absa Bank.

Admir Imami, Director, Head of Trade & Supply Chain Finance, CDC, said: “CDC remains committed to closing Africa’s trade finance gap of $110bn to $120bn. By scaling up our trade finance agreements in Africa, we can protect vital supply chains that make a tangible impact on everyday lives.”

“Our commitment will also provide a lifeline to many businesses dependent on imports. By investing in them today, we can ensure they are well positioned to weather the crisis and contribute to the continent’s economic recovery.”

The investment will provide systemic liquidity across CDC’s African markets and enable local banks to sustain the availability of trade finance, supporting supply chains during the COVID-19 crisis.

The pandemic has put significant pressure on African banks as international banks continue to “de-risk”, withdraw from the continent and reduce their correspondent banking relationships in developing economies.

In the context of broad outflows of capital from Africa, counter-cyclical commitments from development finance institutions are critical to mitigating these pressures and maintaining trade flows.

CDC’s partnership with Absa includes an innovative mechanism to boost trade finance funding to some of Africa’s most vulnerable countries.

Trade finance transactions in sectors that are critical to serving people’s basic needs during the crisis – food & agriculture and health – will also benefit from preferential terms.

The commitment will help maintain consumer access to a wide range of goods and services and allow businesses to continue operating by enabling them to import vital equipment and goods. 

The announcement strengthens CDC’s relationship with Absa and builds on two existing trade finance facilities announced in October 2019.

George Wilson, Head of Institutional Trade, Absa, said: “Absa has made a commitment to supporting entrepreneurs and business owners on the continent. With traditional global supply chains being disrupted, this transaction allows us to re-imagine the continent as a trade destination and capacitate businesses to allow them to create jobs and drive economic activity.”

Africa’s trade finance deficit is estimated by the International Chamber of Commerce to represent about 25% of the demand for trade finance in Africa.

CDC and Absa are playing a key role in bridging this gap by supporting local financial institutions to expand financing to businesses and sustain supply chains across the continent.

Since 2015, CDC has guaranteed $3.3bn, resulting in $12.5bn of trade across its markets of Africa and South Asia.