Plunged into a severe recession, accentuated by the health crisis and the sharp drop in oil prices, Algeria could be forced to resort to external debt. Anxious to preserve its sovereignty, Algiers has so far excluded all financing from the International Monetary Fund. But it may better to go early, while it still has room to negotiate terms.
African SMEs need mixed markets, Islamic Trade Finance head says
Africa can’t afford to wait for its free trade agreement to promote integrated markets for small and medium-sized companies, International Islamic Trade Finance Corporation (ITFC) CEO Hani Salem Sonbol tells The Africa Report.
The African Continental Free Trade Area represents a “real opportunity for the African countries and business communities to mitigate the impact of the COVID-19 on the economic front,” says Sonol.
He continues: “Africa should go ahead and protect and enhance this achievement.”
Delay in the implementation of the free-trade agreement, originally set for July, creates a vacuum that needs to be filled. Sonbol points to The Arab-Africa Trade Bridges Program, led by ITFC and partners including the Arab Bank for Economic Development in Africa, Afreximbank and the Islamic Development Bank, as a tool for limiting the economic fallout from COVID-19.
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Trade Bridges is based on the idea that potential for trade between the Arab world and Organization of Islamic Cooperation (OIC) members in sub-Saharan African is largely unexplored. The programme aims to strengthen SME export development, with pharmaceuticals, healthcare, agriculture and textiles as priority sectors, says Sonbol.
- As part of the programme, ITFC and its partners are supporting African laboratory networks to enable the supply of COVID-19 testing kits, lab equipment and personal protective equipment for medical and paramedical staff.
- The aim is to help African laboratories to access knowledge through online training, to develop protocols and standard operating procedures to diagnose and manage the coronavirus.
The ITFC, which operates in 57 countries globally, is an autonomous trade-finance entity within the Islamic Development Bank. It aims to provide finance to enable increased intra-African trade.
Many ITFC member countries in Africa will face “supply chain disruptions, the repercussions of tightening global financial market conditions, volatile commodity prices, medical supply shortages and healthcare systems that may struggle to protect lives,” says Sonbol.
ITFC has received financing requests from member countries to address coronavirus issues ranging from medical equipment shortages, domestic supply disruptions, a collapse in trade demand, capital flow challenges and a collapse in raw material commodity prices. ITFC has put together a “Rapid Response” package to meet the emergency financing needs.
- The $300m programme is designed to help OIC members buy emergency medical equipment and supplies, and commodities, such as food and energy.
- The ITFC will also focus on financing the private sector and in particular SMEs struggling with poor cash flow because of temporary business closures resulting from lockdown directives.
- As part of a longer-term program, the ITFC is providing $550m for its “Recovery Response Initiative” to support strategic sectors over the next two years.
- “The SME sector in Africa is one that has managed to adapt and evolve amidst challenging landscapes be it famine or political unrest,” says Sonbol.
- “Safeguarding SME resilience during the COVID-19 pandemic is crucial to the socio-economic future of the continent.”
- One way to do that is to allow fintech, agritech and e-health SMEs to become part of the solution to challenges arising from the pandemic, he says.
Bottom line: Trade finance initiatives have become all the more critical in light of the delay in implementing AfCFTA.