Trade Finance in Africa

According to a recent World Bank press release, "Africa is likely to be the worst-hit region by the global financial crisis." This seems to be the height of unfairness, given that African countries had little to do with creating the current global crisis. How then best to mitigate the effects on the region of the world that is expected to be hit the worst?

Among its many pronouncements, the recent G20 summit stressed the importance of supporting trade finance in responding to the crisis. But a recent article in VoxEU.com suggests that trade finance is not really the problem - at least for firms in Sub-Saharan Africa. Researchers contacted SMEs in export-oriented sectors in the region, and this is what they found:

The findings were clear. As of February/March 2009, very few of these firms faced any problems with respect to the availability of trade finance. What explains this finding? One factor was the resilience of the domestic banking system. Firms reported that credit in general is available from domestic banks as long as firms showed themselves to be creditworthy. Horticulture firms are considered good risks by local banks, so they did not have problems accessing finance. Garment companies are generally considered more risky, particularly as export-oriented companies have suffered since the phase-out of the Multifibre Arrangement. But even they reported that their access to finance from the domestic banking system had not changed. Two banks interviewed in Kenya confirmed this picture. The financial crisis has had visible impacts, such as notable declines in remittances, but the capacity of banks to finance companies and trade had not been affected.