African Trade Contracted 11.9% in 2020 on Virus, Report Says

(Bloomberg) --

African trade contracted 11.9% in 2020 as the coronavirus pandemic and restrictions to curb its spread pushed the continent into its first recession in a quarter of a century, according to a new report.

“Although the contraction was synchronized across the whole region, the greatest impact was on economies dependent on tourism and commodities,” African Export-Import Bank, the United Nations Economic Commission for Africa and the Making Finance Work for Africa Partnership of the African Development Bank said in the report. “Leading oil-producing countries, where oil exports account for more than 90% of foreign exchange earnings and more than 60% of fiscal revenues,” were particularly badly affected, they said.

The pandemic also raised risk premiums, made it harder to access trade finance and reversed capital flows, which exacerbated existing liquidity challenges and balance of payment pressures. Even before the pandemic, access to funding was a major constraint to commerce and growth on a continent where the trade finance gap was more than $80 billion annually, according to Afreximbank and AfDB estimates.

Of 185 banks involved in trade finance across the continent that account for about 58% of the $1.5 trillion in total assets held by commercial lenders in Africa, 30% indicated an increase in credit rejection rates from January to April 2020, according to survey results published in the report. Over the same period, 47 correspondent banking relationships were canceled, it said.

The virus’s disruptive impact on global demand and commodity prices pushed the Afreximbank’s African Commodity Index, which tracks the price performance of key commodities of interest on the continent, down 44% in the first quarter of last year.

Concerns have since emerged about adequate access to dollars, in which most trade flows and financing are denominated, as well as “the growing likelihood of default and bankruptcy across the commercial spectrum, with a resulting deterioration in credit quality and risk,” according to the report.

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