- February 4, 2023
- Posted by: AITRC 2
- Categories: Blog, Report
WEEKLY TRADE POLL FOR AFRICAN COUNTRIES
FEBRUARY 2023
Trade finance is a broad terminology that refers to various financial products corporations, and banks, use to facilitate international trade transactions[1]. Trade finance refers to the financial services and the provision of credit to facilitate international trade transactions. Trade finance provided by the banking sector can potentially improve food security and boost agriculture in Africa to a significant extent. It can help agricultural producers and traders access finance to purchase inputs, manage cash flow, expand their businesses, facilitate trade, help to connect farmers to markets and improve the efficiency of supply chains.
Importers and exporters can seamlessly conduct their business with the help of trade finance, which can potentially improve food security and boost agriculture in Africa substantially, but there are several factors to consider.
Firstly, trade finance can provide the necessary capital for farmers and other agribusinesses to invest in their operations, including the purchase of seeds, fertiliser, equipment, and other inputs. This can help increase agricultural productivity, improve the quality of food produced, and increase the quantity of food available for consumption.
Secondly, trade finance can help facilitate trade between African countries and other regions, allowing for importing food when necessary and exporting surplus production. This can help increase access to a wider variety of foods and improve food security for African populations.
However, there are potential challenges to the effectiveness of trade finance in improving food security and boosting agriculture in Africa. These include:
- Limited access to credit: Many small-scale farmers and agribusinesses in Africa have limited access to credit and financial services, limiting their ability to invest in their operations and take advantage of trade finance opportunities.
- Poor infrastructure: In many parts of Africa, poor infrastructure can make it difficult to transport goods and access markets, which has limited the effectiveness of trade finance in facilitating trade.
- Political instability and conflict: Political instability and conflict have disrupted trade and made it difficult to attract investment in agriculture, limiting trade finance’s benefits in Africa.
- Climate change: Climate change can significantly impact agricultural productivity in Africa, which means there is a need for significant investment in adaptation and resilience measures to mitigate the impact on food security.
Therefore, the African Development Bank Group and the Canadian government have launched a new special fund to assist Africa’s small and medium-sized enterprises (SMEs) in the agricultural sector. The funding initiative was announced on the 27th of January 2023, during a media briefing at the Dakar 2 Africa Food Summit. The fund will seek to develop agricultural value chains, increase food security across the continent, and make investment safer for agriculture SMEs.
The initiative aims to provide financial intermediaries, agribusinesses, and microfinance organisations, with impact funds, concessional financing and technical assistance. The funding and support will enable the intermediaries to provide loans to Agri-SMEs that employ women and companies that increase their resilience to climate change. This initiative will improve access to trade finance and can help to address some of the challenges facing the agricultural sector in Africa. For example, smallholder farmers in many African countries often lack access to credit and struggle to obtain the necessary inputs, such as seeds and fertilisers, to increase their yields.
WEEKLY AFRICA TRADE POLL (FIRST WEEK FEBRUARY, 2023)
Following the backdrop, Africa International Trade and Commerce Research (AITCR) weekly trade poll for African countries gauged public opinion and garnered responses on the impact of trade finance initiatives launched by the African Development Bank and its development partner on food security and agriculture in Africa. Findings from the polls reveal that 55 percent of the respondents agreed that the trade finance that African Development Bank and its development partner will improve food security and boost agriculture in Africa “to a large extent”, 30 percent affirmed it “to an extent”, 10 percent indicated it “to a little extent” and 5 percent indicated “none”. Thus, implying that a larger percentage of Africans opined that the funding mechanism is a means of harnessing and boosting agriculture in Africa.
The results of this poll highlight the significance of suitable funding for the agricultural sector on the continent because trade finance is an important tool to support agricultural development and food security in Africa. If the special fund is robustly implemented, it will promote resilient growth and climate adaptation, assist African SMEs in pursuing climate-smart strategies and empower women by changing cultural perspectives that reinforce gender disparities in financial participation. It is worth noting that trade finance alone may not be sufficient to improve food security and boost agriculture in Africa because it is not a panacea and must be implemented in a broader context that addresses the underlying challenges facing African agriculture. Such as investment in infrastructure, research and development, and market access also play important roles. Besides, trade finance must be provided responsibly and sustainably to ensure that it does not lead to over-indebtedness or negative impacts on agricultural producers and traders.
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[1] https://tradefinanceanalytics.com/what-is-trade-finance
