Financial Mechanisms Needed to Strengthen ln Inter-Regional Trade

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed has emphasised that financial mechanisms are required to strengthen inter-regional trade and promote regional value chains.
According to her, such measures will attract foreign direct investment (FDI) and diversify the economy from producer of primary goods to finished product.
The Minister spoke at the just-concluded round table discussion in Cairo, Egypt, on ‘Regional value chains and their importance in increasing trade and investment flow between Arab and African countries
She said: “A lot of resources are required before African countries can accelerate their industrialisation and structural changes. Infrastructure which is a pillar of growth is inadequate in Africa. To address this problem, there is the need to put in place measures that will attract foreign direct investment and diversify the economy from producers of primary goods to finished products.
Other measures, according to her, include addressing regulatory bottlenecks by putting in place and enforcing laws aimed at fostering confidence in investors and banks through the creation of credit bureaus that oversee repayment records.
Mrs Ahmed also pointed out that there is a need to reorganise the banking system through opening the sector to competition, reviewing prudential ratios and putting in place innovative savings and borrowing instruments adapted to local needs.
She called for the development of capital markets and particularly bond markets for long-term financing needs by setting up adequate guarantee schemes against currency and other types of risks.
She stated that the gap has to be bridged “between the informal and formal financial sectors by formalising microfinance institutions to help them scale up activities while developing financial products geared towards Small and Medium Enterprises (SMEs). Innovative financial tools that use technology such as mobile banking can also help leapfrog traditional finance services and reach a larger population”.
On trade financing, Mrs Ahmed said, “it is important to continue addressing the trade financing gap in Africa, estimated at USD 82 billion in a joint 2019 African Development Bank (AfDB) and Afreximbank Trade Finance Survey. Trade financing supports two critical aspects of the trade process: risk mitigation, and liquidity; and is therefore important both for regional trade in Africa as well as inter-regional trade.”
According to her, “Critical steps that have been taken in recent years to close the trade financing gap in Africa include programmes created by multilateral banks to de-risk banking transactions (e.g., AfDB’s Trade Finance Programme; IFC Global Trade Finance programme); leveraging technology – e.g., Afrexim’s Mansa due diligence platform (introduced in 2018) provides a single platform for due diligence checks in African counterparties; introduction and adoption of the Africa Continental Free Trade Agreement (AfCFTA).”