The board of directors of the African Development Bank Group has approved a US$25 million trade finance line of credit facility to the Central Africa Building Society of Zimbabwe, to be used to boost local firms and small and medium-sized enterprises.
This facility will enhance foreign currency liquidity support for the building society amidst a tough economic climate in Zimbabwe.
The facility will cover some of the trade finance gaps developed mainly due to international lenders who have scaled down or halted their trade transactions due to their perception of Zimbabwe as a high-risk jurisdiction.
The facility, which would finance approximately $175 million of trade over a three-and-a-half-year period, marks the African Development Bank’s fourth private sector intervention in Zimbabwe in recent years and the third to the building society.
Lamin Drammeh, head of Trade Finance at the African Development Bank, commented on the transaction: “DFI collaboration is key to private sector development in Africa. This innovative facility will enable CABS to provide liquidity support for SMEs, and women-owned businesses to facilitate their import and export trade finance requirements.”
The facility will complement the recently approved Transaction Guarantee Facility for $7.5 million to ensure support along the value chains of SMEs and local corporate businesses in Zimbabwe.
lt is expected to boost the relatively low productivity of Zimbabwe’s SME sector, creating jobs and indirectly improving government revenue through taxes from increased economic activity in the sector.
Speaking soon after the board approval, AFDB country manager for Zimbabwe, Moono Mupotola, described the trade line of credit as a strategic milestone expected to have an important demonstration effect which may prove vital to encouraging other international and regional lenders to offer additional support to the country’s private sector.
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The African Development Bank Group currently supports 13 initiatives in Zimbabwe valued at $144 million.
These include initiatives to improve governance and public finance management in the public sector.
Other bank-supported projects involve supporting women and youth to enable them to engage in value addition in agro-based and mining value chains.
The bank has also been supporting the rehabilitation of key regional and national energy projects, including energy reform technical assistance to support Zimbabwe’s transition to climate smart energy solutions.
The bank further supports Zimbabwe’s private sector through regional financial institutions that operate and invest in the country.
The African Development Bank established the Trade Finance Program (TFP) in 2013 with the main objective of reducing the trade finance gap in Africa by complementing the activities of private sector actors and regional institutions already active in the field of trade finance.
The Trade Finance Division offers trade finance through the provision of risk mitigation facilities, liquidity, equity and technical assistance to financial institutions and commodity aggregators.
The bank’s trade finance instruments include trade finance lines of credit; risk participation agreements; transaction guarantees and soft commodity finance facilities .
Alongside these, the bank seeks to support eligible counterparties with equity investment and technical assistance.
