MIGA and TDB increase financing for trade in Eastern and Southern Africa
MIGA, a member of the World Bank Group, has issued a guarantee of EUR 359 million for up to ten years for a loan provided to the Eastern and Southern African Trade and Development Bank (TDB) by a consortium of lenders, including Standard Chartered Bank, Citibank N.A., MUFG Securities EMEA plc., and Sumitomo Mitsui Banking Corporation, with Standard Chartered Bank acting as Global Coordinator and Facility Agent.
This first-of-its-kind guarantee provides protection to the lenders against the risk of Non-Honoring of Financial Obligations by a Regional Development Bank (‘NHFO-RDB’) and supports TDB’s access to commercial bank financing at longer tenors and lower interest rates than would otherwise have been available.
TDB provides trade and project finance to its 22 member states, which includes countries from the wider COMESA-EAC-SADC Tripartite Free Trade Area, and will use the facility to diversify its long-term funding sources, sharpen focus on critical food and fuel imports, and facilitate imports of COVID-19 equipment and construction materials for healthcare facilities through its structured trade finance business.
The facility will particularly increase TDB’s ability to provide supply chain finance for international transactions to low-income (‘IDA’) and fragile conflict-affected situation (‘FCS’) countries, which tend to be beleaguered by a number of challenges including foreign exchange constraints, cumbersome non-tariff barriers, and weaker credit quality of buyers and suppliers.
In support of the project, MIGA’s Board approved the provision of the NHFO-RDB, a new type of credit enhancement that covers the risk of a payment default by a regional development bank under an unconditional financial obligation. This innovative product extension gives MIGA the ability to leverage TDB’s credit rating - higher than that of its individual members - to mobilize long-term funding to countries that would normally be ineligible for such cover.
“In this landmark transaction with TDB, we have conceived a brand-new structure through which to channel trade finance to countries in the height of the Covid-19 crisis.,” MIGA Executive Vice President Hiroshi Matano said. “This project showcases MIGA’s ability to link regional development banks with commercial banks, and enabling both to steer much-needed financing to low-income and fragile countries.”
The COVID-19 crisis has contributed to reduced liquidity and increased financing costs in the commercial bank market, and to counter this, at least EUR 50 million of the facility will be deployed towards supporting imports of equipment, supplies, and construction materials for healthcare facilities.
“We are pleased to have commenced this pioneering new partnership with MIGA in an innovative syndicated loan with four major commercial banking partners of TDB,” said TDB’s President and Chief Executive Officer, Mr. Admassu Tadesse. “We salute MIGA for boldly stepping with us into this exciting frontier of Africa's growing and transforming economies, enhancing our access to international financial markets in a unique manner to advance SDGs.”
By some estimates, the trade finance gap for Africa stands at US$110-120 billion, representing about 25 percent of the total demand for trade finance in the continent.
While the total trade between TDB member states and the global market has increased from US$ 50 billion 20 years ago to US$ 245 billion in 2019 - a near 5-fold increase, its global share of trade only increased from 0.40 percent to 0.64 percent over the same period, and intra-TDB member states trade is still low at 5.78 percent.
In conjunction with MIGA’s guarantee, the World Bank Board of Directors has approved $425 million in International Development Association (IDA) financing to support the provision of infrastructure finance in Eastern and Southern Africa. The Regional Infrastructure Financing Facility project (RIFF) aims to expand long-term finance to private firms in selected infrastructure in the power sector, as well as in the transport, logistics, and social sectors. This is the first regional facility of this kind in Africa.
These new transactions between TDB and the World Bank Group will support regional integration and private sector development, and in turn, the sustainable socio-economic development of the region TDB serves.