ABSA Bank Ltd

(Trade loan) Economic enabler: CDC has extended a trade loan which Absa will use to on-lend foreign currency trade credit to domestic African banks. This will enable trading businesses to import the commodities, business inputs and capital equipment they need to sustain business operations, market output and contribution to GDP, ultimately leading to job and livelihood preservation and the continued availability of goods for consumers.

(Trade risk sharing facility) Economic enabler: CDC has provided a risk-share arrangement so that Absa can extend more foreign currency trade credit to regional and domestic banks and sustain higher trade volumes than the bank can support without CDC’s support. This will enable businesses to import the commodities and equipment they need to sustain business operations, market output and contribution to GDP, ultimately leading to job/livelihood retention and the continued or increased availability of goods in the market.

(Trade loan) Pan-African. By March 2021, CDC’s trade loan had financed trades in four countries, namely Nigeria (category ‘B’ country), Mozambique (category ‘B’ country), Ghana (category ‘C’ country) and Kenya (category ‘C’ country).

(Trade risk sharing facility) Pan-African. By December 2020, the trade risk sharing facility had supported trade flows in the following countries: Ghana (category ‘C’ country), Nigeria (category ‘B’ country), Kenya (category ‘C’ country), Malawi (category ‘A’ country), Madagascar (category ‘A’ country) and Zimbabwe (category ‘A’ country).

Given the variance of industries in which the businesses operate, for characteristics of people who ultimately benefit from the enabled trades, we assume mass market characteristics and demographics of the respective geographies.

It is not possible to state the number of people who will be reached, so we use the scale of the facilities and enabled trade as a proxy.

By March 2021, the $150 million trade loan facility had supported $180 million in trade volumes.

Based on assumptions related to average tenor and utilisation, we anticipate that the $150 million trade risk sharing facility will enable up to $360 million in additional trade volumes per year.

Depth: In October 2020, the World Bank adjusted its real GDP growth projection for Africa to -3.3 per cent in 2020, after expanding by 2.4 per cent in 2019. As a result, impact is expected to be deeper in a context where circumstances have worsened as a result of COVID-19, i.e. increasing unemployment and lower access to goods/services. Countries with smaller and less developed domestic capital markets continue to feel the effects of COVID-19 more acutely than more developed markets.

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(Trade loan) 2.13 (Trade risk sharing facility) 2.85

Market context: the global trade finance gap is estimated to be $1.5 trillion, and the average unmet demand in Africa represents 5.5 per cent or $91 billion

(Trade loan)

• Financial: Commercial funding is not available in sufficient quantity nor on the same terms, particularly in the COVID-19 context. There is retrenchment of capital, making investors less willing to support African banks. The DFI liquidity that CDC has provided incurs significantly lower Basel III Net Stable Funding Ratio (NSFR) costs and this ultimately improves the funding costs to African trading activity which this lending supports.

(Trade risk sharing facility)

• Financial: Funding is not available in sufficient volumes in CDC’s markets. Particularly in the current COVID-19 context, there has been increased retrenchment of capital, making commercial investors less willing to support African banks.
• Value-add: CDC is offering preferential terms (e.g. increased risk share or longer tenors) for the least developed countries and COVID-19 priority sectors such as food/healthcare commodities to help support trade flows in essential goods.

• Evidence: Visibility on the impact on ultimate borrowers depends on Absa and the local banks’ ability to provide data on underlying borrowers. Absa provides data on underlying trades financed through the facility, including information on country, sector and a description of goods. We mostly rely on theory, evidence and macro trade data to understand the indirect impact of trade on capital markets, economies and people.
• External: There may be a risk that there is not enough demand and/or that other constraints are hindering the impact to occur, e.g. logistical, economic, policy.