Conflict in the Middle East, especially disruptions around the Strait of Hormuz, could undo years of progress in improving Africa’s access to trade finance, according to a new report by African Development Bank (AfDB). The report titled Trade Finance Supply in Africa: Post-COVID Trends and Emerging Opportunities, warns that Africa’s trade finance gap, the shortfall between the money needed to support imports and exports, and what banks are willing to provide, could rise again to close to $100 billion by 2027 if global conditions worsen. ALSO READ: How could the US-Israel war on Iran affect Rwanda? Africa had made some recovery after the Covid-19 period. The gap fell to an average of about $74 billion between 2021 and 2024, down from more than $92 billion in 2019, after emergency support from governments and development finance institutions. The AfDB says this progress is now at risk. In a moderate shock scenario, where oil stays above $105 per barrel and banks become more cautious about lending, the gap could rise to about $86.6 billion by 2027. Yet in a worse case, with prolonged disruption in the Strait of Hormuz, sharp currency depreciation, and reduced global trade credit, the gap could climb further to about $95.6 billion, erasing nearly a decade of progress. The report also shows that Africa’s trade system is still highly exposed to global shocks, as African banks currently finance only about 23 per cent of the continent’s merchandise trade, compared to a global average of nearly 80 per cent. ALSO READ: How Rwanda is navigating the US–Iran war fallout This means African businesses rely heavily on foreign lenders, leaving them vulnerable when global credit conditions tighten. As a result, shocks in global financial markets are quickly transmitted into Africa’s economy, as a large share of its trade financing depends on external lenders. The report also highlights that at least 29 African currencies have weakened, increasing import costs and putting pressure on countries' foreign reserves. This is especially difficult for countries that import oil and fertilisers. Rising global oil prices and shipping disruptions are pushing up costs, feeding inflation and straining already limited foreign currency supplies. Banks outside Africa are also becoming more cautious, reducing their exposure to African trade because of currency risks and repayment concerns. This makes it more expensive and harder for African companies to access trade finance. Africa’s average inflation is projected to reach 10.4 per cent, about one per cent point higher than earlier forecasts. Higher inflation reduces business profits and makes it harder for companies to repay loans, which then pushes banks to become even stricter with lending. The report also highlighted that foreign currency shortages are now the biggest barrier to trade finance in Africa, affecting about 36 per cent of banks surveyed, almost double the level before the Covid pandemic. At the same time, global investors are shifting money into safer markets, reducing funding available for African trade. Recommendations The report warns that without strong joint action from banks, governments, and development institutions, similar to what was done during the pandemic, Africa’s trade recovery could slow down again. Still, it says the situation also highlights the need for Africa to trade more within itself and strengthen its own financial systems. Efforts like the Pan-African Payment and Settlement System (PAPSS), run by the African Export-Import Bank, are expected to help reduce costs and reliance on foreign currencies by making it easier for African countries to trade with each other.
