Asian and African development banks sign trade finance deal

In looking to help and sustain growing trade ties between both continents, the Asian Development Bank and African Development Bank have both agreed to deepen ties.

Under the agreement, the Asian Development Bank will share legal document templates, operation manuals and information technology related to its trade finance programme with the African Development Bank. The Asian Development Bank (ADB) and the African Development Bank (AfDB) have signed a trade finance agreement to help the latter set up a trade finance programme to boost African trade. AfDB is looking to expand its trade finance activities to support companies across Africa, similar to ADB’s trade finance programme in developing countries in Asia. “Partnerships are key to promoting economic growth and using the trade finance programme framework developed by ADB will help AfDB achieve in Africa the success ADB has achieved in Asia, but much faster and at a fraction of the start-up cost,” said Philip Erquiaga, director general of ADB’s private sector operations department. “In time, we would expect the relationships between developing Africa and developing Asia to expand, resulting in much greater South-South trade which could help ease global economic balances.” According to ADB, its trade finance programme provides guarantees and loans in support of trade in developing countries in Asia through more than 200 partner banks. Under the agreement, ADB will share legal document templates, operation manuals and information technology related to its trade finance programme with AfDB. Both banks expect to expand their partnership and share access to both programmes to link banks in both regions. “By scaling up its trade finance activities, the AfDB is supporting an important growth-enabling activity, which has been affected by the recent global financial crisis,” said Tim Turner, director of AfDB’s private sector department. “By leveraging the experience of strategic partners, such as ADB, AfDB will not only be reducing the financial commitment necessary to ramp up its activities but also facilitate the expansion of African trade with Asia.” ADB’s trade finance programme provided $1.9 billion worth of support in 2009 and $2.8 billion in 2010 in developing countries in Asia. According to ADB, the five more active users of the programme in 2010 were banks in Bangladesh, Nepal, Pakistan, Sri Lanka and Vietnam. The programme aims to help small businesses that are unable to access trade finance services and to promote trade between developing countries. More than 34% of deals supported by ADB’s trade finance programme in 2010 involved small and medium-size enterprises and around 50% were between two developing countries.

This will boost trade and investments on both sides since it helps with financing and access to markets.  Common regulation and rules will smoothen trade.  Partnerships are key to promoting economic growth.  By transferring all tools and knowledge of the Trade Finance Program, the two development banks will reduce duplication of effort and cost and will share best practices, as encouraged under the 2005 Paris Declaration on Aid Effectiveness and the framework to achieve the Millennium Development Goals.

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