Majority of African lenders are locked out of lucrative trade financing deals on the continent, mainly due to foreign-exchange shortages and regulatory restrictions. That deficit is pushing the region into a growing trade finance gap, while stifling trading activity — a situation compounded by Middle East conflict-related disruptions of global supply chains.
Foreign-exchange shortages and correspondent bank limits choke trade finance
The African Development Bank (AfDB) warns that higher oil and fertilizer prices, raised freight and insurance costs, weaker currencies, and tighter correspondent-bank risk appetite could widen the trade finance gap in Africa to between $86.6 billion and $102.6 billion by 2027.
According to the latest survey by the lender, most banks cannot effectively participate in trade financing because of limited foreign-exchange liquidity and insufficient limits with correspondent banks. Over time, risk-capital constraints and regulatory requirements have also become major impediments, the survey shows.
Insufficient limits with correspondent banks means a global or intermediary bank has either restricted the total value of transactions it will process for a financial institution or suspended cross-border payment facilities due to strict risk, compliance, or liquidity constraints.
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Increased foreign-exchange liquidity pressures, along with sanctions and supplementary compliance burdens that have imposed know-your-customer scrutiny, have potentially reduced the willingness of banks to engage in trade finance transactions, the report states.
Higher risk aversion and increased cost of trade finance operations — driven by higher compliance costs — have also made trade finance less accessible to banks’ customers in the continent.
Basel III endgame adds pressure on African banks
The survey shows that international banking standards have tightened since the 2007–2008 global financial crisis and related Basel III reform measures, and this is negatively impacting trade finance activities, particularly in Africa. “These constraints could tighten with the Basel III Endgame, which began in July 2025 and involves higher capital requirements, a new leverage ratio framework that increases banks’ capital reserves against their assets, and stricter liquidity requirements,” the survey report explains.
Collateral requirements for trade finance in Africa tend to be very high, often including significant cash collateral, bank guarantees, or high-quality tangible assets such as property or equipment. The report notes that banks typically do not consider the merchandise to be traded as sufficient collateral, despite this being at the heart of International Chamber of Commerce rules on letters of credit.
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Between 2020 and 2024, a larger proportion of banks — 36 percent — cited limited foreign-exchange liquidity as a major constraint to trade finance growth, compared with 18 percent on average in previous surveys.
Middle East conflict and supply chain disruptions deepen the gap
The outbreak of the conflict in the Middle East in February and the impasse over the closure of the Strait of Hormuz have added a further layer of vulnerability. Since roughly 20 percent of global oil supply transits the Strait of Hormuz, the conflict has driven sharp increases in energy and freight costs.
This has translated into higher import bills, currency pressures, and tightening fiscal space for Africa’s predominantly net oil-importing economies and countries that depend on the Middle East for fertilizer and related products.
Geopolitical tensions and related disruptions of global supply chains have contributed to challenges in trade and trade financing, the survey notes.
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In 2024, the unmet demand for trade finance in Africa was estimated at $74 billion. Total African merchandise trade and the global trade finance gap were estimated at $1.35 trillion and $2.5 trillion, respectively. The unmet trade finance demand in Africa represents 5.4 percent of the region’s total trade value in 2024 and 3 percent of the global trade finance gap.
The share of commercial banks engaged in trade finance on the continent remained relatively flat at 77.4 percent over five years (2020-2024), increasing only marginally to 78 percent in 2024 from 77 percent in 2023. On average, the majority of foreign and privately owned banks operating in Africa are relatively more engaged in trade finance (49 percent) than most local and privately owned banks (36 percent).
The survey’s findings align with broader observations from trade finance experts, who note that the combination of external shocks and structural weaknesses creates a persistent bottleneck for African lenders. The Covid-19 pandemic caused significant declines in trade and tourism earnings in hard currency for African countries, with the hardest-hit implementing foreign-currency restrictions to shore up reserves. Capital outflows further weakened local currencies relative to the dollar, pushing African firms and banks to seek more local-currency transactions.
Without a meaningful easing of forex liquidity and correspondent banking limits, the trade finance gap in Africa is expected to keep growing — and that means many African banks will remain on the sidelines of the continent’s trade deals.
