Nigeria, Cote d’Ivoire, Ghana, and Senegal could earn up to $26 billion from lowering costs and increasing the availability of trade finance, a new report released by the International Finance Corporation (IFC) and the World Trade Organisation (WTO).

The report, Trade Finance in West Africa examined the major barriers to trade finance in the four largest economies in the region.

The four countries face a trade finance shortage of up to $14 billion every year despite seeing increased trade flows over the years, especially during the COVID-19 pandemic.

The authors of the report predict that there are opportunities awaiting member countries of the Economic Communication of West Africa States (ECOWAS) once they can remove the barriers to trade and are able to trade with other African countries, and with developing countries outside the continent.

“Global trade finance gaps increased during the pandemic. Supply chain pressures, inflation, and the war in Ukraine have only exacerbated the problem,” said Makhtar Diop, managing director, IFC. “This study couldn’t be timelier. There is enormous potential for an economic boost in West Africa by harnessing intra-Africa trade, but we will need coordinated action from the government. The private sector, and the multilateral to build the capacity of local lenders and improve access to SMEs,” the report said.

While banks have and continue to provide financial support for consumer goods sectors such as agriculture and infrastructure are lagging behind. Trade finance in the four countries studied by the report has also not lived up to expectations.

According to the report, trade finance in these countries only supports 25 percent of merchandise trade. This is low considering that, trade finance support 40 percent of Africa’s imports and exports, and up to 80 percent globally.

The low coverage is being driven by expensive offerings and high rejection rates from banks, which fail disproportionately on small and medium-sized enterprises, particularly those owned by women. Traditional banks are not helping matters as they see many loan seekers are high-risk and lacking collateral.

The financial institutions are also bogged down by difficulties in meeting the requirements of foreign correspondent banks and shortages of low-cost funding.

Nigeria and the three countries can unlock the opportunities by expanding the range of firms that can access trade finance through efforts like IFC’s Africa Trade Recovery Initiative.

There is also a need to build the capacity of local lenders and local firms, integrating trade finance into the implementation of the African Continental Free Trade Area (AfCFTA); strengthen foreign correspondent banking relationships; and support decision-making through better data and analytics.

“Trade finance is the indispensable oil for trade and the WTO is proud to be part of an effort to provide evidence-based solutions to help close the trade finance gap,” said WTO Director-General Ngozi Okonjo-Iweala. “At the WTO, we are happy to act as a conduit for a dialogue on trade finance, bringing together governments, banks, SMEs, and professional organizations. We look forward to partnering with financial institutions to transfer this knowledge locally.”