Financing African trade for development

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Call the African Export-Import Bank (Afreximbank) a child of necessity, you won’t be far from the mark

The Afreximbank was birthed in 1993 following the commodities price shock and debt crisis that depressed African economies in the preceding decade of the 1980s.

It dawned on everyone, especially policymakers and administrators, that the surest way to developing the region was through the promotion of trade among the (then) 53 disparate but weak economies on the continent without prejudice to the trade with the rest of the world. The reasoning was that more trade would enhance profitable exchange of goods and services, and value addition to exports. This would lead to industrialization, which is, in turn necessary for employment generation and inclusive economic growth.

African leaders, in collaboration with the African Development Bank (AfDB) and other financial institutions, prepared the grounds for Afreximbank with a capital base of $5 billion. The mandate, which has remained the same since inception, is to “promote, expand intra-African and extra-African trade”.

Dr Benedict Okey Oramah, President, Afreximbank

Dr Benedict Okey Oramah, President, Afreximbank

From its humble beginning in its headquarters in Cairo, Egypt, Afreximbank has not failed to respond to the “call-to-duty or reneged on its fundamental raison d’etre”, in the words of Bank President Dr Benedict Oramah. Committed to taking its services across Africa to the grassroots, Afreximbank is making its presence felt around the continent. The Bank currently has branch offices in Harare, Zimbabwe; Abuja, Nigeria; and Abidjan, Cote d’Ivoire. An East Africa Branch Office is under negotiation.

Dwindling trade finance flows to Africa
Using these outlets, the Bank has been able to, over time, make up for the dwindling finance flow to African merchants and businesses. Traditional western lenders have been more concerned about their own economic woes, especially since the 2007 global financial crisis that threw the entire world into turmoil and is yet to fully subside.

Since then, rich developed countries and western finance institutions have all but cut traditional assistance to developing economies. Worse, growing incidents of protectionism accentuated by Britain’s exit from the European Union (Brexit) and the United States’ anti-trade and protectionist rhetoric under President Donald Trump portend more difficulties ahead for Africa’s trade position viz-á-viz the developed world.

African solutions: Afreximbank to the rescue
The World Trade Organisation (WTO) recently reported that growth in global merchandise trade recorded a sharp deceleration, falling to 1.7 percent in 2016 ($33.7 trillion) from 2.8 percent in 2015. Under these conditions, it is natural that African economies and businesses would be the last in the line for trade finance support from international lenders.

To its credit, Afreximbank has been making up for the continent with a record $12.5 billion to 34 banks (its main conduits) across Africa between 2015 and May 2016.

Under its flagship Countercyclical Trade Liquidity Facility (COLTRALF), the Bank stood solidly behind some African central banks and systematically important commercial banks to the tune of $9.5 billion. This facility helped them clear backlogs of trade payments that would otherwise have paralyzed trade and eroded confidence in those countries owing to payment defaults. Thus, Afreximbank has been able to prove that African institutions can provide African solutions to African challenges.

Beneficiaries…
Afreximbank’s assistance packages were spread evenly around the sub-regions. Nigeria and Ghana received assistance to enable some Ghanaian banks to meet obligations to Nigerian oil traders when international banks suddenly cut lines during the recent financial crisis. Guinea was also able to keep importing strategic petroleum products supplies via generous finance terms. The Bank was able to sustain the beneficial trade between the two countries in the spirit of African unity and integration of economies. The Bank hopes to use this Afro-centric approach to raise intra-Africa’s share of Africa’s total trade from the current unacceptable rate of 15 percent to 22 percent by 2021, thereby fulfilling its Boosting Intra-Africa Trade (BIAT) mandate.

Up North, an Egyptian power equipment supplier has remained in business and in good trade relations with Angola, its brother African counterpart, largely because the Bank stepped in to supply credit for a facility worth millions of dollars.

Down south, Zimbabwe’s economy has been receiving help from Afreximbank to maintain some liquidity in its trade finance sector to cushion the effects of terrible sanctions and boycotts from western financiers.

Nigeria, one of Africa’s largest and most vibrant economies, also got over $600 million in credit lines to help stabilize its crunching currency crisis in the worst periods of the depletion of its foreign exchange reserves.

Over the years, Afreximbank has chalked up cumulative facility approvals of $50 billion (with a massive $10 billion, representing 20 percent of total, approved in 2016 alone) due to strong demand for credit to meet the challenges created by the financial crisis.

While trade finance remains Afreximbank’s main area of operation and assistance, the Bank is on the verge of launching a Contingency Food Emergency Trade Finance Facility to assist countries exposed to the ravages of drought and other fallouts of climate change. It is already established that the Bank’s support for infrastructure, especially transportation in rural areas is also targeted at the food-producing regions to help Africa tackle food shortages and the needless frittering away of resources on food importation. The Gambia, specifically, is slated to benefit from the facility when it becomes fully operational.

As part of a $1 billion syndicated loan facility for the Democratic Republic of Congo (DRC), Afreximbank has advanced $250 million to help the country meet obligations due for the development of its oil fields. The facility will also enable the country to diversify away from oil, create jobs and improve the people’s living condition. Congo DR is still in the throes of conflict and would appreciate the Bank’s commitment in these days of declining assistance from squeamish traditional partners.

Sterling financials
The sharp boost in operations drove total assets to $12 billion, a 64 percent hike over the preceding year. In tandem, net income soared to $165 million from $125 million; a 30 percent growth. Generally, all performance and health indicators have continued in the upward trajectory with shareholders’ fund hitting $2.2 billion by year-end 2016 in what analysts consider a sterling performance.
To achieve the feat, the Bank has had to double down on treasury activities while diversifying its sources of funds. In the syndicated loans market, it recently raised $1.2 billion at an enticing two percent over Libor. Afreximbank raised additional $250 million in the bonds market at a modest rate of 4.125 percent.

The Bank’s appetite for more resources will be assuaged by the proposed landmark listing of Depository Receipts linked to class D shares. The Mauritius Stock Exchange will be the take-off point of these instruments.

Shareholders have been as cooperative as possible. Eximbank of China assisted Afreximbank in making its first “Panda” bond a success. Standard Chartered Bank and the African Development Bank (AfDB) are also reliable partners to the Bank, the latter having recently supported the implementation of Afreximbank’s grand strategy with $450 million. Germany’s KfW and France’s AFD are equally valued partners. Perhaps, the most strategically important move of the Bank was getting to become a major recipient of African Central Banks deposits (CENDEP). It had pulled in an impressive $5 billion as at May, this year and hopes to have hit $10 billion by 2021. The CENDEP initiative gives meaning to the clarion call for Africans to seek African solutions to African financial challenges.

Afreximbank certainly deserves its bragging rights. Shareholders are pleased that Return on Average Equity (ROAE) was maintained at 11.41 percent, virtually the same as posted in 2015, while cost-to-income ratio dropped to 18.27 percent from the earlier figure of 21 percent.

Non Performing Loans ratio fell from 2.82 percent, to 2.38 percent reflecting improved corporate governance and efficiency of processes while Capital Adequacy improved from 20 percent to 23. Though, the Bank kept dividends payout ratio at 23 percent, actual payout for 2016 was $38 million, a meaningful 32 percent higher than $29 million in 2015.

This has enabled Afreximbank to move from Baa2 to Baa1 on Moody’s rating, thanks to the Bank’s fidelity to strategic planning as an instrument for medium and long-term corporate goals. Its signature five-year-rolling plans have been running into each other seamlessly. The fifth strategic plan, IMPACT 2021, covering 2017 to 2021, with the apt theme, “Africa Transformed” will guide the Bank going forward.

Taking back Africa’s trade initiative
Africa’s weak position in global trade is no longer news nor does it shock anyone anymore. President Oramah says Afreximbank cannot continue to accept the fact of the continent’s paltry share of 15 percent of Africa’s $1 trillion total trade with the world. The Bank’s management and staff would like to see Africa’s share rise to as high as 50 percent and has, therefore, set about actualizing the dream by launching a trade information service that would create African Trade Centres continent-wide. These would, in time, be one-stop shops for providing intelligence on intra-African trade and investments.

Going forward, Afreximbank believes its humble contributions to the development of Africa’s trade in concert with the efforts of other multilateral development finance institutions and business-friendly policymakers will turn things around for Africa’s unstructured economy.

A starting point would be the massive feat of bringing Africa’s estimated $60 billion informal intra-African trade, not yet captured in the continent’s data base, into the formal organized sector where it would enhance development.

Expanding for more financial muscle
With callable capital at $568 million, total shareholders’ funds now stand at $2.2 billion. This, happily, is a starting point and things are generally looking up from there. New shareholders have come into the Bank viz: Togo, Senegal and Zimbabwe as well as such corporates as Econet Global, Loafrique, Atlantic Financial Group and MBCA Bank. Afreximbank has also welcomed new member-states, namely, Djibouti, Burundi, South Sudan, Madagascar and Comoros, to raise the number to 46. It is only a matter of time for the pan-African trade financial institution to straddle the entire length and breadth of the continent.

The prognosis is that with a bigger membership base, Afreximbank can count on more resources and support in its effort to bring Africa into reckoning in global trade.

 

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