The bank may be called an export-import bank but it sees itself as much more than a trade finance bank or a traditional exim bank such as those in mature economies that are geared to assist local companies expand their global market share and exports by providing finance and guarantees. As its chief economist, Hippolyte Fofack, points out, given the structure and the lack of diversification of African economies, if the bank played a traditional role, it would essentially be sustaining the colonial economy by providing guarantee financing to export gold, export diamond, export cocoa.
The bank’s new strategy, under the helm of Dr Benedict Oramah who took over the leadership at the bank in September 2015, represents a paradigm shift, moving away from simply assisting raw commodity exporters to a model where it begins to support the production of value-added exports and services. The bank intends to act as a catalyst for industrialization and export development, helping to steer Africa away from a model based on exporting raw materials.
This is a bold project for a bank – how exactly can it accomplish such a task? Fofack points to a number of examples in terms of initiatives and projects the bank is financing. For example, in a partnership with the Export-Import Bank of China, Afreximbank is financing the development of industrial parks and special economic zones with the objective of overcoming the constraints imposed by the deficit in infrastructure to promote industrialization and help African countries take advantage of ongoing re balancing and industrial delocalisation in Asia and elsewhere.
In terms of helping industries move up the value chain and capture more of the profit, the bank launched a successful pilot, the Africa cocoa initiative (Africoin) to add value to cocoa and raise African market share. Right now, Africa, which is the world’s largest supplier of cocoa, gets less than 2% of the annual revenue of the chocolate industry. This pilot is being deployed to other commodities such as cashew nuts and palm oil.
The bank wants to be much more involved with the small and medium-sized enterprise (SME) sector; it will do so by working even more with trade finance intermediaries to provide additional support to SMEs and is working on a fund to provide financing for companies in export supply chains including technology companies.
Fofack points out that financing is partly what holds back many young African entrepreneurs, and that financing these young businesses falls within the bank’s strategy of diversifying African exports. That second pillar of the new strategy – industrialization and export development – which Fofack describes as helping the continent move away from the colonial economy, whereby African countries essentially export primary commodities, will be critical for the first pillar, which is boosting intra-African trade. Without diversifying production and export base, there is not much a country like The Gambia can export to Kenya.
The bank will be focusing on expanding the production base – ie goods produced locally – as well as getting the goods to market, connecting producer and buyer and ensuring these goods can be delivered. There is much talk today about the fourth industrial revolution, with its implication that massive job creation based on industrialization is a thing of the past.
But Fofack does not believe that any country has leapfrogged into new technology without going through some cycle of structural transformation whereby productivity is increased in the agricultural sector, shifting the surplus of labour into manufacturing and then services. It would be far-fetched to think that Africa will move straight into the service industry without going through such a cycle, he says.
It is all the more important in Africa given the low level of skills and high percentage of people in the informal sector, which he considers a “disguised form of unemployment”. Those who are in the informal sector, he says, are not there by choice, they are there because of lack of opportunity in the formal economy.
Industrialization, and especially light manufacturing industries, is therefore fundamental, not only as a way of creating jobs and reducing exposure to recurrent adverse terms of trade shocks, but also for skill building, knowledge creation and technology transfer. He adds that this focus does not mean the bank will eschew new technologies and innovations – hence the fund for Africa export development (Funfed).
Promoting intra-African trade
Fofack says that the bank will continue to do what it has been known for, that is “exercising even more trade finance leadership”, the third pillar of the bank’s strategy. In a continent where the trade finance gap has been known to be significant, there is still massive appetite for this service and it is demonstrated by the fact it has doubled its balance sheet in the past two years. In the past, though, the bank has focused on extra-African trade, while now the paradigm shift will also see it focus on intra-African trade and helping industries move up the value chain and building regional value chains.
The bank has identified several intra-Africa trade champions it is assisting in terms of cross-border trade and investment: these include the Nigerian conglomerate Dangote, the Tunisia-based Loukil group and the Egyptian cable makers Elsewedy. He laments the closure of many companies during the structural adjustment programme of the 80s and 90s, saying that Africa is having to build some industries from scratch, as with freight and transport.
Under the new strategy the bank will increase financing towards logistics infrastructure such as sea links as well as shipping and transport companies operating on a regional basis to boost trade between countries and different blocks.
Delivering on the strategy
Is he worried that the bank is growing too quickly? And what about expertise and know-how – how will the bank be able to deliver on this new strategy? The bank has been on a big recruitment drive. But he is quick to point out that the financial soundness of the bank – the fourth pillar of the strategy – depends on how you manage your clients and your risk.
The bank now has a more nimble structure, with a team who “manage the relationship with the clients, a credit quality assurance unit that ensures sound credit operations and an efficient credit approval process, enabling the bank to diversify without sacrificing its growth aspirations or soundness.”