February 2017

Export credit finance in Africa continues to play an important part in the continent’s determination to rebalance itself away from dependence on raw commodity revenues and cater for its rising middle classes.

Once dubbed “the hopeless continent” by the Economist on 13 May 2000 (the magazine would go on to rectify this pronouncement eleven years later with a 2011 cover headlined “Africa rising”), the aftermath of the 1979 energy crisis and mid-1980s debt crisis did nevertheless result in a collapse in commodity prices and lack of access to trade and project finance to African economies.

Those days are long gone – as Afreximbank president Dr Benedict Okey Oramah observed in his address to the 2016 Afreximbank annual general meeting in Seychelles, “Africa is stronger and more resilient today. Macroeconomic management is more prudent and debt levels are sustainable, with the ratio of debt to national income for many countries well below 50%, compared to multiples of that level in the 1990s”.

However, trade across the continent has been hit hard, falling around 30% from US$1.2trn in 2014 to US$880bn in 2015 (2016 figures are not yet available), as a result of collapsed commodity prices and reductions in trade finance stemming from international bank deleveraging.

Added value

All of this has increased governments’ determination to reduce their dependencies on the exports of minerals and hydrocarbons and invest in infrastructure to put them in a better position to create more added value in-country and deploy the skilled labour coming through from its rising middle classes.

At the aforementioned Afreximbank 2016 AGM, Central Bank of Zambia Governor Dr Denny Kalyalya summed up the difficulties facing a content that has banished. “The sharp fall in the prices of commodities, which include copper, iron, crude oil, natural gas, and various agricultural commodities, has been particularly hard for the continent that is largely dependent on the export of these products. The fall in the prices of these commodities has resulted in worsening of balance of payments positions which has translated into foreign currency challenges.”

He added, “Other challenges unique to the continent have arisen from the deleveraging of international banks from the continent through cuts in credit lines,  reduced onboarding of African based clients, as well as a disproportionate increase in pricing relative to the risk, which risk is in many instances more perceived rather than real.”

At the same event it was noted how China was stepping up its commitment to Africa’s industrialisation, evidenced by President Xi Jinping’s pledge of US$60bn on behalf of the Chinese government.” Commenting on this, Oramah observed, “It is a rare thing for a country to support and finance the industrialisation of another, so at the bank, we acknowledge the strong friendship this demonstrates.” 

And it is this infrastructure investment, guaranteed by export credit agencies and development finance institutions such as African Development Bank and the African Export-Import Bank that has yielded export finance and trade finance opportunities with an acceptable risk profile. This article highlights Deutsche Bank’s ongoing commitment to the continent with its export finance programme.

figure 1

Export finance activity in Africa- overview

According to TXF Data, Africa accounted for 9% of global ECA debt in the two-year period 2015 to 2016. The total volume of ECA debt raised in Africa in 2015 and 2016 was US$21.734bn, comprising 96 transactions. However, split out, it can be seen that at US$11.269bn, 2016 showed a 7.69% growth on the 2015 position of US$10.465bn, reflecting the confidence of global banks in African ECA finance deals.

As for the ECAs themselves, it is interesting to note how French agency Coface, dominant in 2015 is nowhere to be seen in the 2016 clutch, but Germany’s Euler Hermes has more than doubled its activity and China EXIM now occupies third place. It is also worth remembering that Egypt is the swing factor.

figure 2
figure 2

Deutsche Bank presence

Deutsche Bank has increased its ECA presence on the continent, rising from eighth place at US$311m in 2015 to third place at US$576m in 2016, increasing its activity by 85%.  Countries of operation are South Africa, Egypt, Ghana and Angola, with the Egyptian Electricity Holding Company being a top client (US$122m in 2015 and US$251m in 2016).

Simon Sayer, Managing Director of Structured Trade and Export Finance, notes that the team’s business in Africa has been steadily built up over a period of almost 20 years. “Like many export finance teams, our first experiences in sub-Saharan Africa were in South Africa, where Deutsche Bank has a well-established operating branch and local subsidiary. My first transaction there in 1999 was approximately US$300m of financing for the Central Energy Fund, which is now part of Petro SA. This was to assist in the finance of the development of an offshore gas field in Mossel Bay.The deal was supported in large part by UKEF but also included an uncovered commercial loan.”

Expansion into other sub-Saharan countries was in response to client demand. “This has meant regular visits to properly understand the requirements, the legal systems, borrowing entities, budgeting processes, priority sectors etc,” says Sayer.  He continues, “We signed a framework loan agreement in Angola in 2003, which became a very important market for us as it started to rebuild infrastructure lost or neglected during the civil war. Today we have a track record of completed transactions in more than a dozen SSA countries, including Angola, Ghana, Gabon, Cameroon, Kenya, Mozambique, Nigeria, Ethiopia and others, which is a strong record for a bank without a footprint in the SSA region outside South Africa itself.” 

Despite an admission that “working in Africa is sometimes challenging and occasionally frustrating” Sayer confirms that it is “always fulfilling”. This is because it makes an important contribution to the continent’s development and ability to trade in value-added products. “The infrastructure we finance is truly developmental, usually badly needed and would not be possible without the finance we provide.  And it is supporting the efforts of our exporting client base, all of which have Africa strategies of their own given the growth rates in the region”, concludes Sayer.

Note: All data for this article has been sourced from TXF Data. See www.txfdata.com

Simon Sayer is Head of Structured Trade and Export Finance at Deutsche Bank. He discusses African export finance at the GTR Africa Trade & Export Finance Conference 2017 on 9-10 March 2017 in Cape Town, South Africa


 

Dr Benedict Okey Oramah

President of Afreximbank

Dr Benedict Okey Oramah

You might be interested in