The Pan-African trade finance provider aims to support at least $90bn in trade over the period, including $25bn in intra-African trade. By comparison, it has approved $41bn in credit facilities in the 24 years since it was created, including $6.2bn in 2015.
The Bank hopes to encourage intra-African trade by supporting the development of continental supply chains and export manufacturing capacity. Afreximbank includes trade in goods and services between Africa and Africans in the Diaspora within its definition of intra-African trade.
Aside from intra-African trade, the three strategic pillars of Impact 2021 are Industrialisation and Export Development; Trade Finance Leadership; and Financial Soundness and Performance. The Bank is particularly keen to support the development of the agro-processing, light manufacturing, and tradable service sectors. With manufacturing wages rising quickly in China, there is massive scope for other parts of the world to secure manufacturing outsourcing investment, particularly in these three areas.
Bank President Dr. Benedict Oramah said: “The approval of Impact 2021 paves the way for Afreximbank to begin to more directly address the imperatives of its mandate. Africa will be better for it.” It aims to expand its loan book from $9.4bn in June 2016 to at least $17bn by 2021, translating into an annual compound growth rate of 12% over the next five years.
Afreximbank intends to raise $1bn in additional equity from shareholders and has already raised $170m since July 2016. On 25 January, rating agency Moody’s upgraded its credit rating from Baa2 to Baa1, with a stable outlook. Its ratio of non-performing loans fell from 2.8% at the end of 2015 to 2.8% in June 2016.
In a statement, the Bank announced that: “It will expand its trade services offering to fill the gap created as a result of reduced activities by international banks in Africa due to high compliance costs and economic uncertainties.” Afreximbank, the African Development Bank (Afdb) – which is one of its main shareholders – and some other multilaterals have sought to increase their support for African investment and trade as commercial lenders have reduced their involvement in the continent.
Filling a gap
Export credit agencies and other forms of trade finance play a huge and often overlooked role in promoting global trade. Companies based in a different jurisdiction to their customers can be reluctant to dispatch goods and services before payment has been received, so trade finance organisations can calm their nerves by offering export credit insurance or letters of credit.
Financial institutions may also provide a loan to an exporter to invest in plant, machinery or staff to fulfil a contract. That loan is secured by the export contract in question. Most African countries have no credit export agency of their own but Afreximbank operates across the continent. It was set up in 1993 by African governments, private companies and institutional investors.
Recent commitments include $250m in oil sector financing that Afreximbank agreed with the government of Congo-Brazzaville in January, as part of $1bn in syndicated loans that the Bank is raising for the country. Brazzaville has just been a member of the Bank since 2013.
The Bank increasingly works with other multilaterals and commercial banks. On 6 February it signed a memorandum of understanding (MoU) with the African Capacity Building Foundation to work together to build capacity for research and policy formulation and implementation through think tanks and private sector organisations to uncover innovations in effective economic integration, intra-African trade and export development.
Just eight days later it announced another MoU, this time with Ecobank Transnational, to jointly finance private sector projects and trade finance, including for the ever-important but underdeveloped small and medium enterprise (SME) sector. The two institutions will set up a $500m trade financing programme covering the countries where Ecobank operates.