Brussels Development Briefing n.

35

Revolutionising finance
for agri-value chains
5 March 2014
http://brusselsbriefings.net

New opportunities for African Trade Finance.

Kanayo AWANI, Afreximbank.
New opportunities for African Trade
Finance

Mrs. Kanayo Awani

Director, Trade Finance & Branches
Afreximbank

A Presentation At the 35th Brussels Policy Briefing

ACP Secretariat, Brussels, Belgium
Afreximbank’s Headquarters Building in Cairo (side view)

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 Outline of the Presentation
1. Introduction: The Bank

2. Recent Trends in African Trade & Trade Finance;

3. State of Agriculture Finance in Africa;

4. Challenges to Financing Agriculture Value Chain in Africa;

5. New Opportunities for Financing Agriculture in Africa; and

6. The Role of Afreximbank’s in Financing Agriculture Value Chains; and

7. Conclusions

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 1. Introduction: The Bank
1. The Bank
1.1 Establishment

Afreximbank was established in October 1993

as a Pan-African Exim-Bank.

It is a global partnership with authorized

share capital of USD 5 billion.

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1.2 Mission

To stimulate a consistent expansion,

diversification and development of African trade
while operating as a first class, profit-oriented,
socially responsible financial institution and a
center of excellence in African trade matters.

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1.3 Mandate

The Mandate of the Bank is to finance and

promote Intra- and Extra-African Trade using three
broad services
 Credit (Trade and Project Financing)
 Risk Bearing (Guarantees and Credit Insurance)
 Trade Information and Advisory Services.

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1.4 Objectives
Key objectives of the Bank include:

 To extend direct credit to eligible African exporters by providing pre-

and post-shipment finance.

 To extend short-term credit and medium-term loans to African

exporters and importers.

 To finance imports needed for export development such as imports of

equipment, spare parts and raw materials.

 To promote and provide insurance and guarantee services covering

commercial and non-commercial risks associated with African exports.

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1.4 Objectives (Con’t)
 To promote and finance South-South trade between Africa and other
countries.

 To provide capital to African exporters and importers through equity

investments;

 To assist African clearing houses and payment arrangements to promote

intra-African trade.

 To undertake market research and advisory services aimed at expanding

intra- and extra-African trade.

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1.5 Shareholding Structure
Shareholding was structured to create an African (75% A & B
Shareholding), Private Sector-led (60% B & C) Bank.
Figure 1.1 Shareholder Distribution by Class
Private
Class C
(25%)

Class A
(40%)
Class B
(35%)

African
Shareholders
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 Table 1.1: Afreximbank Shareholding Distribution,%
As proposed in As adopted by Actual as at
As amended in
Category the Feasibility Shareholders December
September
Study
May 2000 2012
in 1993 2007
Class A
• African States or their Designated 65 - 64.1
64
institutions
• The African Development Bank
• African continental, regional and 35 75 max with
sub-regional financial institutions Class "A" no
and economic organizations less than 35
Class B
• African national financial 10 25.8
27
institutions
• African private investors 40
Class C
• International financial institutions 25 25 25 10.1
9
and economic organizations
• Non-African financial institutions
• Non-African private investors

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1.6 Governance Structure
General Meeting of
Shareholders

Board & Its

Committees

Management &
Staff

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1.7 Presence:

Cairo
(Headquarters)
Abuja
(Branch)

• The Bank has 34

Harare
participating member
(Branch)
countries in Africa.

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 2. The State of African Trade
2.1 Merchandise Trade on Ascendancy
 African Trade has undergone considerable expansion especially during the
last dozen years on the back of commodity boom during 2001-2008.

 Between 2000 and 2012, Africa’s Trends in Africa’s Merchandise Trade, 1980-2012
(US$ Trillions)
merchandise trade more than
quadrupled, rising from just over Merchandise Exports 1.25

US$28 billion to US$1.25 trillion. Total Merchandise Trade 1.01

 Merchandise exports also rose 0.58

0.63
0.52

four fold from US$15 billion in 0.28

0.32
0.22 0.21
2000 to US$63 billion in 2012. 0.12 0.11 0.15

1980 1990 2000 2005 2010 2012

Source: World Bank WDI, 2013

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 Nevertheless, there are marked differences in the agriculture exports across
the continent, ranging between 2% in Algeria and 80% in Botswana

Value Added Export of Selected African Countries

(% of Total Merchandise Exports), 2011

Algeria (2%)
Egypt (43%)

Cote d’Ivoire (16%) Nigeria (6.7%)

Ghana (21%) Kenya (35%)

Tanzania (24%)

Zambia (6%)
Botswana (80%)

South Africa (46%)

Source: World Bank WDI, 2012 (16)
2.3 Reasons for Relatively Low Agriculture Export Performance
• Poor agriculture and trade infrastructure (including roads, irrigation and
storage);

• Limited access to agriculture finance;

• Limited access to trade and trade-related project finance;

• Low public and private sector investments in agriculture;

• Domestic and foreign policy distortions;

• Lack of effective supporting institutions e.g. farm extension service unit,

etc.; and

• Political instability.

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2.4 On aggregate, Africa’s lack of appropriate financing and agriculture-
related infrastructure stand as the main causes of the continent’s weak
domestic supply, low productivity and global un-competitiveness, etc.

 It is for instance, estimated that limited and unrelenting infrastructure

accounts for an average of:

• 30% of fluctuations in agriculture commodity prices in many

countries in the continent; and

• 30-35% of post harvest losses.

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 3. State of Agriculture Finance in Africa
• It is estimated that at least US$21.6 billion will be required annually over
the next 10 years (2010-20) to develop Africa’s irrigation and road
infrastructure to the required standard needed for agriculture
transformation; however, only US$17.5 billion is available (World Bank,
2012 & AfDB (2012)).

Table 1: Africa: Infrastructure Financing Gap, 2010-2020

Funding Required Available Funding Funding Gap

Infrastructure
(US$ Bn p.a.) (US$ Bn p.a.) (US$ Bn p.a.)
ICT 9.00 9.00 -
Irrigation 3.40 0.90 2.50
Power 40.80 11.60 29.20
Transport 18.20 16.20 2.00
Water 21.90 7.60 14.30

Total 93.30 45.30 48.00

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 Sectoral Distribution of Government Expenditure
2000-12 (Constant 2000 US$)
 Despite being considered the mainstay
of many African countries: Agriculture
5%
15% Education

• Public and private sector investments Health

7%

in agriculture sector is lowest 68%

5%
Transport &
Communcation

compared to other sectors; and Others

• Compared to other developing regions, Government Agriculture Expenditure Share of GDP

2000-12 (Constant 2000 US$)
the share of agriculture in government
expenditure averages about 5% during LATIN AMERICA AND CARIBBEAN 9.26

2000-12 (down from about 10% in the ASIA 9.045

1980s) SUB-SAHARAN AFRICA 5.045

NORTH AFRICA 9.465

0 2 4 6
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 4. Challenges to Financing Agriculture Value
Chain in Africa
 A number of factors have inhibited the flow of financial resources to
support activities across the African agriculture value chain. A few of
these factors include:
• Low Public Sector Investment in the Sector

• High Catastrophic Risks (climate, etc.)

• Poor State of Agriculture Related Infrastructure

• Absence of or inadequate Agricultural Insurance Market

• Poorly Regulated Agriculture Sector

• Dismantling of Commodity Boards in the 1980s and 1990s

• Limited Knowledge on Agriculture Production and Farm Maintenance

Practices

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 5. New Opportunities for Financing Agriculture in
Africa
 Despite the existence of several bottlenecks, new opportunities are
emerging, which make financing for activities across the agriculture value
chain attractive and less risky. A few of these factors include:

• Widespread adoption of agriculture sector reforms/development initiatives

across the continent (Ghana, Nigeria, Kenya, Cote d’Ivoire, etc).

 The Nigerian government has, for instance, launched an Export Development

Programme (NEDP) and Nigeria Agribusiness and Agro-industries Development
Initiative (NAADI) through which the government seeks to transform the
agriculture and agro-processing sectors via financing and technical assistance
programmes;

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• Growing demand across the continent occasioned by rising middle class
and rising average household incomes.

 We are beginning to see growing exports of food and other agricultural items
across the continent. Rwanda, for instance, is one of the largest importers of
Grapes, Oranges, Pears, Lemon, Pomegranate and grapes from Egypt.

• Increasing demand for mechanization of Africa’s agriculture also

provides opportunity for financing import of modern technologies into
the continent.

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• Liberalization of agriculture markets in Africa and growing popularity of
PPP arrangements for the development of rural infrastructure also provide
opportunity for investors to venture into agriculture finance in Africa.
Financing is required for the construction of warehouses, irrigation
infrastructure, feeder roads, local markets, storage facilities, among others.

• The recently agreed “Bali Package” on Agriculture (particularly Cotton) and

Trade Facilitation provide further impetus for agriculture trade and trade
finance.

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 6. The Role of Afreximbank’s in Financing Agriculture
Value Chains
• Afreximbank, a Pan African Trade Finance Bank, has since inception, in 1993,
supported the development of African trade by providing financial and technical
support to Africa’s commodity sectors;

• The Bank’s financing programmes supporting all activities across the agriculture
value chain.

• We have supported development of:

 storage/warehouse infrastructure;

 inputs for production (such as

fertilizer, chemicals, seeds etc.);

 Agro processing plants; and

 Export Agriculture projects.

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 4.2 Examples of Agriculture Related Financing Provided by the
Bank
Cameroon: €19m Amortizing
Export Finance Facility in favor
of Societe Des Plantations De
Mbanga S.A. (SPM) for
bananas.
Rwanda: $15m LoC
Cote D’Ivoire: €20m Cotton to Development
Pre-Export Finance Facility Bank of Rwanda for
favor Companie Ivoirienne On Lending to the
pour le development des agricultural Sector
Textiles (CIDT). for Tea, Coffee and
horticulture export.
Cote D’Ivoire: €20.9m Dual
Tranche Cocoa Export Receivables
Backed Term Loan and Pre-Export Zambia: $50m Dual
Financing Facility in Favour of Tranche Trade Finance
Conditionnement de Cacao et Café Facility favour
(Condicaf). Greenbelt Fertilizers
Ltd.

Nigeria: A $58m for Notore Zimbabwe: S$9m Dual

Chemical Industry Tranche Facility to
Seed Co Zimbabwe
Limited.
Nigeria: A US$17.5m for FTN
Cocoa Processing Plc. Zimbabwe:
Syndicated Pre-Export
Financing Facility of
S$25m to the Cotton
Gabon: A € 70m Agro industrial Company of
Palm Oil plantation and processing Zimbabwe Limited.
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facility for OLAM Palm.
• The Bank’s support for the Agriculture Sector has been growing sturdily over
the last decade growing at an average annual rate of about 23%.

• Cumulative loan Total loan approvals in favour of agriculture and allied

activities during the last five years (2008-2012) amounted to US$1.1 billion.

Figure 3: Afreximbank’s Total Loan Approvals In Respect of Agriculture Related

Activities, 2008-2012 (US$ Million)
450 413.8
400
350
300
250
199.6
200
150 110
100 64
45.0
50 30.75

0
2002 2004 2006 2008 2010 2012
source: Afreximbank Annual Report, various issues

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 4.3 Afreximbank’s Innovative Financing Programmes for
Africa’s Agriculture Development
1. Export Development Programme (EDP)
Under this programme, the Bank combines credit, risk bearing, twinning,
market access as well as advisory services geared towards creating non-
commodity export products for sale to a broad range of export markets.
Programmes under the EDP include:

• Afreximbank Africa Cocoa Initiative (Africoin)

• Contract Farming / Export Agriculture
• Domestic Letters of Credit

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1.a. The Afreximbank African Cocoa Initiative (AFRICOIN)
Africa Cocoa Initiative (AFRICOIN) is aimed at providing “End-to-End” solutions
to the African cocoa sector through financing and provision of technical/corporate
finance and advisory services to entities in the African Cocoa Value Chain. Under
this Initiative the Bank:

• Provides Term Funding for creation of processing capacity (Purchase of

Equipment, etc.)

• Provides Working Capital Financing for procurement of cocoa beans for

processing; and

• Facilitates Market Access through twining, that is, linking Africa processors
with leading buyers and actors in the global cocoa economy to ensure market
access, availability of technical and managerial know-how etc.

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1.b. Contract Farming / Export Agriculture
Export Agriculture Financing Facility: the facility is designed to:

• support the establishment of contract farms on terms consistent with the

Bank’s trade finance mandate;

• provide country risk and other guarantees to encourage global contracting

entities to be able to consider Africa as a source of their supplies;

• support commercial farms in export agriculture, especially those

implementing out–grower schemes;

• support contract cooperatives in export agriculture in support of export

agriculture; and

• provide both short term and medium term financing.

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1.c. Domestic Letters of Credit
• This is used to support local contractors and local content initiatives;

• To promote value-chain financing with payment and performance risk

mitigated.

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2. Factoring

Afreximbank in 2009 launched a Factoring Facility to support intra- and

extra-African trade as well as domestic factoring targeted at export supply
chains. The purpose of this facility is to provide liquidity and payment risk
protection to African factors.

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3. Lines of Credit Programme

• Through this programme, the Bank provides funded and non-

funded credit lines to creditworthy African and non-African
banks designated as the Bank’s Trade Finance Intermediaries.

• The Bank uses this programme to reach the target beneficiaries

of its resources, who due to their small size, would otherwise
not be able to access the Bank’s resources directly.

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• Facilities under this programme include:
i. Pre- and Post Export Financing Facility;

ii. Letters of Credit Confirmation and Refinancing Facility;

iii. Reimbursement Guarantee Facility;

iv. Export Credit Guarantee; and

v. Correspondent Banking/Africa Letter of Credit Facility.

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4. Guarantee Facilities
• Country Risk Guarantee Facility
This programme is used in making the sovereign risk of African countries more
acceptable by transferring this risk to Afreximbank credit risk. Under this programme,
Afreximbank guarantees international and African banks and investors with credit
exposures to Africa against certain country risk events.

• Investment Guarantee Facility

The Bank, using this programme, offers guarantees to cover foreign direct investment
inflows into Africa. This guarantee is offered to country funds, FDI providers in trade-
promoting ventures.

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 Conclusions
• Development of Africa’s agriculture is necessary for the sustenance of the current
economic successes of the continent, eradication of poverty and realization of the
MDGs;

• This requires significant capital injection from both private and public sectors
and from the continent’s development partners;

• Afreximbank will continue to forge partnerships and alliances to provide

financing and other forms of support to raise productivity growth in Africa’s
agriculture sector, and the commodities sector in general;

• We therefore invite organizations/corporates to partner us in our efforts at

supporting the transformation of Africa’s commodity sectors.

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 Thank You for Listening

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