What is the origin of Afreximbank as an idea? What gap does it come to fill?
In the 1980s, the global economy was plagued by the sovereign debt crisis that originated in Latin America, specifically Brazil, Mexico, and Argentina. The Latin American crisis, which morphed into a global debt crisis, also severely impacted African economies. Before the crisis, Africa performed better than Developing Asia, including China, across many economic indices.
The immediate consequences principally included, among others, cuts in trade and project finance lines of credit to Africa and stringent credit terms (with a maturity of no more than one year), and cash collaterals for letters of credit. At that time, the cost of trade finance to African entities averaged about 15% compared to under 2% provided globally. The interest rate for intra-African trade credit also averaged about 15%. International financiers exited the continent, which helped to widen the trade finance gap. As a result, African trade contracted sharply, such that by 1986, Africa’s exports had declined by over 43%, from US$123 bn in 1980 to US$70 bn in 1986. Similarly, the crisis cut as much as US$100 bn from the African economy (from US$480 bn in 1981 to US$370 bn in 1985). Hence, the debt crisis created Africa’s first recession since independence in the 1960s and the consequent labelling of the 1980s as Africa’s “Lost Decade”.
Afreximbank was conceived by the late Dr Babacar Ndiaye, the then President of the African Development Bank (AfDB), as Africa’s response to the crisis of the 1980s. At the 1987 Annual Meeting of the African Development Bank (AfDB), the African Ministers of Finance/Members of the Board of Governors directed the AfDB Management to study the feasibility of creating an African trade finance institution to help the continent deal with these shocks. The thinking then was that such an institution would present a better financing risk than individual African countries. It was believed that this initiative would place African countries in a better position to borrow internationally and on-lend. Given that member countries would be granted Preferred Creditor Status and that the proposed institution would be staffed by Africans, Africans would be better able to manage the lending risks. That study led to the creation of the African Export-Import Bank in 1993 by African governments under the auspices of the AfDB. Afreximbank is, therefore, a “child of necessity” born to help cushion the adverse consequences of global shocks on the continent. The Bank was created to promote and finance intra- and extra-African trade using four broad instruments: credit (trade and project finance), risk bearing (via guarantees and credit insurance) and Advisory and Trade Information Services and Payment Services. The Bank would also help to expand the size and structure of Africa’s trade, through diversification from economic dependence of the continent on the export of primary commodities to value-added exports through manufacturing and industrialization.
How do the different subsidiaries of the Bank converge to respond to the above objective?
Over the last few years, the Bank has created subsidiaries and initiatives to supplement its operations and support its principal objectives. In particular, the Bank has established an equity vehicle – Fund for Export Development in Africa (FEDA), and an insurance vehicle called AfrexInsure as subsidiaries. Moreover, the African Trade Gateway (ATG), an ecosystem of digital platforms, has been developed. The ATG presently houses digital platforms such as the Pan-African Payment and Settlement System (PAPSS), the Africa Customer Due Diligence Repository Platform (also called the MANSA Platform), the Trader Intelligence (made up of the Trade Information Portal and Trade Regulations Portal), as well as the African Trade Exchange (ATEX) and African Medical Supplies Platform (AMSP).
Primarily, these subsidiaries and initiatives were created partly in fulfilment of critical objects of Afreximbank charter, namely (i) to promote and provide insurance and guarantee services associated with African exports; (ii) to provide support for payment arrangements aimed at expanding the international trade of African states; and (iii) to provide capital to African exporters and importers through equity investments.
The subsidiaries and initiatives are meant to accelerate intra-African and South-South trade as well as expand the diversification of African exports as well as Africa-to-South trade through the facilitation of export manufacturing and industrial development. For instance, through FEDA, the Bank enables African corporates and SMEs in the manufacturing and allied industries to access patient capital. FEDA is helping the development of industrial infrastructure, including industrial parks and special economic zones across Africa.
The Bank’s PAPSS aims to facilitate intra-African trade by enabling cross-border payments for traded goods and services across Africa in national currencies, minimising the foreign exchange cost of the trade.
What process does the bank use to identify the key in its allies that require financing, and what are some of these initiatives that you have financed in the recent past? What impact have they had?
The purpose and functions of the Bank, as encapsulated in the Afreximbank Charter (Article II), constitute the fundamental guiding principle on which its operations evolve. Corollary to this is the Bank’s medium-term strategic plans, which translate these objectives into concrete realisable programmes and initiatives with clear goals and targets. Since its inception, the Bank has implemented five strategic plans and launched the 6th plan earlier this year for a 5-year horizon (2022-2026).
Given its establishment history, its Charter and strategic thrust, the Bank’s operations align strongly with continental aspirations defined under the umbrella of the African Union. It is thus no coincidence that the Bank’s 5th and current 6th strategic plans have elevated intra-African trade as the cornerstone of its medium-term programme, in alignment with the launch of the African Continental Free Trade Agreement (AfCFTA) in 2018. Afreximbank, therefore, is a central plank in the implementation of the Continental Free Trade Agreement. The launch of initiatives, including the AfCFTA Adjustment Fund, the African Collaborative Transit Guarantee Scheme and those earlier mentioned, is primarily geared towards implementing the trade agreement. These are ancillary to the enormous funding programmes to promote intra-African trade. During the last five years, the Bank disbursed over US$20 billion in support of intra-African trade and aims to disburse US$40 billion during the next five years in support of intra-continental trade and investments.
These programmes will promote medium-to-long-term sustainable development programmes on the continent. However, the Bank is mindful that short-term or transitory economic shocks from global markets could derail the continent’s long-term economic trajectory. In this regard, the Bank regularly designs products to help African economies contain and mitigate the short-term economic costs of global shocks while facilitating the expeditious recovery and restoration of the continent to its long-term growth path. The Countercyclical Trade Liquidity Facility (COTRALF) was created in 2016 to assist commodity-dependent African economies in dealing with the commodity shock of 2015-16. Under C0TRALF, the Bank disbursed about US$10 billion and leveraged an additional US$30 billion to support the continent to contain the crisis. More recently, the Bank launched the Pandemic Trade Impact Mitigation Facility (PATIMFA) in 2020, and the Ukrainian Crisis Adjustment Trade Financing Program for Africa (UKAFPA) in 2022, which are assisting African countries in dealing with the trade and economic impacts of the COVID-19 and the Ukraine crises.
What are some of the challenges you have met in fulfilling your mandate?
As an institution created out of a crisis, Afreximbank has thrived through several significant crisis periods. Consequently, its best performances were recorded during the global financial crisis of 2008/9, the Eurozone Sovereign debt crisis of 2010, the Commodity shock of 2015/16 and the twin crises of COVID-19 and the Ukraine crisis of 2020-2022.
Afreximbank’s enduring performance over these turbulent periods is made possible by the unfaltering relationship between the Bank and its stakeholders, particularly African governments, central banks, and international banks. These stakeholders have consistently supported the Bank via equity and liquidity injections that have sustained and enabled the implementation of various interventionist programmes, particularly during crises.
The most critical constraint, however, remains the enormity of the trade and economic development challenges and the attendant financing gap relative to the sizes of the continental development institutions. In China, the China Eximbank and the China Development Bank have assets equivalent to 23% of the country’s GDP. Similarly, the total assets of the Korea Exim bank and the Development Bank of Korea jointly represent 19% of Korea’s GDP. The Development Bank of Brazil alone account for 9.5% of Brazil’s GDP. However, Africa’s five development institutions, namely AfDB, Afreximbank, the Trade Development Bank (TDB), Africa50 and the Africa Finance Corporation (AFC) jointly account for a mere 3% of the continent’s GDP.
The small-sized nature of these continental banks makes the delivery of their mandates most daunting and nearly impossible. It is estimated that the annual combined funding gap for infrastructure and trade is at over $200 billion compared to the 2020 aggregate total assets, which was about US$85 billion.
It is thus imperative that Afreximbank and other Pan-African institutions be adequately capitalised to capacitate them to deliver on their individual and collective mandates.
What are the key targeted milestones of the Bank over the coming 10-year period in terms of financial capacity and impact on the ordinary African?
As earlier noted, the Bank operates on the basis of five-year strategic plans. Hence its medium-term continental and corporate priorities and targets are set over a 5-year horizon. In this context, we expect that by 2026, the Bank’s shareholders’ fund and total assets and guarantees will reach US$ 7.3 and over US$43 billion, respectively.
The Bank also expects to disburse at least US$40 billion in support of intra-African trade and open trade confirmation lines of more than US$8 billion in favour of 500 regulated African commercial banks by 2026.
In addition, the Pan-African Payment and Settlement System (PAPPS) should become the main channel for cross-border payments and should revolutionise the continent’s payment landscape. We also expect the other components of the African Trade Gateway to become the main driving forces of the AfCFTA.
The AfCFTA Adjustment Fund should become fully functional and the continental platform for mobilising support for African countries adversely impacted by the ATL FTA-linked continental trade liberalisation.
The Bank’s first Africa Medical Centre of Excellence (AMCE) is expected to transform the continent’s health and medical services and improve intra-African medical tourism; so should the Afreximbank Africa Trade Centres in Zimbabwe and Nigeria, as well as the Africa Quality Assurance Centres in several countries.
Within this period, we expect Afreximbank to have been fully embedded in the Caribbean economy helping to realise the Africa Union’s ambition of integrating the African Diaspora into the continent. Overall, we expect that by 2026, Afreximbank should become a major global bank. Its funding programmes and a plethora of initiatives should result in the transformation of African economies and trade.
