Dr Benedict Oramah, President and Chairman of the Board of Directors of the African Export–Import Bank (Afreximbank) is a thoroughbred trade finance professional, imbued with strong leadership and strategic management skills.
As a pioneer staff of the Bank, who rose through the ranks before he took over the mantle of leadership of the continental multilateral trade finance institution in 2015, Dr Oramah has been quite exceptional in piloting its affairs. Through his brilliant leadership and efficient machinery, the Bank has continued to add value to its core mandate of financing African trade, delivering multi-billion dollars deals in support of the continent’s trade and development.
As part of its action plan to boost intra-Africa trade and support the implementation of the African continental Free Trade Area Agreement (AfCFTA), the Oramah-led Afreximbank, in collaboration with the African Union, is organising the first-ever Intra-African Trade Fair in Cairo, Egypt in December, this year. In this interview with our Editor-in-Chief (Kelechi Anynawu), Dr Oramah provides an insight into the trade fair and Afreximbank’s efforts to leverage on technology to boost trade within Africa. Excerpts:
Critics say that the Bank’s five-year strategic plan “IMPACT 2021” is too ambitious for an African institution. Is it?
In preparing its strategic plans, the Bank considers its mandate, opportunities, capabilities and constraints and other external and internal environment factors. The strategic objectives and targets set out in our Strategic Plan were drawn from extensive analysis and reflected the size of the opportunities and challenges in our continent. The plan recognises that there is great urgency in resolving Africa’s development challenges and that the Bank needed to play a more interventionist role in critical areas and to act as opinion leader and legitimizer of good practices in charting the course of trade development in the Continent. Our plan is to intervene strongly to correct market failures and not to disrupt markets.
We are already 18 months into the 5-year plan period and so far, the Bank’s achievements have been very good and in some cases, have exceeded our expectations. Accordingly, we are confident that all things being equal, we will achieve the strategic objectives and targets set out in Impact 2021.
We reject the perceived notion that the institution is unable to achieve big things, simply because it is African. There are several African institutions and corporations, Afreximbank included, that have made their mark on the global stage. Why are small challenges always perceived to be “big” for Africans to tackle? This perception must be rejected.
To what extent would you say the bank’s goal of shoring up intra-African trade has been met, given the refusal of some countries to sign up to the African Continental Free Trade Area (AfCFTA) agreement?
The Bank is very happy with the progress it has made with regard to its objective of promoting and facilitating the growth of intra-African trade. The Bank also sees the progress that has been made recently with the AfCFTA as remarkable. When we gathered in Kigali in March this year for the signing of the AfCFTA, the general view was that only 21 countries would sign. But as the signing began, everything changed and we saw 44 countries on board. That was in fact excellent.
As you may also be aware, during the just-concluded AU Summit in Nouakchott, Mauritania in early July 2018, more countries signed the Agreement bringing the total number that has signed to 49 including South Africa. We know that some of the countries that have not signed are going through an internal process to ensure that all key stakeholders are carried along. We do not see anything fundamentally wrong with that. For us, the AfCFTA will accelerate our work towards promoting intra-African trade. We have targeted to disburse US$25 billion on a revolving basis by 2021. In the first year (2017), we did US$8 billion. We have launched the first-ever Intra-African Trade Fair and we are developing industrial parks in several countries as planned to enable production of goods that will enter the trade. We are about to launch our Pan-African Payment and Settlements Platform among other achievements. We are on track.
To what extent will IMPACT 2021 help Afreximbank directly address the imperatives of its mandate?
The primary consideration, and indeed requirement, in the formulation of any of the Bank’s strategic plans is conformity with its reason for being—the goal of its founding fathers. According to its Charter, the Bank’s mandate is to facilitate, promote, and finance intra- and extra-African trade. In the preparation of Impact 2021, the mandate has, in fact, been the foundation, as it should be. A clear understanding of and commitment to the fulfilment of the mandate provide the aspirational impetus that underpin the strategy.
This is evidenced by the four pillars of Impact 2021, namely: Intra-African Trade, Industrialisation and Export Development, Trade Finance Leadership, and Financial Soundness and Performance. Under the intra-African Trade pillar, the Bank focuses on financing and promoting intra-African trade. The philosophy behind the Bank’s intra-African Trade pillar is that building robust domestic and continental supply chains in Africa will expand the intra-African trade. The strategy aims to bring the farmers, processors, markets, financiers, logistics providers, and policymakers together to create a holistic solution for the constraints to intra-African trade.
The Industrialisation and Export Development pillar is motivated by the need for the Bank to act as a catalyst for industrialisation and export development in Africa by directly addressing the constraints inhibiting industrialisation on the continent while providing support for improving efficiency in the production of goods and services and facilitating market access by ensuring that the produced goods and services are traded. Through this pillar, the Bank supports the production of goods and services that will go into intra-and extra-African trade.
The Trade Finance Leadership pillar brings together the Bank’s efforts in providing trade services, trade finance (short-term products, including import and export finance), specialised products (including forfaiting and supply chain finance), and guarantees. Under this pillar, the Bank also focuses on improving capacity of Africans in trade finance and to undertake trade negotiations, and will pursue, or lead, implementation of initiatives aimed at making Africa-related trade information widely available in a cost-effective manner.
The final pillar, Financial Soundness and Performance, focuses on the Bank’s internal capacity and risk management considerations that ensure it is able to deliver on the first three pillars.
It is clear from the foregoing that Impact 2021, like all other strategic plans before it, directly addresses the imperatives of the Bank’s mandate.
What does the launch of Single Africa Air Transport Market mean for trade?
The objectives of the Single Africa Air Transport Market (SAATM) are to create a single unified air transport market, by liberalising civil aviation for African airlines which will then act as an impetus in the drive towards African integration. The SAATM is one of the initiatives selected by African leaders as having a high potential to change the face of Africa substantially over the long-term in tandem with other initiatives like the African passport.
More than 20 AU member states have signed up to the SAATM Commitment including Benin, Botswana, Burkina Faso, Cabo Verde, Congo, Cote d’Ivoire, Egypt, Ethiopia, Gabon, Ghana, Guinea, Kenya, Liberia, Mali, Mozambique, Niger, Nigeria, Rwanda, Sierra Leone, South Africa, Swaziland, Togo and Zimbabwe. The commitment allows airlines from these signatory countries, which represent over 70% of intra-African air traffic, to freely access each other’s aviation markets.
Our view is that SAATM will lead to improved intra-African trade and ultimately, African trade. The rationale for this is simple. Along with limited trade information, poor infrastructure is cited as one of the most significant impediments to trade on the continent. Transportation of merchandise from some African countries to others, particularly those that are landlocked, can be very challenging. There are limited air transportation links between some countries on the continent and in some cases, to go from one country to another, the best connection involves transiting through a country that is outside the continent. Beyond that, the cost of building the rail and road infrastructure needed to carry trade across the continent are quite high and the investment can only be made over multiple years. Air links present the best alternative in the medium-term and SAATM will help.
Should SAATM be operationalised successfully, it will most likely lead to a significant improvement of linkages between several African cities. We already know that globally, aviation accounts for over 30% of world trade, which signifies the importance of aviation to trade. Africa is no different in this case and we expect that an improvement in air transport links will inevitably lead to growth in intra-African trade.
Regional integration, many believe, will help boost intra-African trade. But it seems regional efforts at integration has lost steam. What is Afreximbank doing to assist?
Our view is that Africa’s regional efforts at integration are actually gathering steam, following the signing on March 21, 2018 of the African Continental Free Trade Agreement by several countries. The number of countries who have signed the Agreement have now reached 49 and we expect the ratification process to be completed by the end of 2018.
The Bank is working closely with the African Union Commission in the execution of strategic initiatives to accelerate the realization of the goals of the African Continental Free Trade Area (AfCFTA). In this regard, the Bank provided support to the African Union for the organisation of the signing of the AfCFTA in Kigali. The Bank is also pursuing several initiatives including organizing, in collaboration with the African Union Commission (AUC) and the Egyptian Government, the first-ever Intra-African Trade Fair scheduled to hold during December 11 to 18, 2018 in Cairo, Egypt. The Fair, which is expected to attract exhibitors and 70,000 participants, provides a platform for networking, linking sellers and buyers within the context of intra-African trade. Being the continent’s single largest trade fair, the fair will truly bridge the enormous trade information gap and connect major players in the continent’s trade space. Afreximbank is investing significant amount of money into the Fair, which we have agreed to hold once every two years.
In addition, the Bank is partnering with the AU to support the Pan-African Private Sector Trade and Investment Committee (PAFTRAC). This is an important Committee expected to galvanize the Private Sector for their active involvement in trade negotiations and policy formulation towards the realization of the objectives of the AfCFTA. PAFTRAC is expected to be an important advisory arm of the Africa Business Council being championed by the AU.
Afreximbank is pursuing several initiatives to facilitate intra-African trade. We believe that these initiatives will also make possible regional integration. For instance, the Bank has made substantial progress toward the launch of a Pan-African Payment and Settlement Platform (PAPSP) to facilitate the conduct of cross-border businesses in national currencies, thereby reducing the foreign currency component and cost of the trade. Further, to improve the acceptability of goods across borders, the Bank is currently facilitating the development, upgrading and expansion of Testing, Inspection and Certification Centres across Africa to ensure that goods traded within the continent meet the minimum acceptable quality standards. The development of a project is underway in Nigeria and another being contemplated for Egypt.
With more African countries joining the oil & gas exporting club, how is Afreximbank preparing to meet the expected rise in demand for finance in this sector?
The Oil and Gas industry is very important for African economies as it accounts for about 60% of some of those economies’ GDP and serving as the major source for foreign exchange earnings. The Bank’s support to the Oil and Gas industry over the last 5 years has exceeded US$5 billion with total exposure at end of 2017 amounting to US$1.7 billion. While the Bank does tap into the syndications market to support the typically large deals, it has in some cases originated and executed the deals on a bilateral basis with the clients.
Over the years, Afreximbank has been a major financier of oil and gas deals on the continent. For example, the Bank’s support for Societe Ivoirienne de Raffinnage (SIR) in Cote d’Ivoire immediately after the civil war in the country enabled SIR to acquire crude at a critical time, that otherwise would have been difficult in a post-war era. And there are few more examples in other countries.
We pioneered local content financing in Africa which has helped create an indigenous pool of oil service expertise especially in Nigeria. Our experience in designing local content programmes in countries with large extractive industries is in demand across Africa. We see further opportunities in the new countries discovering oil.
The Bank’s ongoing support for the Oil and Gas industry is consistent with its Impact 2021 Strategy. At present, the Bank has over US$2 billion of oil and gas deals in its pipeline and that number is expected to grow, with some of our member countries making new oil and gas discoveries in commercial quantities including Ghana, Mozambique, Tanzania, Kenya and Uganda. As a consequence, Afreximbank will continue to support transactions in the industry subject to sector-limit considerations.
What is the outlook for trade in Africa in the next 5 years?
Africa still plays a marginal role in global trade, with the continent accounting for less than three percent, while developing Asia accounts for over 19.5 percent, with China alone, accounting for about 11.64 percent of global trade. The factors constraining the rise of Africa’s share in global trade include the overwhelming dominance of commodities and natural resources in Africa’s exports which over the years have exposed the region to wide economic volatility and adverse terms-of-trade shocks. Inadequate industrial capacities and economic infrastructure have undermined the expansion of value addition and export diversification.
In particular, in a region where oil-exporting countries account for over 45 percent of export revenues, the dynamics of African trade has been highly correlated with movements in the commodity market. The end of the commodity super-cycle which saw the collapse of oil prices was also accompanied by stagnation in global trade and sharp contraction in Africa’s trade. While global trade stagnated at 2.8 percent between 2014 and 2015, Africa’s trade contracted by about 20.8 percent during the same period. However, the recovery in commodity prices and strengthening global demand have led to cyclical rebound in global trade which increased by 4.7 percent in 2017. In line with global trade movements, African trade expanded by 10.6 percent.
With rising commodity prices and quickening in the growth of many African economies, we see Africa’s trade expanding strongly in the short-term. However, medium-term prospects are cloudy. Rising protectionism, potential for serious global trade wars and tightening financing conditions for developing countries constitute worrying potential headwinds. A counterweight to these would be acceleration in intra-African trade. That is why Afreximbank has made it a priority.