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AFREXIM BANK - "Our Mission is to restore Africa's glory".

Summary: Benedict Oramah, Afrexim Bank's president tells African Banker how the Bank can help Africa get back on track following the commodity price crash that has affected many in the region.

This May, the Africa Export and Import Bank (Afrexim Bank) held its inaugural Intra-Africa Trade Finance and Payment System Conference in Abidjan, Cote d'Ivoire. The presence of leading fig- ures in Africa's finance sector, pro- vided an opportunity for Dr Benedict Oramah, Afrexim Bank's president and chairman of the board, to explain and reiterate Afrexim Bank's purpose and objectives to delegates.

The bank's raison d'etre probably needed little explanation for the assembled delegates, but Oramah was forthright in telling them in his opening address: "Let me remind us all that our mission is to restore the glory of Africa."

If that, coming from a banker, sounds a touch romantic, be assured that there is a very straightforward attitude and dedication to what the bank is seeking to achieve. Oramah explains: "The bank was created to help Africa deal with its trade development challenges ... it is a trade development and trade facilitation bank."

As such, Afrexim has been hugely inventive in creating facilities to deal with Africa's development in the face of recent global economic shocks -- perhaps most importantly a commodity price crash which has affected some of Africa's largest economies, including Nigeria and Angola.

"[The commodity crisis is] affecting many of our major economies, only a few have been able to manage it. What has happened is that some of these economies now have excess demand to deal with, excess demand from both the external and domestic sectors.

"It is a deep challenge facing the continent. There needs to be an orderly adjustment to the current situation and an orderly adjustment means finding a way to smooth out the excess demand and the pressures on currencies and reserves so that the countries can then adjust properly. That is the short-term challenge we are facing," he says.

Imports to some African countries have been ordered on letters of credit, some of which are maturing at a time when the value of the countries' exports are falling. As the risk of default increased, the bank has taken action.

"Afrexim Bank board approved a new $3.5bn trading facility at the end of last year to help countries achieve an orderly adjustment to the commodity price falls, as well as terrorism-induced shocks," says Oramah.

"The banks that have confirmed their participation are able to access hard currency. That achieves a number of things. It helps the countries defend their reserves and the impact that depletion would have on their ratings. It also helps to manage exchange rates and, in a worst-case scenario, obviate a default. Defaults would definitely take Africa back."

Less than three months after initiating this programme in December 2015, Afrexim Bank had mobilised a further $3.6bn.

"These funds come from across the continent. I don't wish to be specific here, but we have attracted partners to participate in this development, both local and regional commercial banks as well as financial institutions, including some African sovereign wealth funds. We have pooled as much as possible," Oramah says.

"The facility has a lifespan of two years, because we believe that is the period that it will take to deal with all the backlogs and return the countries to some equilibrium." This programme is complementary to Afrexim Bank's Central Bank Deposit Programme, designed to mobilise part of the foreign exchange reserves held by African central and reserve banks to fund viable trade and project ventures in Africa, while providing competitive returns on deposits.

One of the additional benefits of the Central Bank Deposit Programme is that Afrexim Bank is able to consider granting a stand- by credit facility to those central banks that are participating in the programme.

The comparative advantage

The Abidjan conference had a specific focus on intra-Africa trade, and Afrexim Bank's president clarified just why his institution places so much importance on this aspect of the continent's trade. "Part of the problem we talked about was the commodity price shock. Africa is a continent of concentration -- a concentration on commodity exports and a concentration on specific markets," says the president.

"Africa is the least industrialised continent in the world. If you look at statistics of intra-African trade, more than 40% of it is light manufacturing and semi-processed commodities. You have to also deal with the problem of a concentration on Europe, China and America in terms of our markets, as well as a concentration on commodities.

"If we begin to go up the value chain, to start manufacturing, inter- regional trade will bring better dynamic comparative advantage, and that will make the African countries that do it well compete well and compete more effectively in terms of certain goods," Oramah continues.

Indeed, as production costs in China are rising, Afrexim Bank believes that if African countries focus on intra-Africa trade, two issues could be addressed: The first is that it will drive African value-addition.

The second is that it "will shape a dynamic comparative advantage, plus value-addition, and that in turn will mean that Africa can determine, some time in the future, a way to take leadership in manufacturing and enter global value chains," says Oramah.

"Personally, perhaps because I am a man of the markets, I think that markets will drive value-addition, not value-addition will drive markets," he adds.

But does Oramah see any evidence of this trend taking hold? When asked, he points to some progress in terms of light manufacturing and semi-processed food-stuffs. "It is early days, but this is what I think is happening. I can tell you more next year," the president says, adding: "We are gathering statistics. We want to be sure we present the proper data.

"The message is out there, that when people consider intra-Africa trade they will be aware that there is a bank to finance that trade. Instead of thinking about trading with Europe, the US or China, they will know that there is an alternative -- to trade with the rest of Africa."

"An orderly adjustment means finding a way to smooth out the excess demand and the pressures on currencies and reserves."

"Perhaps because I am a man of the markets, I think that markets will drive value- addition, not value-addition will drive markets."

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Publication:African Banker
Geographic Code:60AFR
Date:Aug 31, 2016
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