Dike Onwuamaeze
The African Export and Import Bank (Afreximbank) has been advised to build partnerships with African countries so as to stimulate trade policy capacity in the continent in order to sustain its successes in the past 30 years and ensure its relevance in the next 30 years.
The advice was given yesterday, in Cairo, Egypt, by a former Deputy Governor of Central Bank of Nigeria, Prof. Kingsley Moghalu, in a lecture he delivered during the 30th Anniversary Founders’ Day Lecture of the Afreximbank titled, “Afreximbank: The Next 30 Years,” in which he stated that the challenge of the bank in the years to come was to go beyond present success stories to becoming a transformative institution for Africa in world trade.
This, he said was essential as Africa moves into the era of African Continental Free Trade Area (AfCFTA).
The Afreximbank was also advised to execute its long planned international IPO to raise additional capital that would back its ambitious plans in AFCFTA.
Moghalu, who is also the founder and CEO of Sogato Strategies LLC and president of the Institute for Governance & Economic Transformation, said in the lecture that the Afreximbank has been a successful, impactful institution that should be accorded at least an AAA- rating rather than its present credit rating of BBB.
He said: “Afreximbank has been a successful, impactful institution. But in the next 30 years, it can go beyond success to becoming transformative for Africa in world trade.
“The key then, is for Afreximbank to zero in on the various aspects of the AfCFTA that, combined with bank’s role and operations, will bring about the needed continental transformation by 2050.
“As we move into the era of AfCFTA-based intra-regional trade, Afreximbank should build partnerships with countries to stimulate trade policy capacity, since financing trade transactions, trade facilitation or trade-related infrastructure alone may not be enough to solve Africa’s trade challenges.
“It should invest in specialisation and the acquisition of trade-related skills in African countries to drive this specialisation – productive knowledge to achieve economic complexity which is the basis of modern global trade, and which will be necessary for competitiveness in intra-African trade as well.”
Moghalu, in the lecture, posed this question: “Is Afreximbank’s institutional structure fit for the future we seek in intra and extra African trade?”
His answer: “As we have noted earlier, Afreximbank’s mandates are cross-cutting enough to meet the challenges it has faced over the past 30 years. And the bank has mobilised impressive levels of funding for trade transactions and trade related transactions in Africa, attested to by its $32 billion in assets.
“But Africa is a vast continent with deep financial needs, especially in its private sector. In this context, I believe the bank needs to execute its long planned international IPO to raise additional capital to back its ambitious plans in the AFCFTA era.”
The professor acknowledged that Afreximbank’s ratings have improved from BBB- to BBB, but said he “would argue from all this information available about the bank that its ratings should perhaps more appropriately be AAA-, especially when we consider that the African Development Bank has a stellar rating of AAA.
“While it is true that Afreximbank, in lending to both sovereign and non-sovereign entities, operates in a somewhat riskier environment, the fact that it has managed its risk so well over the years is noteworthy and deserves to be rewarded with a higher credit rating.”
He highlighted that, “as a financial institution, the Afreximbank has never incurred annual losses since it was founded, has managed its risks exposures successfully, and is steadily growing its profits. Its capital is $5 billion, with its shareholders consistently supporting its capital reason efforts, and has assets of $32 billion.”
He, therefore, insisted that “there certainly is a case to be made for a fairer assessment methodology for the credit rating agencies rating of African sovereigns.”
According to him, the United Nations Development Program (UNDP) has published a study showing how subjective “idiosyncrasies” in the major rating agencies have cost African countries $75 billion in excess interest payments and foregone funding.
“To put the implications for Africa’s development in perspective, UNDP says this $75 billion is 80 per cent of Africa’s annual infrastructural needs (estimated at $93 billion), more than twice the cost of reducing malaria by 90 per cent ($34 billion), and six times the cost of vaccinating 70 per cent of Africans ($12.5 billion) to achieve herd immunity to COVID-19.”
Moghalu listed some of the achievements of Afreximbank, which included its strong network with African commercial banks to which it provides letters of credit confirmation lines in support of cross-border trade in furtherance of its, “aims to onboard 500 banks in the continent with aggregate lines of over $8 billion and has already on boarded 480 of these banks.”
Other achievements of the bank included the creation of a Pan-African Payment and Settlement System (PAPSS) to facilitate cross border payments in national currencies and is projected to save the continent $5 billion in transfer charges.
In addition, Afreximbank is supporting African countries to create/expand industrial parks in special economic zones to overcome the infrastructure bottlenecks that stunt industrialization (as) projects valued at $1.2 billion are underway in 10 countries.
“Thus, AfCFTA has arrived to give Africa what the WTO simply was not designed to give it – a place under the sun of global trade. This reality is further affirmed by the fact that global trade has progressively become driven mainly by regional dynamics.
“Thus, Afreximbank’s trade financing over the next 30 years will have more meaning and impact because the fundamental challenges to the continent’s trade ambitions will now be addressed resolutely,” he said.
These success stories notwithstanding, Moghalu pointed out that the activities of the bank have had somewhat limited reach, which he attributed to the geographical concentration of the bank’s exposures in Egypt and Nigeria, which potentially limited its real impact when measured on a continental scale.
He further recommended that Afreximbank should invest in ports facilitation and trade-related infrastructure, in particular electricity – the absence of which makes manufacturing extremely costly and uncompetitive, weakening Africa’s ability to participate in global trade in finished products.
