Africa's Bank For Trade - African Business Magazine
Africa’s Bank For Trade

Africa’s Bank For Trade

THE AFRICAN EXPORT-IMPORT BANK was established in 1993 as a mechanism to assist African companies in reaching global markets with their goods and services. Its foundation was driven initially by the African Development Bank (AfDB), after the institution’s board met in Cairo in 1987. Six years later, Afreximbank held its first shareholder meeting in Abuja.

The Bank came into being at a time when Africa had experienced a sharp fall in lending from financial institutions in the developed world. Trade and project finance had largely dried up and intra-African trade volumes remained low. The continent’s share of global trade had fallen in the preceding decade and international investors were hesitant to deploy capital into Africa at a time when political risk was still perceived as being high.

Promoting exports of value-added products from Africa was, and remains, an important objective for countries on the continent. While exports of raw materials do generate foreign exchange, strengthening service and manufacturing industries creates more productive employment and increases countries’ earnings from their natural resources and human capital.

Regional integration, which still remains high on the continental agenda, is equally important: replacing imports from overseas with goods produced within regional groupings helps reduce imported inflation at the same time as promoting the development of  a productive industrial base.

Africa at that time was still suffering the aftereffects of conflict, and a global economic slump that saw investment fall and many countries either stagnate or fall into recession. The need for a mechanism to bring money back to the continent and kick-start the development of export industries was great.

While many countries around the world maintain their own trade finance institutions, the AfDB’s board recognised that the majority of African nations at that time lacked the resources to establish their own import-export banks.

Many countries were still in debt arrears and were not considered creditworthy. As a multilateral institution, granted preferred creditor status in African countries, the Bank, as it was conceived, could attract international financing and channel it into companies in countries that would otherwise appear too risky for commercial banks.

The inception of the Bank’s operations coincided with the beginning of Africa’s return to growth. Improvements in political stability, higher commodity prices, debt relief and better macroeconomic management saw many countries hit high gross domestic product (GDP) growth rates by the early 2000s.

Structural adjustment programmes implemented by national governments at the behest of international creditors saw the break-up of state monopolies in commodity trading and in sectors, such as telecommunications, which were to become major drivers of economic growth.

That in turn sparked a new entrepreneurial revolution across the continent, with the private sector creating vibrant markets and an emerging, consuming middle class that has attracted investment from traditional partners in Europe and North America, but also brought expanded trade and investment from Asia, the Middle East and Latin America.

The context in which the Bank now operates may be different, but economic turmoil in the developed world since 2008 once again poses a threat to the ability of African companies to source the trade finance they need to take their goods and services to the rest of the world.

As liquidity dried up during the first “credit crunch” in 2008, international banking groups withdrew their credit lines, leaving a gap in the market that Afreximbank needed to fill. True to its original mission and mandate, the Bank has explored new avenues of financing and new partnerships with global institutions to allow it to keep lending and keep meeting African exporters’ needs. Its lending has expanded year on year, and it continues to find new ways to bring African products and services to the world.

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Written by African Business Magazine

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