Africa Case Studies

Africa Case Studies

Building Local Stakeholders
African Content Promotion Initiative

Africa’s natural resources remain the greatest source of export revenues on the continent, and represent its most immediately available route to prosperity.

However, while the extractive industries on the continent do generate taxes and foreign exchange earnings, their wider effects on the development of industry and job creation is limited. Key to ensuring that the extractive industries have a broader development impact is the evolution of local content, defined as the rent, interest, salaries and wages, profits and dividends retained in Africa.

A number of governments have introduced policy measures prescribing the level of local participation that must be involved in the execution of any given project. However, many potential operators struggle to attract financing, having little equity to offer. Local banks are often ill-equipped to structure lending products to spark growth in the sector.

Afreximbank has begun a programme of providing funding for medium-sized service and advisory firms as they bid for service contracts, assisting them to meet their working capital requirements and acquire equipment.

Banking On Tourism,
Afreximbank Construction / Tourism-linked Relay Facility

Africa’s overall share of service exports is small – less than 2.5% of the global aggregate in 2010, according to the World Trade Organisation. Outside of Egypt, South Africa, Morocco and Tunisia, few countries have adequately taken advantage of their potential for exports of financial services, travel and tourism. Only around 13% of all African export receipts are service-industry related.

The service industry creates jobs, generates foreign exchange and fiscal revenues and helps to alleviate poverty in developing economies. Africa, with its rich cultures and heritage and endowment of landscapes and wildlife, has massive potential for tourism. However, the continent currently has a less than 6% share of global tourism business.

A lack of appropriate infrastructure and human resource capacity and poor quality of marketing of African destinations to an international audience have all contributed to the slow development of the industry.

Afreximbank has recognised the potential for tourism to have a transformative effect on African markets, and created a new product for financing the construction of tourist facilities. The Bank previously attempted to work in this field, but was limited by the challenges of managing the completion risk of projects.

The new Afreximbank Construction/Tourism-linked Relay (CONTOUR) facility manages this risk by creating risk-sharing arrangements with partner banks, who are responsible for structuring, arranging and providing loans for the construction of hotels and other tourism facilities loans on the back of guarantees provided by Afreximbank in support of the project.

When the projects are completed, Afreximbank refinances the construction loans and provides additional financing for furniture, fittings and equipment, and working capital to support the operations of the hotel.

“De-Commoditisin” African Exports
Export Development Programme

African industrial development lags behind that of much of the rest of the world, making the continent’s economies heavily dependent on raw commodities and commodity-linked products and services. Breaking the cycle of dependency on natural resources means developing a manufacturing base that has its own specialities and can access markets both within Africa and in the rest of the world.

In response to the difficulties that emerging manufacturers have in finding the capital to take their goods to other markets, Afreximbank has created the Export Development Programme (EDP), which combines credit, risk bearing, twinning, market access and advisory services.

The EDP helps companies to take advantage of the bilateral and multilateral market access treaties and initiatives which have been made available to African exporters, such as the US African Growth and Opportunity Act (AGOA), the European Union’s Africa, Caribbean and Pacific accords and trade agreements signed between African governments and India and China.

The initiative also aims to help African non-commodity exporters find markets within Africa and foster regional initiatives, such as pipelines and power projects. It also focuses on increasing the intellectual property and branding component of African exports.

In support of the EDP, the Bank has forged strategic partnerships with African and non-African Exim banks, African and non-African banks and venture capital funds, governments and corporates.

Moving Up The Value Chain
Africa Cocoa Initiative

Africa produces around 70% of the world’s cocoa, with most of the production in the West, in Côte d’Ivoire, Ghana, Nigeria, Cameroon and the Mano River Union. It is a major contributor to foreign exchange receipts, fiscal revenues and employment on the continent.

Many countries on the continent struggled after the structural reforms imposed on them in return for aid from the Bretton Woods institutions saw them dismantle their commodity boards, which controlled and scheduled pricing, input supplies, warehousing and transportation.

The continent’s cocoa producers still struggle to find the financing for the replanting and inputs needed to ensure the sector’s long-term viability. The movement of labour away from farms and into cities has also created a need for mechanisation.

In the longer term, the value that the cocoa industry gives to African economies is heavily dependent on the ability of countries to create processing industries. Currently, cocoa is shipped raw or dried for processing overseas. Contract farming by producers from elsewhere in the world is becoming an increasingly prevalent model, further entrenching the position of African economies at the base of the value chain. Across the four major cocoa producers, an average of 75% of all cocoa exports are in bean form.

Afreximbank has created the Africa Cocoa Initiative (AFRICOIN) to stimulate an increase in the proportion of cocoa that is processed at source, working with governments, financial institutions and companies to create funding pools for investing in the modernisation of the sector and helping to identify market opportunities in Europe, North America, Asia and the rest of Africa.

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Written by African Business Magazine

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