The bank has experienced a strong growth of its business over the past few years. In fact, the bank’s total assets grew to $11.9b in 2017, up from about $4b in 2014.
This week Business Vision had a Q&A session with Bank of Uganda Deputy Governor Louis Kasekende, who is a board member of Afreximbank, about plans it has for Uganda and Africa. Here is the interview in full
Question: Tell us about the Afreximbank and its mandate?
Response: The African Export-Import Bank (Afreximbank) was established in 1993 to address acute challenges that faced African countries in the 1980s and the beginning of the 1990s.
Similar to the current challenges faced by the continent, these included, weak economic growth, poor international trade performance of the continent and deterioration of terms of trade, over-dependence on export of raw commodities, which makes the continent vulnerable to global shocks; and fluctuations in commodity prices, as well as withdrawal of large international banks from Africa's trade finance landscape due to high risk perception of the African countries.
The bank is headquartered in Cairo, Egypt since its establishment in 1993 and currently has three branch offices in Abidjan, Cote d'Ivoire; Abuja, Nigeria and Harare, Zimbabwe. These branches have allowed the bank to be close to its key markets and to offer its products and services with a geographic proximity to its customers and other stakeholders.
The bank has experienced a strong growth of its business over the past few years. In fact, the bank's total assets grew to $11.9b in 2017, up from about $4b in 2014.
Profitability has also increased sharply in line with strong business origination capabilities, enhanced bank-wide risk management and improved capacity to leverage international financing into the continent.
The African Export-Import bank has a mandate to facilitate, promote and expand African trade within the continent (intra) and with the world (extra). In line with this broad mandate and as outlined in the bank's charter, key functions of the bank, include extending direct credit to African exporters; extending indirect short-term and medium-term credit to African exporters and importers; promoting and financing intra- African trade and promoting and financing South-South trade between Africa and other nations.
They also include acting as an intermediary between African exporters and African and non-African importers through issuance of letters of credit, guarantees and other trade documents, as well as providing support to payment arrangements aimed at expanding Africa's international trade and carrying on banking operations and borrowing funds.
In line with the above discussed mandate, the bank is implementing strategic initiatives that will support trade in African countries. Uganda's financial institutions and corporate entities are set to benefit from these flagship initiatives, including: The Pan-African Payment and Settlement Platform Afreximbank is implementing a central financial infrastructure for the economic and financial integration of Africa.
The Pan African Payment and Settlement Platform (PAPSP) is a centralised payment and settlement infrastructure for intra-African trade and commerce payments. Its main objectives include to increase intra-African trade, facilitate economic and regional integration, reduce cost of cross-border payments across Africa and the duration and time variability of cross-border payments across Africa. Others are to decrease liquidity requirements of commercial banks for crossborder payments and to disintermediate correspondent banking relationships for intra-African trade payment flows.
MANSA is the bank's platform aimed at facilitating African trade by providing a trusted source of primary data required to conduct customer due diligence (CDD) and know your customer (KYC) checks on African counterparties.
The comprehensive due diligence information provided by the platform aims at eliminating the perceived high-risk perception when dealing with African counterparties. Intra-African Trade Fair The bank will be organising the first ever Intra-African Trade Fair in Egypt from December 11-18.
The fair aims mainly at providing a continental platform for various stakeholders to share trade, investment and market information and to enable buyers, sellers, investors and countries to discuss and conclude business deals.
Exhibitors from across Africa will showcase their goods and services and engage in business-to-business exchanges. The fair will be a unique opportunity for countries like Uganda to showcase their trade potential and seek new business deals with counterparties from other African countries.
Thus, Ugandan exporters and importers are encouraged to attend the fair and reap the dividends of the participation. What is the financial capacity of the bank and how is it funded? As at the end of 2017, the bank's balance sheet stood at about $11.9b, out of which more than 70% were loans and advances to customers.
In 2017, the bank mobilised about $5b from external sources, including its Central Bank Deposit Programme (CENDEP), which seeks to mobilise What is the financial capacity of the bank and how is it funded? As at the end of 2017, the bank's balance sheet stood at about $11.9b, out of which more than 70% were loans and advances to customers.
Trade Finance Leadership
The bank will intensify the provision of trade finance products and services to various players in the country in order to expand its capacity and assist Ugandan banks and corporates to bridge the trade finance gap experienced across the continent. Some of the key themes under this pillar include the strengthening of correspondent banking services and the provision of trade information and advisory services to various stakeholders.
Some of the main facilities/services to be offered to Ugandan banks and corporates under these strategic pillars include Trade Finance Export- Import Facility, Pre and Post-Export Financing Facility, Letter of Credit Confirmation and Refinancing Facility, Construction and Tourism- Linked Relay Facility (CONTOUR), Construction and Medical Tourism Relay Facility (CONMED), Industrial Parks and Export Processing Zones Financing Facility, Project Finance Facility, Project Preparation Facility, Forfaiting Facility, Factoring Facility, Supply Chain Financing Facility and Intra-African Investment Financing Facility.
Others are contract farming and out growers scheme financing, intra- African export financing facility, construction finance guarantee facility, interstate transit guarantee, working capital guarantee facility, country risk guarantee facility, trade information services, corporate advisory services (for debt and equity, as well as arrangement of acquisition financing), among others.
The bank's total capital funds as of 2017 were $2.1b, reflecting a strong capital adequacy ratio of 26% in 2017, well above the industry average. The additional capital raised by the bank over the past few years through the equity mobilisation initiatives pursued, is aimed at supporting the strong growth in business activities and the balance sheet.
Also, the high profitability of the bank has allowed a boost from internally-generated equity through retained earnings. In addition to that, the bank has in recent years embarked on a strong funding plan, with the main objective of mobilising international financing at adequate pricing in support of Africa's trade and trade finance operations.
In 2017, the bank mobilised about $5b from external sources, including its Central Bank Deposit Programme (CENDEP), which seeks to mobilise foreign exchange reserves of African central banks that would otherwise be invested in developed countries. The bank is also undertaking other activities to boost its fundraising, including bond issuances on international financial markets, bilateral credit lines from development finance institutions and export credit agencies, as well as money market lines.
How can Uganda take advantage of the bank and what kind of funding is available to Ugandan projects?
As at the end of 2017, the bank's total exposure to the East African region was about $760m. Although the bank, in the past, financed many transactions in Uganda, (including Greenland Bank (in liquidation), Uganda Development Bank and Coffee Marketing Board (CMB)), the bank currently has no loans or advances to Ugandan financial institutions or corporate entities.
This gives room for huge growth opportunity of the bank's portfolio in the country. The opening of the regional branch will definitely play a major role in boosting the bank's business in Uganda and the region. For Ugandan projects, the bank offers a wide range of funded, unfunded and risk-sharing facilities to support their trade operations with other African countries and the world.
In fact, under its fifth strategic plan covering the period 2017-2021 and dubbed Impact 2021-Africa Transformed, the bank could offer its support for Ugandan banks and corporates under the following strategic pillars: Promoting intra- African Trade Promoting and financing intra-African trade (IAT) is one of the main reasons the Bank was established.
The promotion of IAT is the bank's first strategic pillar and theme for the period 2017-2021. The objective of the IAT strategy is to bring together all the players (governments, manufacturers, farmers, logistics firms, etc.) to provide a holistic solution to facilitate cross-border trade within Africa.
Industrialisation and export development
Under this pillar and to reduce the continent's dependence on export of raw materials, the bank will seek to support a consistent expansion and diversification of production and trade capacities across Africa.
The industrialisation and export development (IED) strategy will support companies in Uganda in leveraging their potential in terms of low production costs (mainly lower labour costs) and rich endowment in natural resources to foster industrial transformation.
We have heard reports that the Afreximbank is planning to move its headquarters to Kampala. Is this true? What value would the headquarters bring to Uganda?
The bank has no plans to move its headquarters from Cairo, Egypt. It is, however, planning to open a regional branch office in Kampala, Uganda. The branch office will cover the bank's activities and business in all East African countries. The objective of the branch will be the expansion and development of the activities of the bank in East African countries that will contribute to the diversification of its interventions across the continent.
A branch office is set to undertake a number of activities, such as marketing, relationships development, loan structuring and monitoring, as well as agency functions. The bank's medium-term Strategic Plan - Impact 2021 gives a prominent role to the branches to develop the bank's business in coverage areas.
What is Afreximbank's promise for the region?
The operations and activities of the bank in the region will be aligned to key strategic pillars, namely Intra-African trade promotion, industrialisation and export development, trade finance leadership and financial soundness and performance.
The bank also takes into consideration the national development and strategic plans of East African countries in order to identify the common areas of interest, so that the bank's financing is directed where it is most needed.
The offer of the branch will include a wide range of programmes/products and services to various stakeholders in the region, including governments, financial institutions and corporate entities involved in international trade transactions.