African Export-Import Bank (Afreximbank) has many projects and plans in the near future in Egypt, among them supporting an Egyptian petroleum company, Factoring, and how the bank will focus on key growth sectors in Egypt.
Daily News Egypt sat down for an interview with president of the Afreximbank, Benedict Okey Oramah, the transcript for which is below, lightly edited for clarity:
What is the bank’s total financing to Egypt in first half of the current year?
The bank has remained committed in its support for the growth and development of Egypt. In the first six-months of this year, the bank’s total disbursements (including contingents) to Egypt amounted to about to $1bn. Some of the key projects the bank has supported include providing finance to an Egyptian telecommunications company to invest in a submarine cable connecting Egypt with other African countries. The plan was to have the cable being developed by another client of the bank, in order to achieve seamless cable connectivity from Cape Town to Cairo. In July 2018, on the side-lines of the bank’s Annual General Meeting in Abuja, Nigeria, the two companies entered into a cooperation agreement that will lead to more joint efforts and investments. This year, the bank also supported an Egyptian petroleum company to finance its investment in the Middle East Oil Refinery “MIDOR” to expand the refining capacity of the company and position Egypt, as a regional hub for exporting refined oil products in Africa and the region.
What is the value of the bank’s portfolio dedicated for Egypt for the whole year?
During 2018, the bank expects to disburse over $2bn in trade and project finance to entities in the private and public sector in Egypt.
What is the value of planned finance to be directed to Egypt in 2019?
In line with its five-year Strategic Plan, IMPACT 2021 – Africa Transformed, which focuses on supporting intra-African trade, promoting industrialisation and export development, and trade finance activities in its Member States, the bank will continue to support Egypt. We expect to disburse more than $2.7bn, on a revolving basis to Egypt, based on pipeline deals under review.
What is the total value of fund provided to Egypt last year?
The total value of funds disbursed to Egypt last year was $3bn (revolving) in trade and project finance facilities. Some of the facilities supported critical imports as the foreign exchange markets stabilised.
What is the value of fund for Factoring in 2017 and the allocated fund in 2018?
Factoring is an important instrument, which the bank uses to support SMEs that can serve as indirect exporters in export supply chains. The bank believes that factoring will drive down credit costs and allow African SMEs to trade more competitively through the use of open accounts and other modes of payment outside letters of credit). The bank’s exposure on factoring was $20.4m (Euro equivalent) in 2017. For 2018, the bank expects to finance factoring transactions for an amount of $76m for businesses in Egypt, Cameroon, Senegal, Kenya, Botswana, and Congo Brazzaville. The bank also recognises the fact that in order to grow factoring in Africa, there is a need for an appropriate legal framework to be in place. In this regard, in 2017 and 2018 the Afreximbank Model Law on Factoring was developed and adapted to suit different local regulatory environments in Africa.
What is the value of finance for Egypt’s SMEs?
The bank recognises the important role SMEs play in Egypt’s economy in terms of creating jobs and boosting trade. As a result, the bank has disbursed more than $500m to the SMEs sector through local banks. In addition, the bank is also currently implementing a programme, with a local export development bank amounting to $500m, directed at SMEs exporting into Africa.
What are new sectors the bank will finance in the coming year?
The bank will focus on key growth sectors in Egypt, such as export manufacturing, telecommunications, energy, construction, and construction services exports, pharmaceutical and medical equipment, food processing, while expanding its trade services, in support of trade finance activities of Egyptian banks.
What is the amount of money allocated for promoting the trade between Egypt and Africa?
In line with the bank’s strategic thrust to support and finance intra-African trade the bank launched a special initiative known as the Egypt-Africa Trade Promotion Programme (EATPP) in January 2015, with a view to helping Egyptian entities tap into the rapidly expanding trade and investment opportunities in the rest of Africa. The EATPP Programme was approved at an amount of up to $500m, which has been fully utilised in the form of funded and unfunded trade finance facilities. The bank has also supported large exporters, particularly in the power and construction sectors, by taking their African counter party risk. In this regard, amounts in excess of $2bn were deployed. Currently, under the bank’s Intra-African Trade Initiative, the bank has approved a $200m Global Guarantees Facility in favour of an Egyptian contractor to support its projects in Africa and the Middle East. Under this facility, the Egyptian contractor was supported for construction projects in African countries, such as Tanzania, Cote D’lvoire, Ethiopia, Algeria, and Mauritania.
What is the size of bank’s capital? Further, how many member countries does it have?
The size of the bank’s capital funds stood at $2.31bn, with slightly under $1bn as contingent (callable) capital as on 30 June 2018, while the bank’s total member states were 50 at the same date.
The bank held a meeting with Orascom to discuss business cooperation. Can you please tell us more details and the latest updates?
The Afreximbank is currently considering an Intra-African Investment Finance Facility for Orascom Investment Holding to be used to support the company in targeted acquisitions and investments across Africa in various sectors.
The bank is studying incorporate bonds of Afreximbank’s local currency in Egypt stock Exchange. What is the update regarding this and what is the bank’s decision?
In line with the bank’s strategic plan, IMPACT 2021 – Africa Transformed, the bank intends to diversify its funding base by borrowing in the local currencies of its member countries, in order to fund assets denominated in those currencies. Decisions are made to raise funding in a particular currency if requests of assets in a particular country amounts to critical mass in terms of size. Among the very many instruments the bank will consider are EGP denominated bonds.
Does the Central Bank of Egypt demand new funding from the bank?
The bank has been working with the Central Bank of Egypt (CBE) and other central banks across Africa over the past three years. The bank stands ready to continue supporting the African Central Banks in their efforts at ensuring the continued smooth functioning of the country’s financial and trade sectors.
Mamish met with the Afreximbank’s president last year to discuss the investment opportunities in the Suez Canal Economic Zone and establish African investment zone in Suez Canal area. What is the update regarding this issue?
The bank has supported the efforts of the Suez Canal Economic Zone (SCZone) through investment promotion activities for the zone. For example, in September 2017 the bank joined the SCZone on an investment promotion mission in Munich, Germany. In addition, in support of the SCZone, the bank is in discussions with a number of European investors over project financing facilities for their planned investment in the zone. During the course of 2018, the bank intends to sign a cooperation agreement with the SCZone to further boost relations and widen the scope of the bank’s support to include investment promotion and financing activities; facilitating market access and promoting exports into Africa.
What is the update regarding IATF 2018 exhibition that will be held in Cairo? How many countries will participate in it?
The IATF is being organised by Afreximbank, in collaboration with the African Union, and is being hosted by the Export Development Authority (EDA) on behalf of the Government of the Arab Republic of Egypt. Preparations for IATF 2018, which is scheduled to be held from 11 – 17 December 2018 are progressing very well. The bank is targeting at least 1,000 exhibitors, and to date has received investors exhibition applications from about 700 exhibitors. To date the bank has also received requests from more than 25 African countries to participate in IATF 2018 and about 14 countries have requested to mount country pavilions. Some African trading partners have also expressed interest to participate to seek joint ventures with African companies at the fair. We expect a very successful event that will begin to shape Intra-African trade and it promises to be the biggest trade expo ever in Africa.
Finally, what is your opinion regarding the recent economic reforms the Egyptian government took, such as gas subsidy cut, new taxes, and liberalisation of the pound exchange rate?
Egypt confronted a myriad of difficulties which started in 2011 as security-related challenges and then morphed into economic ones. Although triggered by the challenging geopolitical and regional environment and particularly the Arab Spring and inherent security-induced shocks, which adversely affected the tourism industry in a country where tourism is a key driver of economic growth and the main source of foreign exchange earnings, the second-round effects of these challenges were widespread. The GDP growth which averaged 6% between 2005 and 2010 dropped to less than 2% at the height of the Arab Spring. In the face of economic contraction and falling government revenues the fiscal deficit increased from 8.1% of the GDP in 2010 to average 11.45% from 2011 to 2016. In addition to widening current account deficits, the declining revenues from tourism and falling foreign direct investment in the face of rising uncertainty and declining investor confidence put a lot of pressures on the Egyptian pound, which lost over 200% of its value against the dollar between 2011 and the end of 2016.
The difficult economic reforms undertaken by Egyptian authorities, including cuts in government subsidies and shift towards market-determined exchange rates were largely designed to stabilise the macroeconomic environment and help the country return to a stable path of robust economic growth and output expansion. These reforms were supported by key development partners, including the International Monetary Fund and the African Export-Import Bank through its Counter-cyclical Trade Liquidity Facility (COTRALF), which was approved by the board of the bank in 2015 to support member countries affected either by adverse economic shocks. The government and the CBE must be commended for undertaking the reforms. We believe that Egypt can look forward to realising in full the development and potentials brought about by the reforms.
The economic dividends of these reforms have been significant, perhaps suggesting that they achieved the intended objectives. The dwindling foreign reserves which had been falling rapidly and reached the historically low level of $13.3bn, corresponding to two and a half months of import covers in 2013, have been reversed. Foreign reserves are growing again and reached a record high of $45bn (nine months of import cover) in July 2018. The current account deficit which has been improving is projected to narrow from over 14.8% of the GDP in 2016 (to less than 4% of the GDP in 2018. Similarly, the GDP growth which averaged 4.3% between 2015 and 2017 is projected to strengthen further in 2018, with the GDP forecast to accelerate to 5.2% in 2018 and 5.5% 2019. Fiscal deficits have also narrowed significantly and is expected to fall to 8.4% of the GDP in 2018/19. Even inflationary pressures which followed the adoption of market-determined exchange rates have abated.
In its last review of economic performance of Egypt, the International Monetary Fund praised the Egyptian government for undertaking the difficult economic reforms, which are paying off, with strengthening growth and economic expansion and improving investor confidence. Foreign direct investment flow to Egypt increased significantly during the implementation of reforms, with Egypt becoming the largest recipient of FDI within the region in 2017. The opportunity now is to make sure that these reforms dividends translate into expansion of employment opportunities and poverty reduction to avoid the risk of reform fatigue.
We at Afreximbank, have followed with keen interest the strong and courageous measures that the Egyptian authorities have taken to address the economic challenges, we have strong belief in the strategic sectors of the country and the giant leaps that the Egyptian economy is taking towards a better future. Through these economic and financial reforms, we believe that Egypt will fulfil its destiny in becoming one of the leading economies and industrialization hubs in the region. As the bank strives to achieve its ambitious Intra-African regional integration strategy, we look at Egypt as one of the key African economies, which could play a vital role in promoting Intra-African trade and investment, which will ultimately contribute to the welfare and advancement of the continent. That is why we are committing billions of dollars in investments in Egypt—a vote of confidence on the management of the economy.