About a year and a half ago, Afreximbank led the execution of the single largest intra-African investment financing project in Tanzania.
The $2.9bn hydroelectric power project, expected to generate more than 2,000 MW of electricity, was financed solely by African financial institutions and is under implementation by Egyptian construction companies.
This adds to almost $5bn worth of similar investment projects funded by the Afreximbank, and executed by African entities during the last four years.
Afreximbank has prioritised the promotion of these kinds of African Direct Investments (ADIs, investments by Africans in African countries other than theirs), because it is our considered view that “only Africans can lead Africa’s economic transformation”.
Foreign direct investments (FDIs, investment from non-African sources) have mostly been concentrated in Africa’s extractive or resource-based industries, with a marginal impact on the real economy and job creation.
In contrast, ADIs have focused on productive sectors, including construction, hotel and tourism, chemicals, manufacturing, financial services, infrastructure, and other services sectors. Increased intra-African investment is thus essential to accelerating economic growth and job creation.
According to a 2020 study by the African Development Bank (AfDB), intra-Africa FDI between 2003 and 2017 amounted to $92.8bn. However, it represented a paltry share of investments flow into Africa. We must grow these numbers as ADI’s benefits can be self-reinforcing in a pan-African sense.
The Bank’s efforts to expand these kinds of ADIs is rooted in its relatively larger economic impact than FDIs. It is through such investments that intra-regional trade can be accelerated in a dynamic sense.
ADIs financed and executed wholly by African financial institutions and corporates dispel the erroneous impression about the continent’s lack of capacity to carry through large African projects.
Another important outturn of these investments is the retention of sizeable proportions of value-added within Africa, which can be recycled into new development projects in the continent, thereby expanding Africa’s resources for Africa’s development.
The direct and indirect job creation effects are equally evident. These projects, executed using African resources, have facilitated intra-African skills and technologies transfers, nurtured the growth of regional supply chains and integrated small- and medium-sized enterprises (SMEs) into continental projects.
Further, by expanding operations across Africa, these entities are engaged in learning-by-doing, and realising significant efficiency gains from economies of scale and scope. At Afreximbank, these intra-African projects have accounted for a substantial share of total financing for African projects over the last few years.
Scaling ADI has been particularly challenging, despite the notable progress made. The African Development Bank (AfDB)’s 2018 Africa-to-Africa Investment Report identified access to finance, availability and cost of electricity, political instability, and sizeable informal sector as overriding challenges to accelerating ADIs.
Other challenges included corruption, taxes, customs, and trade regulations. Thankfully, regulatory and policy-related challenges are being addressed under the African Continental Free Trade Agreement (AfCFTA).
On 1 January 2021, Africa commenced trading under the AfCFTA. That historic step marks the first phase of liberalisation of trade in goods and services through gradual tariff removal and elimination of quota restrictions.
It follows the adoption of the Protocol on Trade in Goods, a Protocol on Trade and Services, a Protocol on the Settlement of Disputes between Member States, and the Rules of Origin.
Negotiations of the schedule of tariff concessions and schedules of specific commitments were ongoing. Phase 2 negotiations, which includes the Protocol on Investments, will follow shortly.
It will streamline the complex framework of intra-African investment, by replacing the existing 171 intra-African bilateral investment treaties (BITs) with a single treaty that would regulate all ADIs.
Nonetheless, adoption of the Protocol on Investments will not be an end in itself. Concerted efforts will be required to eliminate the non-policy challenges to cross-border investments.
The AfDB has suggested that African entities should build entrepreneurial approaches to doing business and investing in the continent, drawing on geographical proximity, local knowledge, and talent to achieve greater returns. African policymakers should promote stable policies, smooth regulations, and transparent procedures.
The role of development institutions will be critical in unlocking intra-African investment potential. Roles could include supporting African entities in tendering and bidding for African projects. Afreximbank has launched some tailor-made products to accelerate ADIs.
The Bank’s Intra-African Investment financing and Intra-African investment Guarantee products provide funding to, and de-risks, cross border investments to allow African entities to pursue opportunities and/or to provide cover for commercial banks to finance cross border investments.
In particular, Afreximbank Country Risk and Investment Guarantee Facilities have been very instrumental in mobilising ADIs. Afreximbank’s Trade Information Portal, about to be debuted in the second quarter (Q2) of 2021, will offer investment opportunities across Africa at the push of a button.
It will also complement the biennial market-opening opportunities at the Intra-African Trade Fair, organised by Afreximbank, the African Union and the AfCFTA Secretariat, offers. And as the Pan-African Payment and Settlement System (PAPSS), under implementation by the Bank under AU auspices, comes on stream in March 2021, currency convertibility challenges intra-African investors currently face will begin to fade.
Afreximbank’s Intra-African Trade Champion Initiative (also IntraChamps), launched in 2016, has been an anchor for intra-African trade and, investment financing and promotion activities of the Bank.
The IntraChamps initiative allows the Bank to leverage its knowledge of the continent and strong public and private sector relationships to introduce African entities to African governments and relevant private sector. It thereby provides them with the unique opportunities to bid and, in many cases, successfully win projects.
Afreximbank places eligible IntraChamps near equal footing with non-African entities to bid for projects and supply contracts across Africa, supported with Bid Bonds, Advance Payment Guarantees, Project and/or trade financing as well as Advisory Services as the case may be.
Since its launch in 2016, about $5bn of bids have been won, and partially or fully financed by Afreximbank. Using this facility, the Bank has supported African investment activities of: the Dangote Group of Nigeria in Ghana and Tanzania; activities of Wadi Degla Group of Egypt in Ethiopia and Kenya; El-Sewedy Group’s activities in several African countries; Mota-Engil, S.A’s investment in Angola and other African countries, among others.
Within the framework of the AfCFTA, accurate recording of intra-African investment flows is essential for gauging the success of the AfCFTA, policy analysis, formulation and directing these investments into strategic development programmes.
In this regard, Afreximbank has kick-started a project to create a framework for recording, tracking/monitoring, and reporting intra-African investment flows.
Opportunities for investments in the rest of the continent remains vast. The AfCFTA and national governments will create the environment, but institutions such as Afreximbank and other development finance institutions will remain critical in empowering African entities to harness the investment opportunities that abound in the continent. The borders are now open, and investments must flow.
Professor Benedict Oramah, President and Chairperson of the Board of Directors, African Export-Import Bank (Afreximbank)