Afreximbank 23rd AGM tackles commodities diversification with ‘blue economy’ support and agrees US$1bn capital raising

News | 25 July 2016

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“Africa must reclaim ownership of its oceans”, said Seychelles minister of finance, trade and the blue economy Jean-Paul Adam.

As host to Afreximbank’s 23rd Annual General Meeting and related events that took place on Mahé Island on 20 to 24 July 2016, the event’s focus on how to do more with the continent’s 16,000 miles of coastline so that it contributes more to intra-African trade (rather than foreign corporate profit margins) was particularly timely.

Plunges in commodities prices and the knock-on effect this has had on economies dependent on their export revenues has given John Maynard Keynes’ observation that “the difficulty lies not so much in developing new ideas as escaping from old ones” a pertinence that had everyone determined to do both.

Jean-Paul Adam and Dr Benedict Okey Oramah explain the interconnection of the blue ecnonomy with intra-African trade

From out of the blue?

Indeed, the African Union’s (AU’s) long-term strategy, Agenda 2063, singled out the blue economy as an important driver of sustainable development and declared the decade 2015-2025 as Africa’s Decade of Seas and Oceans.

The discussions explored how to relink the transformational potential of the blue economy with the wider economy of the continent’s 54 countries (despite 16 of them being landlocked). Successes from Iceland, Japan and Norway and learning points from their financial incentives and infrastructure investments shared.

“While we have seen a lot of positive infrastructure change in Africa’s oceanic space, the number of ports at international standards is not good enough”, said finance and trade minister Jean-Paul Adam, a view shared by Oando PLC chair Wale Tinubu later in the conference programme.

“Goods will come in from landlocked African countries, wait on the coast for days, sometimes weeks, to be exported elsewhere. There is still a lot to be done with shipping routes. On top of that, when we look at the potential of aquaculture, the potential is huge and the demand is massive because of the need for protein. This is a way of investing in food security in the long term – even for landlocked countries because of their fresh water resources.”

Mindful of Angola’s heyday of fish exports before independence from the Portuguese, that once fed Congo, Zambia and half of the other surrounding countries in the region, it was good to hear from the Seychelles government how it is looking to partner with other African countries such as Nigeria to ramp up this under-developed trade and work closely with Afreximbank on supporting blue economy enterprise.

Former Seychelles founding president, Sir James Mancham, made the point that Africa’s expenditure on defence was impeding its development. “We need peace and intercontinental unity”, he reflected. It was a coup d’état in 1977 that had precipitated his loss of office and subsequent exile and, on return to his native land 15 years later in 1992, he declared national unity and stability were “more important that the position of president itself”.

Left to right: Dr Benedict Okey Oramah and former Seychelles president Sir James Mancham. Between them (out of vision) is former Nigerian president Olsegun Obasanjo, who had earlier said African countries could achieve industrialisation by focussing on locally available commodities and nurturing local entrepreneurs. At this point of the proceedings, question time was in French.

One area of national stability has been its central bank. Governor Caroline Abel told TFR how the Central Bank of Seychelles had to liberate the rupee in November 2008 because of black market activity (tourists were being propositioned to sell their dollars on the beach), and how it had to calm the markets after a severe drought in 2012 resulting in the government importing desalination equipment.

Opening of Afreximbank AGM 2016 in Seychelles: (sitting left to right) Dr Denny Kalyalya, governor, Bank of Zambia; Afreximbank President Dr. Benedict Oramah; former Seychellois president Sir James Mancham; vice president Danny Faure of Seychelles; and Denys Denya, Afreximbank executive vice president; joined by members of the Afreximbank board of directors and other special guests after the opening ceremony.

Market failure

Trade across the continent has been hit hard, falling around 30% from US$1.2trn in 2014 to US$880bn in 2015.  Dr Benedict Okey Oramah, presiding over his first AGM since his election to the Afreximbank presidency a year ago, has had something of a baptism of fire. The bank continuously grapples with market forces that threaten to “derail the tremendous progress many had seen over the last one and half decades”.

International bank deleveraging, worsening balance of payments, and the resulting foreign currency challenges, could have cast a distinct chill over the proceedings, but the mood this year was up-beat. And this was not just because of the turquoise seas and golden beaches that greeted delegates each day – but because of the opportunities that are within the continent’s grasp.

Last year’s AGM host and event chair, Bank of Zambia governor Dr Denny Kalyalya explained, “The sharp fall in the prices of commodities, which include copper, iron, crude oil, natural gas, and various agricultural commodities, has been particularly hard for the continent that is largely dependent on the export of these products. The fall in the prices of these commodities has resulted in worsening of balance of payments positions which has translated into foreign currency challenges.”

He added, “Other challenges unique to the continent have arisen from the deleveraging of international banks from the continent through cuts in credit lines,  reduced onboarding of African based clients, as well as a disproportionate increase in pricing relative to the risk, which risk is in many instances more perceived rather than real.”

Practical support

In response to the difficulties African banks are having in the current climate, Afreximbank launched its Countercyclical Trade Liquidity Facility (COTRALF) in December 2015 to get foreign currency liquidity into African central bank. Dr Oramah confirmed in his AGM address that as at June 2016, US$6.2bn had been disbursed with and anotherUS$3bn of requests sitting in the pipeline.

These increased demands on the bank’s capital have been met with support from shareholders – to the tune of a US$500m capital raising target achieved six months ahead of schedule in June, and the approval of a further US$1bn.

Because of the problems African banks have been having repaying trade finance facilities in adverse market conditions, Afreximbank has been, said Dr Oramah in a press conference, “working with the central banks to provide a facility to ensure backlog payments are met”. The last thing Africa needs is default contagion, and the affected countries have been selling future receivable flows such as flight fees, fishing and mining rights to share the risk. Loans due for payment now are being rescheduled so that trade gets paid …but just not right now.

The development bank’s strategy is to continue the work reported last year on boosting intra-African trade and make this a pivot around which the continent’s developmental aspirations would evolve. Success here, said Dr Oramah, will reduce the exposure of the region to recurrent commodity price shocks.

Seychelles trade

In his address, Danny Faure, vice president of the Republic of Seychelles, congratulated Afreximbank on achieving its purposes – supporting trade on the continent.  “In terms of trade, the potential is vast; as long as it is not just for providing cheap raw materials to more industrialised countries but also to boost the local production of value added goods and services. On the other hand, we do not need to be reminded that for island states like Seychelles, the ocean is their link to the rest of the world and is also one of the pillars of their economy. Hence the need to strike the right balance between development and conservation.”

As a fellow islander (Northern hemisphere) , I could see exactly what he meant.

Seychellois hosts await delegates outside the canvas conference hall

TFR editor-in-chief Clarissa Dann visits an appropriately named Seychelles blue economy dried fish business at the trade exhibition

Clarissa Dann is the editor-in-chief of TFR and attended the Afreximbank 23rd Annual General Meeting and related events from 18 to 24 July 2016 in Seychelles. She also moderated a panel exploring the future of financial services in Africa

Box-out 1

Blue economy definitions
  • Fisheries
  • Aquaculture
  • Pharmaceuticals and chemicals
  • Deep seabed mining
  • Renewables
  • Desalination
  • Eco-tourism
  • Technology and R&D
  • Blue carbon (i.e.coastal vegetated habitats)
  • Habitat protection and restoration

Source: The blue economy, growth , opportunity and a sustainable ocean economy published by The Economist Intelligence Unit

Box-out 2

Afreximbank capital mobilisation

The only development bank to pay a dividend to shareholders, (this year’s AGM approved a US$28m pay out to shareholders in line with historical practice at 23%), Afreximbank’s capital mobilisation exercise has been accelerating in earnest ever since a general capital increase was approved  at an extraordinary general meeting (EGM) in September 2014.

Shareholder funds have actually risen from US920m in December 2014 to US$1.5bn by June 2016, but with overall pipeline of financing and guarantee requests nearing some US$60m, the bank has to keep pushing on with its capital raising to achieve its stated objective of increasing intra African trade from its current US$170bn to US$250bn by 2021 – an uplift of 50%.

The capital raising of US$500m agreed in 2014 was scheduled for completion by 31 December 2016, but, as Dr Oramah (Afreximbank’s president) reported at the AGM, this was a achieved ahead of time in June 2016, an indicator of shareholder willingness. So, the opportunity was taken to support an additional call for US$1bn, largely from new shareholders. Recent joiners announced at the AGM were:  Republic of Congo (Brazzaville), the Dangote Group, the Seychelles Pension Fund, and Nouvobanq, Seychelles.

Total balance sheet assets have risen from US$5.2bn in December 2014 to US$11.2bn in June 2016, an increase much needed to finance the US$15bn provided each year to African businesses as part of its mandate to finance, promote and expand intra and extra African trade.

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