From Global Trade Review (GTR) | By Sanne Wass

Kenyan trade finance bankers express concern that they are “losing the battle” with Chinese banks, whose expanding business in the country is increasingly leaving local banks out of the equation or in advising roles only. The concern is raised as China continues to up its stake in the African continent. Speaking on Monday at the start of the three-day Forum on China-Africa Co-operation in Beijing, China’s President Xi Jinping pledged another US$60bn for African development over the next three years. This funding will go towards agricultural modernisation, infrastructure connectivity, green development and healthcare projects. Xi also said China would implement trade facilitation programmes and hold free trade negotiations with interested African countries and regions. Reacting to criticism that Beijing is tangling African governments in a debt trap, he said: “Only Chinese and African people have a say when judging if the co-operation is good or not between China and Africa. No one should malign it based on imagination or assumptions.” In Africa, meanwhile, the Chinese dominance is very real: while financial support is generally appreciated, it’s not always deemed as good for the continent. In Kenya, for example, critics have for long warned against a “Sino-invasion”, as business reporter Dominic Omondi called the problem in an op-ed in Kenya’s Standard newspaper in May. Under the headline “Poor strategy dug Kenya into Chinese trade hole”, he argued that China has “stretched Kenya’s hospitality”, “taking advantage of the country’s open-door policy to flood the market with all manner of goods”. The numbers speak for themselves: as of June 2017, China controlled no less than 66% of Kenya’s total Sh722.6bn (US$7.2bn) bilateral debt, according to the Kenya National Bureau of Statistics in its 2018 economic survey. At Sh478.6bn (US$4.75bn), this is more than a seven-fold increase from China’s Sh63bn (US$625mn) debt to Kenya in 2013. And while Kenya imported goods worth US$7.38bn from China in 2017, it only exported US$114.5mn-worth of goods to the Asian country, according to estimations by Coriolis Technologies. Kenyan trade finance bankers are also worried that they are not getting as big a slice of the Chinese pie as they would wish. This is despite the fact that most Kenyan banks now have Chinese relationship managers, or have even created full Chinese departments, as recently reported by GTR. Timothy Mulongo, trade finance business development manager at Co-operative Bank of Kenya, says Kenyan banks are sometimes cut out of deals altogether by local Chinese branches, a trend he says is “a major cause of concern”. “We see a lot of the Chinese banks setting up locally, so instead of marketing their products from offshore, they would set up a local office and build customer relationships from there,” he says. “What that means is that there are less and less opportunities for local banks to do business. It becomes more or less like local Chinese trade: Kenyan banks would not even have an opportunity to intermediate.” This experience is shared by other banks. George Kiluva, head of trade finance at Commercial Bank of Africa (CBA), points to “the dominance of the Chinese business in the region” as an issue often raised at the Trade Finance Association of Kenya, a local professional body for Kenya’s 44 financial institutions launched last year to discuss challenges and harmonise practices. One challenge, Kiluva explains, is that local public sector construction agencies in certain instances have started to accept performance guarantees on local projects directly from China, rather than locally. “That is our business being exported. The Chinese banks are taking away a lot of our banking business, because we expect to issue these guarantees locally. We’ve continuously looked at how to lobby against this,” he says.   Priced out of the guarantee market While Kenyan banks started to encounter the problem last year, Kiluva says it is now becoming “entrenched”. “Whenever there is a local project that Chinese firms are undertaking here in Kenya, we would get a counter-guarantee from a bank in China, and on the back of a that, we issue a guarantee,” explains Mulongo of Co-op Bank. “But Chinese counterparties are always looking at how to cut their costs. So we have seen that they send out a guarantee directly from a bank in China. It doesn’t make much sense, because you are accepting an instrument from a counterparty that you don’t know.” The trend means that guarantee business is increasingly run without involvement of the local banks, he adds. “They do not play their intermediation role in the industry. And when the local banks are utilised, it is for advising only, not for local issuance or confirmation.” The fact is that Kenyan authorities have gained a high level of comfort in Chinese contractors, after years of working together. “The Chinese say: ‘We’ve done so many projects in Kenya and nothing has gone wrong, you’ve not had the need to demand on the guarantees.’ So why bring in a local bank that will charge extra and make the cost high? You find local banks are losing the battle on that front,” says a trade finance banker who preferred not to be named. Kenyan banks are simply unable to compete with the price of the guarantees issued out of China. According to Janet Mulu, trade finance manager at Ecobank in Kenya, the average price for a performance guarantee by a Kenyan bank is about 2% per annum, whereas Chinese banks typically offer 0.8%-1%, and have even been known to go as low as 0.2%. It leaves banks in Kenya with the challenge to find other revenue streams that they can leverage from Chinese commercial activity, such as collection and payments. More banks are also looking at how they can grow their business through supply chain finance programmes and invoice discounting. In June, for example, CBA launched a new supply chain platform to finance more SMEs, built by Nairobi-based fintech firm Ennovative Capital (ECap). But China’s fast pace will undoubtedly leave some local banks behind. As Theo Osogo, director of business development at Sidian Bank, puts it: “Competition has come, and those who are surviving are the ones who are structuring things differently.” The post Kenyan trade financiers “losing the battle” with Chinese banks appeared first on Global Trade Review (GTR).

From Global Trade Review (GTR) | By Shannon Manders

Broking firm Marsh is providing what it calls a “sophisticated” surety structure for the construction of a Tanzanian railway line, which it says could be attractive to banks and contractors on other African projects. Marsh collaborated with the African Trade Insurance Agency (ATI) on the US$95mn unfunded bank surety solution, which is being provided to Turkish construction company Yapi Merkezi. It guarantees Yapi Merkezi’s contractual performance-related obligations and the repayment of advance payments for the construction of a new high-speed electric railway in Tanzania. The solution is backed by a consortium of reinsurers: TrustRe (lead reinsurer), BarentsRe, AfricaRe and ZepRe. The structure works as follows: Yapi Merkezi, which was awarded the contract by the Tanzanian state-run railway firm Tanzania Railways Corporation, was obligated to use local Tanzanian banks to comply with project requirements. As this was not an option immediately available to the contractor, the Tanzanian government initially accepted Turkish bank guarantees as an interim solution. Meanwhile, Marsh – which has a long-standing relationship with Yapi – together with ATI as the risk sharer, arranged what they refer to as an “innovative syndication structure”, which enabled two local Tanzanian banks, CRDB Bank and NMB Bank, to issue guarantees to replace the Turkish bank guarantees. “What we’ve done has allowed two domestic banks to issue guarantees with pretty big limits – certainly much bigger than they would have been able to do otherwise – and we’ve backed those guarantees up with insurance,” explains John Lentaigne, chief underwriting officer at ATI. “If Yapi defaults and there’s a call on the guarantees, the local banks would pay, but they would have recourse through ATI.” Crucially, the structure has also allowed Yapi to free up its domestic Turkish banking lines, releasing its overall risk limit and ultimately enabling the company to take on more project risk in Africa.   Bringing surety to Africa Both ATI and Marsh agree that with this solution, contractors working in Africa now have a new way of getting local banks to offer guarantees for their projects. “Having guarantors involved is critical for contractors to be able to do big ticket projects,” says Lentaigne. Although surety solutions are well-established in more advanced markets, such as the US (where they originated during the Great Depression in the 1930s) and Europe, they have been less present in Africa. But this may be set to change. According to Manuel Lopez, who set up and runs Marsh’s global surety bank syndication desk, the solution is both applicable and scalable, and “something that will work in other countries”. Lopez tells GTR that the feedback from African banks about adopting the solution has been positive. “Local and regional banks have limited risk appetite, and that’s what we think is a big opportunity: to fill this gap with sophisticated insurance solutions,” he says. Lentaigne agrees that this is something ATI can help to develop further. “We think there is appetite for it: this will kick things off.” Nevertheless, the complexities of local regulatory environments mean that the solution is not one that can simply be duplicated across different countries. “It’s not a copy and paste solution, especially when it comes to the guarantee markets,” says Lopez. “Everybody is initially suspicious of these solutions, and it takes some time to make them comfortable.” The solution in Tanzania was three months in the making. To be able to qualify for such solutions, projects need to be of strategic importance to the host country. In Tanzania, the first phase of the 300km railway line from Dar Es Salaam to Morogoro will replace a century-old track and have the capacity to transport 17 million tonnes of cargo each year. It is expected to be completed by the end of 2020. The post Innovative structure for Tanzanian project to “kick off” surety in Africa’s credit insurance market appeared first on Global Trade Review (GTR).

From Global Trade Review (GTR) | By Shannon Manders

Senegal’s first utility-scale wind power project has reached financial close, drawing in support from Danish export credit agency EKF and Overseas Private Investment Corporation (Opic), the US government’s development finance institution. EKF’s backing is the most recent of the two: it announced this week that it is making available a €140mn export loan with a tenor of 17 years. Opic committed US$250mn in financing and US$70mn in reinsurance back in 2016. The Taiba N’Diaye wind power project, situated 70km north of Dakar, will operate under the name Parc Eolien Taiba N’Diaye and will deliver up to 158.7MW of energy to the rapidly expanding local grid, increasing Senegal’s power generation by 15%. It is expected to be fully operational in less than two years. The project is expected to be able to provide green power for around 2 million people and to prevent the frequent power cuts in the capital Dakar. With EKF backing, Danish wind giant Vestas is providing the project’s 46 wind turbines, and is responsible for the farm’s construction – which is imminent – and maintenance. “As the first utility-scale wind power project in the country, Taiba N’Diaye forms a critical component of Senegal’s clean energy strategy. The project will create an impact that lasts for generations,” says Chris Ford, COO at project owner Lekela, a renewable power generation company that delivers utility-scale projects that supply clean energy to communities across Africa. Lekela has sponsored a number of initiatives in recent years in countries such as South Africa, Egypt and Ghana. African nations have some of the best renewable energy sources on the planet, and yet green energy made up only 1% of the continent’s energy sources in 2016. Fossil-based power plants, including coal and diesel, provide much of Africa’s energy, but far from enough to meet its growing needs. “Wind energy is a fast and sustainable way to solve the supply deficit, get rid of the dependence of fossil fuels and free a country from the fluctuations in oil prices. Onshore wind farms can be built and deliver electricity at a price that can compete with the price of constructing coal and diesel power stations, and the potential for Danish wind export to Africa is therefore very big,” says Anette Eberhard, CEO of EKF. Investment volumes for renewable projects need to be increased by “a factor of five”, adds Lekela CEO Chris Antonopoulos. “We need long-term capital. To attract this type of capital we need to be able to showcase successful energy projects and we hope the project in Senegal will make a difference.” Other players in the region have also turned their attention to this challenge. In a bid to boost climate finance in Africa, the African Export-Import Bank, for one, recently announced that it had partnered with pan-African energy conglomerate Aenergy to support sustainable infrastructure projects with innovative financial mechanisms, including green bonds. The post Denmark’s Vestas gets EKF backing for wind turbine order in Senegal appeared first on Global Trade Review (GTR).

From Global Trade Review (GTR) | By Sanne Wass

Binkabi, an Africa-focused blockchain startup, is set to pilot what it says will be the world’s first commodity exchange on blockchain. The firm will first launch the exchange in Nigeria, having entered a partnership with TAK Agro, a local agricultural conglomerate. But ultimately the goal is to expand, one country at a time, into a pan-African platform. Formed in 2017, Binkabi has to date focused on developing one of its core products, Barter Block, which it is currently implementing with a number of commodity traders in partnership with Ecobank and will be fully launched early next year. Powered by blockchain technology, Barter Block matches trades moving in opposite directions (for example, an export of cashew nuts from Côte d’Ivoire to Vietnam and an export of rice from Vietnam to Côte d’Ivoire) for the purpose of settlement, allowing bilateral trades to be settled in local currencies, thus saving FX costs. Now, in partnering with TAK Agro, the startup is taking the next step towards its vision to empower commodity supply chains to conduct more profitable and fair trade through blockchain technology. The hope is that the new commodity exchange would give producers in poorer emerging countries more power to hedge price risks and better access funding solutions. While many countries in Africa have previously attempted to set up commodity exchanges, “the reality is that most of these exchanges have failed, because of lack of liquidity, but also the cost and lack of a supportive legal system to setting up and running them”, Quan Le, CEO and co-founder of Binkabi, tells GTR. He adds that while 28 countries across Africa currently have commodity exchange initiatives, only two have succeeded: South Africa and Ethiopia. This is a problem blockchain can help solve. The idea behind the new exchange is to lower the entry barrier for people wanting to trade commodities: instead of depending on brokers or paying expensive fees for a spot on the traditional trading floor, the decentralised platform will be a place for anyone, anywhere in the world to trade commodities in the form of digital tokens. How does it work? When a farmer or depositor brings a commodity into a warehouse, a warehouse receipt is issued and converted into a token which can then be traded on the blockchain platform. This is what Binkabi calls the “tokenisation of commodities”. “It makes the commodity tradable instantly, and you can also use the token as collateral to borrow money from a bank,” Le says. “More people can engage in it, and really make the market very liquid.” The pilot will see the tokenisation of 50 to 100 tonnes of four agricultural commodities – rice, maize, sorghum and soybean. These will be traded over a six-week period by 30 to 50 “blockchain enthusiasts” taking part in Binkabi’s ‘emerging traders programme’. As part of the partnership, TAK will provide the physical assets and infrastructure, while Binkabi will provide the technology.   Getting banks involved Binkabi’s local banking partners for the project are Sterling Bank and Unity Bank, who will take on the role of clearing banks. While the first pilot will not involve any financing, the intention is that the financial institutions will get involved in this at a later stage. “The banks want to see how it works in practice, to adapt their procedures to lending to this,” says Le. Financing warehouse receipts in the form of digital tokens is something that would draw interest from the banks, explains Edward George, head of Ecobank UK and head of group research. But, he adds, the blockchain-based system will only be successful if it can gain the same level of trust that the current paper-based warehouse receipts have today. “If you do it in a way that banks are comfortable with, absolutely they will finance it, and they would definitely gain so much in terms of managing risk better,” he tells GTR. As such, George believes the use of blockchain could be a “breakthrough” to delivering an efficient exchange that will have the potential to “transform agribusiness” on the continent. “Theoretically it’s far superior to the existing system, because blockchain is designed for fragmented information and that’s exactly what a value chain is, particularly for commodities,” he says. “Trade is all about documentation – it has to all be correct before anything can move. The problem is that if there is any kind of dispute, it can often take weeks to assemble all the documentation to assume who said what. Digitally you can do it in seconds. So if you digitise it, you massively speed up the process.” After the pilot, Binkabi will run a number of other tests to refine the design and technology. It is currently obtaining a licence to run the exchange in Nigeria, and will look to start trading in Q1 next year. “Nigeria is encouraging commodity exchanges to be set up,” Le says. “Of course once we begin the paperwork, we will see how it pans out, but it looks like the macro environment in Nigeria is right at the moment.” The plan is then to expand to other countries. The idea, Le explains, is to have a common infrastructure that individual exchanges can easily “plug into”, making it straightforward and cost-effective to set up new exchanges. “We would like to have a common technology, including the same standards for commodities, tokenisation, trading and settlement,” he says. “Another common layer is the liquidity pool. The buyers who are buying cashew nuts from Nigeria would also like to buy cashews from Ghana and Côte d’Ivoire. With every new exchange coming on board, not only do they benefit from the existing liquidity pool, they also contribute to it.” The platform will ultimately integrate with Barter Block. The post World’s first blockchain commodity exchange to transform African agribusiness appeared first on Global Trade Review (GTR).

From Global Trade Review (GTR) | By Sanne Wass

The African Development Bank (AfDB) has approved an unfunded US$250mn risk participation agreement with South Africa’s Absa Bank. The new deal will allow Absa to increase its risk-taking appetite on local banks in Africa and provide them with more trade finance facilities. AfDB forecasts that, when fully utilised, the agreement will catalyse trade worth more than US$2bn in three years. Under the agreement, AfDB and Absa will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks and indemnified by Absa. AfDB has committed to assume up to 50% of every underlying transaction issued, while Absa will confirm the transaction and bear the remaining risk. With the deal the parties are seeking to address a challenge that most African issuing banks face: that they are relatively small and thus struggle to obtain adequate trade finance facilities from international confirming banks to support African importers and exporters, particularly SMEs. This challenge has grown significantly over the last few years as many international banks have reduced their credit risk stake in developing markets or left them altogether in what is also referred to as “derisking”. Absa, until last year a Barclays subsidiary, has itself been a victim of this trend. In 2016 Barclays quoted the regulatory costs of maintaining operations on the continent as the reason for plans to lower its 62.3% ownership stake in Absa Group (or Barclays Africa Group as it was known at the time) down to a “non-controlling, non-consolidated position”. Since then, Barclays has reduced its share to just 14.9%. “This facility, through a 50/50 risk sharing approach, will help to promote broad-based economic growth on the African continent through increased facilitation of import-export activities of African corporates and SMEs, and increase intra-Africa trade and regional financial integration,” explains Absa’s financial sector development director, Stefan Nalletamby. The post Absa to increase risk-taking appetite on African banks appeared first on Global Trade Review (GTR).

From Global Trade Review (GTR) | By Shannon Manders

The African Export-Import Bank (Afreximbank) has partnered with pan-African energy conglomerate Aenergy to support sustainable infrastructure projects with innovative financial mechanisms, including green bonds. Under the agreement, the two parties have the capacity to issue at least US$850mn in green bonds in the next five years, says Divaldo Rezende, Aenergy’s global head of climate and social finance. The co-operation will promote low carbon technologies by attracting financing and specialised resources for energy generation, mainly in the renewable and transportation sectors. It will also develop investment funds for these projects. To this end, Afreximbank plans to be the first multilateral bank in Africa to issue green bonds in partnership with top-tier stock exchange platforms. According to Amr Kamel, executive vice-president of business development and corporate banking at Afreximbank, the facility will be a huge opportunity for climate finance for African countries. “It will create value from environmental assets and promote emissions of green bonds to support African governments and African companies in their pursuit of infrastructure investments, and will sustain their social and economic development,” he says. The two parties have a “private pipeline of identified operations which they are evaluating together”, a spokesperson for the bank tells GTR, adding that they are targeting to complete one by next year. Although the bank concedes that current demand for green bonds in Africa is low, it foresees “progressive growth” in parts of the continent. “In the context of fighting climate change and achieving the sustainable development goals, green bonds are considered strategic to the development of a low carbon economy in Africa,” the bank says. Multilateral development banks made commitments totalling US$35.5bn for climate finance last year, with Africa receiving just US$2.3bn, less than 1% of that amount. The accumulated green bond market globally up until 2017 is US$865bn – and again Africa’s share is negligible. Examples of green bond issuers in Africa to date include the African Development Bank (US$500mn), South Africa’s Industrial Development Corporation (US$700mn), Nedbank (US$490mn) and the federal government of Nigeria (N10.69bn). Angola-based Aenergy implements projects across Africa in various industries, namely gas-to-power energy production, oil and gas, rail transportation, industrial installation and mining services. Its services include project development, procurement, logistics, engineering and execution, operations and maintenance services. The post Afreximbank targets green bonds to boost climate finance appeared first on Global Trade Review (GTR).

From Global Trade Review (GTR) | By Shannon Manders

The African Export-Import Bank (Afreximbank) has launched its new customer due diligence (CDD) platform, called Mansa, which seeks to provide a single source of primary data required for banks to conduct CDD and know your customer (KYC) checks on counterparties in Africa. Four years in the making, it is the first digital technology solution to be launched by Afreximbank. With the utility, the bank says it hopes to “end the subjective evaluation of customers and eliminate the perceived, and often unfair, risk in trading with African counterparties”. “Mansa is about trade,” explained Afreximbank executive vice-president George Elombi during a press conference on the sidelines of the bank’s annual meeting in Abuja last week, where the new platform was launched. More specifically, he clarified, Mansa will make it easier and more cost-effective for African businesses, large and small, to be onboarded by financial institutions. According to Elombi, entities that use the platform are either “contributors”, namely African financial institutions (FIs), corporates and SMEs, who will upload their information to the repository using standardised KYC/AML templates, or “users”, specifically FIs that provide banking facilities and are looking for information on a particular company. Afreximbank has already begun onboarding existing customers that have expressed their interest in the platform. Mansa is currently free to join and will remain so “for the coming year”, Maureen Mba, Afreximbank’s associate director of compliance, told the press conference. Thereafter, and once the bank starts “attracting enough customers on the platform”, it will introduce fees based on different categories of use. GTR caught wind of the launch in an exclusive interview with Afreximbank president Benedict Oramah in May. Oramah told GTR back then that he hoped the platform could bring about the return of the international commercial banks to finance trade on the continent. “We need them,” he said. “The trade finance gap in Africa is estimated at US$120bn, but I personally think it’s as much as US$200bn. Afreximbank’s pipeline alone is about US$50bn and that’s only a small fraction of the market.” At the time, Oramah referenced a pilot project for Mansa, but the details of this were not unveiled at the launch of the platform last week. Several KYC utilities have emerged across the globe over the past few years, but their success has been marred by a low uptake. None have focused solely on African counterparties. While the banks and exporters, whose opinions GTR canvassed at the event in Abuja, largely welcomed the initiative, many cautioned that its success would depend on industry support and the accuracy and validity of the information it provides. “I think Mansa has the potential to help fill the information gap that many consider to be at the heart of the wider trade finance gap,” Duarte Pedreira, head of trade finance at Crown Agents Bank, told GTR. However, he added, “the devil is always in the detail”. For one, platforms only work as much as the involved parties allow them to. “So, if banks and corporates do submit and update their relevant KYC/CDD documents in Mansa, then the platform will be as relevant as it can be,” Pedreira said. But if they don’t, the platform risks becoming “yet another empty channel that never materialised its potential”. Another aspect raised by Pedreira and others that GTR spoke to is that information uploaded to the utility must be both accurate and based on international best practices. “The KYC/CDD requisites must be reflective of the highest standard and recognised by all parties as such, as otherwise financiers in particular will be compelled not to use it if they can only find bits of the information they need there,” he explained. Afreximbank says that information uploaded to Mansa will be independently verified and validated by its own compliance unit, in collaboration with African regulators and other compliance bodies. “For every client that provides some information about their company then some degree of validation is done before that is taken onto the platform. Care has been taken, but obviously it’s not going to be 100% soundproof – there will be some slippages. But these are the steps we have taken,” Elombi told the press conference. The platform is named after Mansa Musa, the ruler of the West African Malian empire in the 1300s, who was responsible for opening up trade across Africa by establishing Timbuktu as a commercial, cultural and religious centre. The post New African KYC utility cautioned against becoming “yet another empty channel” appeared first on Global Trade Review (GTR).

From Global Trade Review (GTR) | By Sanne Wass

Afreximbank and the African Development Bank have agreed to support the development of factoring in Africa with a US$950,000 grant commitment. Signed at the Afreximbank annual meeting in Abuja last week, the two institutions describe the new agreement as a “big step” towards their “unrelenting drive and commitment to continue enabling extra and intra-Africa trade”. The deal will see the African Development Bank make a US$500,000 investment through its Fund for African Private Sector Assistance (FAPA), while Afreximbank will contribute US$450,000. The aim of the programme is to upgrade the capacity and skill sets of up to 20 emerging factoring firms through on-site training, provision of back-office support systems and customised manuals for marketing, credit and risk policy, finance and operations. It will also provide advisory services for established factoring companies as well as a platform for them to network, exchange ideas and share best practices. Factoring is a form of debtor finance in which a business sells its accounts receivable/invoices to a third party (called a factor) at a discount. Focusing on this specific area, the goal of the new programme is to ultimately bring more finance to African SMEs that trade regionally or globally on open account terms. Afreximbank’s president Benedict Oramah says that the agreement “will reinforce and grow the availability of effective factoring across the continent and increase awareness of its availability”, adding that he sees factoring as a solution to bridge the funding gap facing SMEs in Africa. Also commenting on the agreement, Ebrima Faal, a senior director at the African Development Bank, emphasises the “multi-sectoral impact of factoring”, and expects the agreement to benefit firms particularly within agriculture, manufacturing, telecoms and power generation. The two institutions have already identified a number of the “emerging factoring firms” that will be supported under the programme, but these have not been publicly named. The post New programme to support African factoring firms appeared first on Global Trade Review (GTR).