The African Export-Import Bank’s (Afreximbank) outstanding exposure in Egypt exceeds $1.4bn excluding other facilities to Egyptian entities doing business in other African countries, according to President and Chairman of Afreximbank Benedict Oramah.
Daily News Egypt interviewed Oramah to talk about the bank’s vision towards the Egyptian economy and Afreximbank’s projects that it is committed to in 2016.
What are the developments regarding the final agreement with CBE to arrange a facility of up to $1bn to improve foreign currency liquidity? How many payments will be made and what is the amount that will be provided to every bank?
Discussions are well advanced on how to most effectively use this proposed facility to support the trade finance liquidity needs of Egyptian banks. Our interest and those of the Central Bank of Egypt (CBE) are aligned as regards meeting trade finance demand and stabilising the forex market. We expect a smooth conclusion of all arrangements working with CBE and relevant Egyptian commercial banks.
As you are aware, our effort in supporting the trade finance liquidity needs of our member countries under current conditions of severe negative economic shocks has been resoundingly supported by Afreximbank’s Board of Directors, who in December last year approved a Trade Finance Liquidity Support Programme amounting to $3.5bn. We aim to double the amount available under this programme by attracting other lenders.
What are the arrangements between Afreximbank and CBE to agree on the final contract?
Egyptian commercial banks are expected to be the implementing agents for this facility as letters of credit (LCs) to be covered will be issued by them. We are discussing the operational modalities with those banks. Some of the commercial banks already have similar bilateral arrangements with us so we see no major challenges moving forward when all parties are ready.
How many banks are involved and which are they?
Egypt has one of the most dynamic and vibrant banking sectors in the continent, with so many financial institutions. Going back to your question on the number of banks involved, we have opted to proceed in stages. At this stage, we have identified a few banks, most of which are the major public sector banks as key partners. However we would include other banks as we begin the implementation.
The bank expressed its interest in supporting Egypt’s efforts for SME developments. How much funding and support is provided to this sector?
SMEs play a key role in developing economies. Empirical evidence suggests that these firms typically account for more than 90% of all firms outside the agricultural sector. They are a major source of innovation, employment, and can support a vibrant value-added export sector.
Hence we see our support for Egyptian SMEs not only as key to economic growth and development but also as central to the promotion of intra-African trade. We are targeting instruments like supply chain financing and factoring for SME-related financing and we are putting in place credit facilities for Egyptian local banks and factoring companies in this regard. The level of our support can be large over time.
What are the challenges and opportunities faced by the sector?
The challenges are well known mainly generally poor governance structures as most are family businesses, poor financial records keeping, low capitalisation, or limited access to markets hence potentially magnifying the risk profile of SMEs. But opportunities are tremendous once adequate structures are put in place, since these companies represent the backbone for economic growth and development.
Bank also expressed interest in developing supply chains by providing credit lines for new companies. What is the size of these credit lines?
Yes indeed we are, especially with the increasing shift towards “open account”, which now account for more than 85% of world trade. We have earmarked between $50-100m as an initial phase, which will be provided through local banks and factoring companies.
Afreximbank is set to provide $500m in funding to facilitate trade between Egypt and other African member countries of the bank. When will the programme start?
Yes you are referring to the Egypt-Africa Trade Promotion Programme (EATPP), which was officially launched in early 2015. EATPP is a special programme designed to enhance the integration of Egypt into the rest of the continent by accelerating trade and investment flows between Egypt and the rest of Africa. The programme already commenced and the bank has approved in excess of $250m. The interest in the programme has been very strong.
How much is the portfolio allocated to Egypt by the bank?
The allocation of a limit to each member country is based on many factors, including economic size. Currently our outstanding exposure in Egypt exceeds $1.4bn. This does not include facilities to Egyptian entities doing business in other African countries.
We are receiving tremendous support from CBE, the Egyptian government, and the local banks so we plan to expand our exposure this year to assist the businesses to take advantage of the opportunities that are beginning to emerge in the country. We are ready, willing, and able to play our role in moving the Egyptian economy forward.
What are the projects the bank is committed to in Egypt and what new projects will it be involved in?
The bank are supporting sectors that are critical to the economy such as petroleum imports, the electricity sector, and the petrochemicals sector where we are participating in a $1.25bn syndicated facility.
The bank also provided various lines of credit to local banks in support of trade finance requirements, in addition to supporting major contractors in the power and engineering sectors doing projects in other African countries. This year in particular we will focus on giving export-generating and light manufacturing facilities with preference to those involved in intra-African trade.
Afreximbank closed a syndicated loan worth $525m that is to be provided over five years to EEHC. When will it receive the loan and what is the timeline to implement the project?
The facility has already been signed and is being utilised. Disbursement has been made under a fast track. As of end 2015, more than 73% of the facility had been disbursed and full utilisation should be expected at some point this year.
What is your opinion regarding the recent reforms taken by the Egyptian government?
The global economic environment has been extremely volatile and the persistence of insecurity in the region over the last few years has been a major challenge, especially for economies that depend heavily on tourism like Egypt.
In this context, the remarkable growth performance achieved by the government of Egypt over the last two years, where the country has enjoyed growth rates above world average, is a testament to the pertinence and impact of the wide-ranging reforms undertaken by the government during extremely difficult times.
Some of the laudable reforms include the progress towards fiscal consolidation and implementation of tight monetary policy to stabilise the economy, lay a firm foundation for solid economic growth, restore investor confidence and expand investment opportunities. Among the key components of the bold reforms are the civil service reform to increase competition and performance-based culture, and the government’s success at reducing energy subsidies, which has been a major challenge in other countries. None of these are easy, so one has to commend the government for taking on the difficult challenge and making a success of it.
There is no doubt that the Egyptian government is committed to reforms and sees them as key to sustaining macroeconomic stability and growth. This augurs well for the deepening of the partnership between Egypt and the African Export-Import Bank. We are confident that with the support of the Egyptian people these reforms although difficult at the moment will yield the desired result of making Egypt a leading industrial economy.