The Trade Finance Bank for Africa (AFREXIMBNAK)

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The Trade Finance Bank for Africa

Afreximbank: Afreximbank: The Trade Finance The Trade Finance

Bank for AfricaBank for Africa

Presentation at a Trade Finance Workshop Organized by OPEC Fund for International Development (OFID)

Vienna – Austria 6th – 7th March, 2008

Presentation at a Trade Finance Workshop Organized by OPEC Fund for International Development (OFID)

Vienna – Austria 6th – 7th March, 2008

By Dr. B. O. Oramah

Senior Director (Planning & Business Development)

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Table of Contents- About Afreximbank (the “Bank”)- Programmes & Facilities- Basic Eligibility Requirements for

Accessing the Bank’s Programmes & Facilities- Afreximbank’s Performance Record- Afreximbank’s Future Goals

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1.1 Establishment

Afreximbank was established in October

1993 as a Pan-African Exim-Bank.

It is a global partnership with authorised

share capital of USD 750 million.

1. The Bank

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1.2 Mission

To stimulate a consistent expansion, diversification and development of African trade while operating as a first class profit-oriented financial institution and a centre of excellence in African trade matters.

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The Mandate of the Bank is to finance and promote Intra- and Extra-African Trade using three broad services

Credit (Trade and Project Financing) Risk Bearing (Guarantees and Credit Insurance) Trade Information and Advisory Services.

1.3 Mandate

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1.4 Objectives

To extend direct credit to eligible African exporters by providing pre- and post-shipment finance.

To extend short-term credit and medium-term loans to African exporters and importers.

To finance imports needed for export development such as imports of equipment, spare parts and raw materials.

To promote and provide insurance and guarantee services covering commercial and non-commercial risks associated with African exports.

To promote development within Africa of a market for bankers’ acceptances and other trade documents.

To promote and finance South-South trade between Africa and other countries.

To assist African clearing houses and payment arrangements to promote intra-African trade.

To undertake market research and provide ancillary services, such as advisory and support services and organization of trade fairs, aimed at expanding intra- and extra-African trade.

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Shareholding was structured to create an African (75% A & B Shareholding), Private Sector-led (65% B & C Shareholding) Bank. Figure 1.1 Shareholder Distribution by Class

1.5 Shareholding Structure

Class B40%

Class C25%

Class A35%

African Shareholders

Private Sector

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Table 1.1: Afreximbank Shareholding Distribution,%

As proposed in the Feasibility

Study

As adopted by Shareholders

in 1993

As amended in May 2000

Actual as at September

2007

• African States or their Designated institutions

65 - 64

• The African Development Bank

• African continental, regional and sub-regional financial institutions and economic organizations

35 75 max with Class "A" no less than 35

• African national financial institutions

10 27

• African private investors 40

• International financial institutions and economic organizations

25 25 25 9

• Non-African financial institutions

• Non-African private investors

Category

Class A

Class B

Class C

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1.6 Governance Structure

General Meeting of Shareholders

Board & Its Committees

Management & Staff

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1.7 Constituent Documents1.7 Constituent Documents1.7.1 The Bank is a unique institution with 2 constituent

instruments, namely An Agreement signed by Participating States and

Multilaterals and which confers on the Bank the status of an international organization registered under Article 102 of the U.N. Charter; and

A Charter signed by all Shareholders (annexed to the Agreement) and which governs the corporate operations of the Bank.

1.7.2 This arrangement enables the Bank to enjoy special 1.7.2 This arrangement enables the Bank to enjoy special privileges in its member countries while operating privileges in its member countries while operating as a commercial, profit – oriented institution.as a commercial, profit – oriented institution.

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Harare (Branch)Harare

(Branch)

Abuja (Branch)

Abuja (Branch)

Tunis (Branch)

Tunis (Branch)

Cairo (Headquarters)

Cairo (Headquarters)

1.8 Presence:

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Afreximbank New Headquarters Building in Cairo (side view)

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2. Programmes & Facilities

2.1 African Trade Expansion and Diversification Scheme

2.2 Export Development Scheme

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2.1.1 Dual Recourse Programmes

2.1.1.1 Note Purchase Programme

This is a programme through which the Bank provides financing to corporates by purchase of Promissory Notes or similar instruments issued or accepted by them and avalized or guaranteed by an acceptable bank or other acceptable corporates. The purchase is done with recourse to the Issuer/Acceptor and Avalor.

There are two main kinds of such Notes, namely:

2.1.1.1.1 Credit-Linked Notes

2.1.1.1.2 Structured Notes

2.1 African Trade Expansion and Diversification Scheme

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2.1.1.2 Receivable Purchase/Discounting ProgrammeThis programme comprises of a family of facilities involving purchase of specific receivables of goods and services to foreign or domestic buyers, with or without recourse to the seller or presenter. The facilities operated under this programme are: Forfaiting Facility

Invoice/Receivable Discounting Facility

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Factoring and Receivables Management Facility

Joint Bill Discounting/ Financing and Refinancing FacilityThe operational modality is that the Bank shares the payment (commercial and sovereign) risks of an African bank, or foreign bank through funded risk participation into accepted drafts or bills of exchange with international and African banks.

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2.1.2 Non-Dual Recourse Programmes

2.1.2.1 Line of Credit ProgrammeThis is a programme through which the Bank provides funded and unfunded credit lines to creditworthy African and non-African banks designated the Bank’s Trade Finance Intermediaries (TFIs). The Bank uses the programme to work in partnership with African and non-African banks in reaching the target beneficiaries of its resources, who due to their small size, would otherwise not be able to access the Bank’s resources directly.

• Pre- and Post-export Financing

• Letter of Credit Confirmation and Refinancing

• Export Credit Guarantees

• Reimbursement Guarantee Facility

• Correspondent banking/ African Letter of Credit Facility

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• Reimbursement Guarantee Facility

It is used by the Bank to enable African and non-African banks take the credit risk of Eligible Banks. The Bank issues a guarantee covering the payment risk of African and non-African banks under Letters of Credit or other acceptable trade debt instruments. Under the Facility, banks confirming Letters of Credit issued by Eligible Banks may approach the Bank to provide reimbursement guarantee to be called in the event of non-payment by the Letter of Credit issuing bank.

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• Correspondent Banking / African Letter of Credit Facility

Under this Facility, the Bank (a) offers correspondent banking services to African banks assisting them to make payments and collections around the world, with particular emphasis on Africa; and (b) offers dedicated Letter of Credit Confirmation Facility for promotion of intra-African trade. This Facility is hinged on the extensive experience the Bank has gained across Africa through the use of African banks as Trade Finance Intermediaries

(TFIs). Benefits are : reduced costs; improved intra-African banking relationships; and higher intra-African trade possibilities.

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2.1.2.2 Direct Financing Programme

Under this programme, the Bank provides pre-and post-export financing

directly to corporates with balance sheet size of at least US$2 million and

an annual trade turnover of at least US$10 million.

2.1.2.3 Syndications Programme

Through this programme, the Bank arranges or joins a syndicate or club

of reputable international and/or African banks in providing financing to

African entities in trade or export project-related activities.

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2.1.2.4 Special Risks Programmes

2.1.2.4.1 Country Risk Guarantee FacilityThis programme is aimed at making the sovereign risk of African countries more acceptable by transferring this risk to Afreximbank risk. Under this programme, Afreximbank guarantees international and African banks with credit exposures to Africa against certain country risk events.

2.1.2.4.2 Investment Guarantee FacilityThe Bank offers Investment Guarantees to cover foreign direct investment inflows into Africa. It is offered to country funds, FDI providers in trade-promoting ventures, investors in CDM projects that are likely to generate carbon credits, investors undertaking Build Operate and Transfer (BOT) -type projects in Africa, and similar entities.

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2.1.2.5 Financial Future-Flow Pre-Financing ProgrammeFinancial future-flow transactions refer to future-flow debt offerings that rely upon receivables not generated from export of physical goods for repayment. Such receivables include credit cards or cheques, migrant remittances, royalties arising from Bilateral Air Services Agreements (BASA), over flight fees, etcetera.

2.1.2.6 Local Currency Programme in Selected African Currencies:

LoansGuaranteesDelivery Risk Guarantees in support of future Sale/purchase of African currencies

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2.2 Export Development SchemeThis scheme is targeting longer time frame development. It

includes programmes that support such projects that generate

exports and those that have the effect of increasing export

competitiveness. The financing programmes covered ideally

would not have tenors exceeding seven years from loan

signature date.

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2.2.1 Export Development Programme

The Bank defines Export Development Finance as “a process of combining

credit, risk bearing, twinning, market access as well as advisory services

geared towards creating non-commodity export products for sale to a broad

range of export markets”. The Programme is used to promote export

diversification by items and markets in Africa.

2.2.2 Project-related Financing Programme

Through this programme, the Bank provides limited recourse financing in

support of export projects, including mining, manufacturing, and related

projects; and infrastructure projects that facilitate exports or that generate

traded infrastructure services, such as power, ports, telecoms, etc.

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2.2.3 Supplier and Buyer Credit Programme

The Bank’s Supplier Credit Supports African exporters of goods and services to

give credit to their buyers for a period ranging from six months to seven years.

The exporter is financed by the Bank, against appropriate guarantees.

Under the Bank’s Buyer Credit Facility, exporters of heavy equipment are paid

while the Bank receives payment in due course from the Buyer. This is also

provided against appropriate guarantees where necessary.

This Programme is focused, but not limited to, encouraging intra-African trade in

engineering machinery and equipment and infrastructural services.

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2.2.4 Guarantee Programme related to Obtaining Large ContractsTo ensure that African engineering, as well as infrastructure management and operating companies, such as telecom and power operators, port managers, hotel operators and specialized project companies (e.g. in oil) are put at near equal-footing in bidding for African businesses, the Bank also provides the following guarantee facilities to qualifying beneficiaries.

• Bid bonds to assist such companies in bidding for large projects, operating licenses, prospecting licenses, etcetera, which require that bid bonds be issued.

• Advance Payment Guarantees to enable such firms to receive advance payment from buyers for execution of large contracts; and

• Performance Guarantees to give assurance that the firms will execute contracts on terms agreed.

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2.2.5 Guarantee Programme in Support of African Government Commitments to Project Promoters.

This programme is used to provide investors further assurance that African governments will meet their commitments to certain public-private partnership projects, using the Bank’s special status as support.

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2.2.6 ECA Loans Facilitation Programme

Under the ECA Loans Facilitation Programme, the Bank selectively works with other

ECAs to promote the acquisition of essential goods, especially capital goods by African

institutions.

2.2.7 Advisory Services/Investment Banking ProgrammeUnder the programme, the Bank provides: a. advisory services to governments, corporates, banks and other institutions especially in the area of export development, export sector reforms, privatization,

equity acquisitions, mergers, project promotion, etcetera;

b. underwriting services for debt and equity backed by export-secured debt;

c. valuation of companies and preparing start-up companies for Initial Public Offerings.

d. securitization of both local and/or foreign currency receivable.

e. brokerage services in trading carbon credits under the Kyoto Protocol.

f. arrangement of Acquisition Financing for African entrepreneurs to enable them participate in the privatization exercise especially for export-oriented companies.

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2.2.9 Carbon Financing ProgrammeConsidering Africa’s position as the lowest emitters of CO2 and therefore

with tremendous potential to sell carbon credits, the Bank introduced a

new product called “Carbon Financing Programme (CFP)” to support

environmentally-friendly projects in Africa by promoting project-based

trading of Certified Emission Reductions (CERs) under the Kyoto

Protocol’s Clean Development Mechanism (CDM) as well as pre-

financing receivables from carbon credits earned and traded by African

businesses and governments thereby contributing to reductions in carbon

emissions and abating consequential climate change.

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2.2.10 Country Programme

The Programme is designed to assist the Bank’s Member

Countries in peculiar difficulties not amenable to solutions

offered individually by the Bank’s menu of products. The Bank

combines Advisory Services, Guarantees, Technical Assistance

and Financing in support beneficiaries under the Programme.

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2.2.11 Trade Information ProgrammeThe Bank provides African banks, exporters and foreign investors with interest in African trade, with relevant information on African economies, commodities and markets. It also publishes a biannual trade journal through which it disseminates African trade information. Arrangements are in progress to introduce an on-line African trade database which can be subscribed to by entities interested in African trade.

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3. Basic Eligibility Requirements for Accessing the Bank's Programmes and Facilities:

3.1 Eligible Entities and Countries

The Bank’s credit facilities are available only to:

a. Shareholders and/or non‑Shareholders in "Participating States", namely, those States whose Ministries of

Finance and/or Central Banks have subscribed to the Bank's share capital and/or whose Governments have signed/acceded and ratified the Bank Agreement.

b. Shareholders in non‑Participating States; and

c. Non‑Shareholders in non‑Participating States but only to the extent that such financing will be used to pay for imports from a Participating State.

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3.2 Eligible itemsThe Bank finances transactions in all traded goods and services except:

a. armaments, ammunition and other military equipment;

b. psychotropic drugs or narcotics;

c. all items for which international trade is prohibited for

environmental reasons or by international conventions; and

d. pornographic and obscene materials.

In addition, the Bank respects the trade policies of Eligible countries

and thus has country specific negative lists, corresponding to items

which are prohibited for international trade in Eligible Countries.

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3.3 Eligible Transactions

The following transactions are eligible for financing by the Bank:

a. All eligible exports of Participating States;

b. All eligible imports of Participating States, that is, export-generating African imports, including raw materials, equipment, and spare parts; and equipment for infrastructure and other essential items;

c. Intra‑African trade in Eligible Items;

d. South‑South trade in Eligible Items;

e. All Eligible Imports of Non‑Participating States from Participating States.

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4. Afreximbank’s Achievements

4.1 Operational Performance

The Bank has made significant progress using its various programmes. Cumulative approvals up to December 2006 stood at about US$10.2 billion distributed across the various programmes.

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Figure 4.1: Distribution of Loans Outstanding by Type of Programme, 2006

Loans Outstanding, 2006 (%)

53%22%

24% 1%

Line of Credit Programme Direct Financing Programme

Syndications Programme Forfaiting

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Loans are reasonably well diversified by SectorLoans are reasonably well diversified by Sector

Figure 4.2: Distribution of Loans Outstanding by Sector, 2006

8%18%

13%

7%6%8%

20%

0%

20%

Agriculture

Energy

Services

Metals and Minerals

Transportation

Manufacturing

Telecommunications

Government

Financial Institutions*

* Excludes certain sector - specific lending made through

banks

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Fig 4.3: Afreximbank: Earnings per Share & Net Income, 1998 - 20064.2.1 Earnings show a consistent upward trend

0

100

200

300

400

500

600

700

800

900

1998 1999 2000 2001 2002 2003 2004 2005 2006

US

D

0

5

10

15

20

25

30

35

US

D (

Mill

ion

)

Earnings per Share (USD) Net Income (USD Million)

4.2 Financial Performance

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4.2.2 And so do Loans and Shareholders’ Funds

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003 2004 2005 2006

Figure 4.4: Evolution of Loans and Shareholders' Funds, 1998 - 2006 (US$ Million)

Total Loans Shareholders' Funds

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4.2.3 Financial Highlights Show A Consistent Solid Performance

Table 4.1 Afreximbank: Financial Highlights, 2001 -2006(USD million unless otherwise stated)

20062005 *

Restated 2004 2003 2002 2001

Net Income 31.6 23.04 20.01 18.48 16.05 14.16

Shareholders' Funds 292.5 264.5 248.2 229.8 215.4 203.0

Return on Equity (%) 10.79 8.71 8.37 8.3 7.67 7.16

Return on Assets (%) 5.06 3.93 3.79 3.77 3.70 3.73

Tier 1 Capital (%) 46 44 45 45.1 40 43

Debt/Equity (%) 113.1 125.7 114.3 132 115 105

Cost to Income ratio(%) 19 22 25.18 21 21.0 21.0

Asset Growth (%) 6 10 2 15 11 19

Net Income Growth (%) 36.99 15.18 8.28 15.2 13.3 3.7

Net Interest Margin (%) 4.46 3.17 1.96 2.12 2.6 4.0

Earnings per Share (USD) 840 620 540 502 436 385

Provisions for bad Loans 0.62 1.07 0.8 1.3 2.3 3.4

* Restated to conform to IAS 39Source: Afreximbank

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4.2.4 Afreximbank’s Performance is also comparable with those of its peers, internationally,

* Indicates years the institutions were establishedNote: BSTD Bank - Black Sea Trade and Development BankSource: Annual Reports of the Respective Institutions

0

2

4

6

8

10

12

14

Pe

rcen

t

Afr

exim

bank

(199

3)*

BLA

DE

X

(197

8)*

EX

IM In

dia

(198

1)*

KoE

XIM

(197

6)*

BS

TD B

ank

(199

4)*

Figure 4.5: Return on Equity (%) (2005)

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4.2.4 Cont’d. …. and, in Africa.

Note: IDC - Industrial Development Corporation of South Africa PTA Bank – Eastern and Southern African Trade and Development Bank AfDB – African Development BankSource: Annual Reports of the Respective Institutions

Figure 4.6: Return on Equity (%) (2005)

0

1

2

3

4

5

6

7

8

9

Percent

Afreximbank AfDB IDC PTA Bank

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4.3 Other Achievements/contributions of Afreximbank• The Bank leveraged about US$2 billion from the Euro-credits market

to support African trade during 2000-2006.

Figure 4.7

0200400600800

10001200140016001800

US

D M

illi

on

2000 2001 2002 2003 2004 2005 2006

Year

Amount Borrowed Cumulative Total

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• In 2005, the Bank won the Euromoney Project Finance Magazine Deal of the Year Award for Telecoms in the Europe, Middle East and Africa Category

• The Bank just won the Trade Finance Magazine “Deal of the year (2007)” Award for a US$70 million Oil Service Transaction it syndicated.

• The Bank also won Africa Investor Award for “Excellence in Implementing an Africa Diaspora Programme”

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4.3 Other Achievements/contributions of Afreximbank (Cont’d)

• Conducted extensive capacity building/ training programs on annual basis for African bankers and exporters as well as the business community, besides providing deepened training through attachment programs.

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4.3 Other Achievements/contributions of Afreximbank (Cont’d)

• Creation of African Bankers’ Association (ABA) to provide an institutional vehicle that will facilitate greater interaction amongst African banks and bankers for the overall purpose of improving business relationships and cooperation etc.

• Evolved to be a major player in African Syndications leveraging about US$ 4 for every U.S. dollar it invested in such syndications.

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5. Afreximbank Future Goals

5.1 The Bank launched a 1st Strategic Plan 1996-2000 in 1996.

5.2 A 2nd Strategic Plan followed in 2001 for 2001-2005 period.

5.3 The 3rd Strategic Plan of the Bank is dubbed the ASPIREASPIRE Plan

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ASPIREASPIRE Plan

The name has been chosen to underscore the aspirations

of the Bank under the Plan, namely focusing on

Africa as its market, in aggressive pursuit of all aspects of

Stakeholder value; using

Partnerships in promoting

International trade while operating as a

Responsible corporate citizen that cherishes and promotes

Environmental protection.

The name has been chosen to underscore the aspirations

of the Bank under the Plan, namely focusing on

Africa as its market, in aggressive pursuit of all aspects of

Stakeholder value; using

Partnerships in promoting

International trade while operating as a

Responsible corporate citizen that cherishes and promotes

Environmental protection.

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5.5 Our Slogan under the Plan is “Tuned to Win: Together Building a Multi-Billion Dollar Bank for African Trade”.

This is intended to emphasize the value we place in using partnerships in achieving our strategic goals.

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5.6 Key Goals of the 3rd Plan:5.6.1 Macro/Sectoral Objectives: To work with others to expand Africa’s share of world

trade; To promote infrastructure development in support of

Africa’s exports by supporting public - private partnerships in infrastructure development;

To improve the credit risk perception of African counterparties through its various guarantee programmes, its info services, and its advisory services;

To promote the diversification of Africa’s export markets and export products;

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5.6.1 Macro/Sectoral Objectives Cont’d:

Introducing proactive schemes to support Africa’s commodities’ sector e.g commodity funds;

To strengthen Africa’s institutional capacities for export development;

promoting regional integration projects and programmes;

To promote services trade, especially tourism and mining services through support for supply chains and development clusters.

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5.6.2. We are also emphasizing some specialized products, namely

Reimbursement Guarantees to support international banks confirming African Letters of Credit .

Afreximbank future-Flow Pre-Financing Programme, e.g Migrant Remittances Pre-Financing Facility.

Oil and Mining Services Financing with emphasis on improving Local Content in the African Oil and Mining Services Sectors.

Factoring and Receivable Purchase/Discounting Programme especially in support of non-traditional African exports as well as intra-African trade.

Carbon Financing Programme to help attract to Africa funds devoted to buying Carbon Credits under the Kyoto Protocol CDM and to help develop environmentally-friendly projects in Africa.

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Contacts HEAD OFFICEWorld Trade Centre

1191 Corniche El-Nil, Cairo 11221 EgyptP. O. Box 404 Gezira, Cairo 11568

Tel: 202-2578 0281/6Fax: 202-2578 0276/9

Tlx: 20003 AFRXM UNE-mail: [email protected] [email protected]

Website: www.afreximbank.com

HARARE BRANCH

East gate Building

3rd Floor Gold Bridge (North Wing)

2nd Street

P.O. Box 1600 Causeway

Harare – Zimbabwe

Tel: 263- 4-729 751/2

Fax: 263-4-729 756

Tlx: 26770 AFRXI ZW

ABUJA BRANCH

Rivers State Office Complex

2nd Floor

Plot 83, Ralph Shodeinde Street

Opp. Federal Ministry of Finance

Central Business District

Abuja, Nigeria

Tel: 234-9-234 3842

Fax: 234-9-234 0712

TUNIS BRANCH

STUSID Building

3rd Floor

32 Hedi Karray Street

1082 Cite Mahrajene, Tunis

Tunisia

Tel: 216-71-719 973/719 715

Fax: 216-71-719 579

Tlx: 12310 AFREX

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African Export-Import Bank2008

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