Saturday, April 4, 2009

African trade in peril unless banks jump in

The northern hemisphere credit crunch was threatening to take African trade "back to the dark days of the 1980's" unless banking groups on the continent co-operated to provide trade finance, Jean-Louis Ekra, the president of African Export-Import Bank (Afrieximbank), said on Thursday.

Highlighting the continent's exposure to the crisis, Ekra said lower demand and lack of export finance had led the World Bank to predict that African producers of fuels and cyclical minerals were likely to see exports plummet by 50 percent in 2009. 

Overall, Africa's exports would probably decrease by 30 percent.

Ekra's argument that the continent's public and private banks had the potential to fill the void left by struggling Western banks was given a measure of support by Konrad Reuss, Standard & Poor's managing director responsible for sub-Saharan Africa.

Reuss told the Exporta Africa Trade & Investment Conference in Cape Town that it was of concern that the African Development Bank had repaid more funds to its creditors over a decade than it had lent to clients.

"They have a huge opportunity to grow their loan book," Reuss said, referring to trade finance. He added that until recently the African Development Bank had battled to compete with overseas commercial banks.

Taiwo Adeniji, the chief risk officer of the African Finance Corporation, noted that the African Development Bank had "a lot of liquidity" that had not been available until recently.

It had now established a $1 billion (about R9.3 billion) trade finance facility. 

The African Finance Corporation was moving to provide finance too.

Ekra said that while the crisis was threatening to take Africa back, this time around it was not due to political risk or weak financial systems.

"The cutback in credit lines is rather because many international banks are on the brink of failure due to large losses arising from so-called toxic assets on their balance sheet," said Ekra.

Afrieximbank was pulling the continent's banking groups together to share risk and information, reducing reliance on western banks.

"One of the issues we expect to pursue in this partnership is the development of a scheme under which Africa's foreign exchange reserves, estimated to amount to $460 billion at the end of December 2008, can be used by African international banks to support African trade.

"It is inconceivable that Africa can have such huge amounts of reserves earning a pittance in several non-African banks while African countries go cap in hand, pleading for aid money to boost economies," Ekra said.

Despite the expected plunge in African exports in 2009 the continent had a meteoric rise in trade with other emerging markets over the past two decades, on the back of Chinese demand for commodities and the relatively new Chinese export manufacturing industry.