More needs to be done to encourage large companies to set up in Africa and to help small firms grow by removing infrastructure constraints. But the costs of financing in Africa could increase if interest rates in advanced countries rise faster than assumed, the African Development Bank says in its African Economic Outlook 2019.
Export finance is one of the options to help to reduce that risk. UK Export Finance (UKEF), which was set up in 1919, is the world’s oldest credit export agency. It aims to help buyers in Africa by providing attractive financing terms and enabling them to borrow at competitive interest rates from banks backed by a UK guarantee.
Local currency options
UKEF projects “can contribute to closing Africa’s infrastructure gap,” says Steve Gray, the agency’s representative based in Ghana. “The UK government believes no viable trade with the UK should fail for lack of finance or insurance.”
A new UK commission on infrastructure was set up in 2019.
Local currency options are offered, which allows buyers to control foreign-exchange risk. UKEF can currently guarantee local currency-denominated transactions in 15 African markets.
In 2018 and 2019, UKEF supported a range of infrastructure projects in Ghana, Angola and Uganda. In Angola, UKEF provided support worth $106m to connect around 7,000 homes to electricity through a project by the IQA Group. IQA is upgrading two power substations in Viana and Gabela, reducing the north-west Angola’s reliance on oil-generated power.
In Ghana, UKEF backed a project by Contracta Construction to develop Kumasi Central Market, a major trading centre in the Ashanti region, as well as guaranteeing a loan to support the modernisation of Tamale airport.
In Uganda, a direct loan of €270m ($297.2m) is financing the construction of a new airport in Hoima, Western Region. This will become the country’s second international airport, opening access for the delivery of equipment, materials and services for the future Uganda Oil Refinery.
The AfDB warns that it is important not to neglect soft logistical infrastructure, which is essential to reap the gains from investments in the hard stuff. UKEF is active in such projects, supporting an agricultural project delivered by UK-based Incatuk that aims to reduce Angola’s $1.5bn annual spend on food imports, and helps to diversify an economy focused on oil.
This project, which has financing structured by Standard Chartered Bank, includes providing power distribution lines, training farmers, improving roads and rehabilitating farms damaged during the civil war.
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