DON'T MISS : Talking Africa Podcast – Mozambique's insurgency: After Palma, what comes next?

Afreximbank to use Cameroon as central African gateway

By David Whitehouse
Posted on Monday, 14 June 2021 13:01

Drivers at Garoua Boulai in Cameroon waiting to cross the border with the Central African Republic need to use their trucks as washing lines. REUTERS/Joel Kouam January 7, 2021

Afreximbank will use its new branch in Cameroon as a base to build its operations in central Africa, executive vice-president Denys Denya tells The Africa Report.

Central Africa remains a ‘hole’ in the bank’s continent-wide presence, Denya says. The trade financing bank, which is based in Cairo, has offices in Abidjan, Abuja, Harare and Kampala. The branch in Yaoundé, which will open later this year, will start off with a small number of staff (about six) and study options for expanding the bank’s activities in the region, he says.

“The diversification of our portfolio will continue,” Denya says. “Our exposure to central Africa is very low.”

Closing Afreximbank’s central African gap will be a step towards turning the African Continental Free Trade Area (AfCFTA) – which came into effect on 1 January – into a working reality. The free trade agreement is the “beginning of a long journey,” Denya says. “There’s still a lot to be done.” Talks on rules of origin and free trade in services between the states are continuing. “It takes a long time to conclude multilateral agreements,” Denya says. “The talks are making progress. We will get there.” He remains optimistic that the intra-African trade can double within 10 years.

Landlocked developing countries (LLDCs) in central Africa need a counter-cyclical trade finance lender, such as Afreximbank, more than coastal states.

  • LLDCs globally struggle with very low levels of export diversification. The UN says LLDC exports are about four times more concentrated than world exports as a whole.
  • Half of the world’s 32 LLDCs are in Africa, and UN statistics in 2020 showed that 10 LLDCs were either in, or at high risk of, debt distress.

Covid-19 has worsened their vulnerability.

According to a report from the World Trade Organization (WTO) in April, LLDCs are especially vulnerable to the negative economic effects of the pandemic due to their distance from international markets and high transit costs.

Transit Bonds

Africa needs to “transform the composition and direction of trade” away from unprocessed commodities, which means building factories and importing capital goods, Denya says. “Export development and industrialisation are key.”

The constraint lies in the availability of capital. Ability to finance projects will be key to the success of the African free trade, and public-private partnerships are one way forward, Denya says.

  • He cites the $70m which the bank approved to finance the upgrade of the Beitbridge border post which connects Zimbabwe with South Africa.
  • The project is being funded with private-sector investors including FirstRand Bank, ABSA, Nedbank, Standard Bank and the Emerging Africa Infrastructure Fund.

One way that the bank is seeking to improve trade in landlocked countries is through its continental transit guarantee scheme, a partnership with the Common Market for Eastern and Southern Africa (COMESA).

Afreximbank will provide transit bonds covering the full list of borders that goods are required to cross, avoiding the need for multiple bonds for each jurisdiction and freeing up capital that would have been used as collateral. The bank is in the process of developing the technology that will be used to verify the bonds at border crossings, Denya says.

Bottom line

Afreximbank will need to bring public-private partnerships to Central Africa to improve the region’s trade.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options