The African Finance Corporation — established in 2007 to help address the continent’s infrastructure needs — on Tuesday announced the closure of a $1.16bn syndicated loan, its largest-ever debt facility.
First Abu Dhabi Bank, Mashreqbank, MUFG Bank and Standard Chartered collectively acted as global co-ordinators, with the Industrial and Commercial Bank of China (London Branch) acting as China co-ordinator. Abu Dhabi Commercial Bank, Emirates NBD Bank, Mizuho and Sumitomo Mitsui Banking Corporation acted as initial mandated lead arrangers and bookrunners, while Bank of China and Société Générale acted as initial mandated lead arrangers.
In an interview that has been edited for length and clarity, the AFC’s president and CEO Samaila Zubairu discussed the rationale behind the recent loan, the “Africa prejudice premium” paid by the continent’s borrowers, and the imperative for import substitution solutions to boost development.
Q: How will the funds from this week’s debt facility be deployed?
As an institution, we typically look to access the market every year as part of an annual funding plan of $2bn from various sources. The long end of our balance sheet is funded by Agence Française de Développement, US Development Finance Corporation, African Development Bank, subscribers to our Note Issuance Private Placements, Cassa Depositi e Prestiti, Opec Fund for International Development, DEG, FMO, KFW and India Exim. For the medium tier we typically would access the eurobond markets, and use syndicated loans from our relationship banks for our more medium-term needs.
Given the increase in the cost of funding since our last eurobond issuance in 2021, we’ve wanted to avoid going to the market so that our average cost of funds doesn’t get too high. We have a maturity that is due this year and our prudential guidelines stipulate that we have liquidity for 18 months ahead. We have ample funds to cover both requirements, but we don’t want to shrink our balance sheet so have sought further funding to be able to continue to fund our core business.
Like others, we’re assuming that interest rate cuts will begin to happen in the second half of the year. We may go to the market again following such cuts, but if the path is not clear we will wait until next year. The cost of doing business is high enough for our clients given the Africa prejudice premium on the cost of funds, and so we want to be careful not to see costs increase further.
Q: The ‘Africa prejudice premium’ that you reference is commonly cited as a key impediment to funding Africa’s development requirements. To what extent is such a premium justified?
Undoubtedly there are many challenging funding situations on the continent; we’ve seen sovereign defaults in Zambia, Ghana and Ethiopia. But Africa is hardly alone on this front, if you look at what has happened in Greece and Argentina, yet these countries are still able to access funds on the international market more cheaply than African sovereigns.
When it comes to default rates for project finance — the most common type of funding that African countries and corporates have access to — the only region that has a lower level of default than Africa is the Middle East, yet still there is a premium to be paid.
The high cost of political risk insurance for funding in Africa is something that we’ve also brought up with the Multilateral Investment Guarantee Agency, making the case for a more empirical approach to their risk-pricing models so that premiums for the continent are more fairly priced.
Q: Last year’s African Climate Summit in Kenya highlighted the continent's urgent funding needs in the area of climate change ahead of COP28. From your vantage point, is Africa’s voice being taken more seriously at the international table?
We clearly have more air time, without a doubt. But has that changed into significant policy change or investment on the ground? Not yet.
That being said, it is ultimately up to Africans to take ownership of and play the lead role in the continent’s development. We need to demonstrate that we have a workable strategy and that we have the capacity to implement solutions that have a positive impact, for which we can then seek assistance from the international community.
It is ultimately up to Africans to take ownership of and play the lead role in the continent’s development. We need to demonstrate that we have a workable strategy
The AFC has developed a strong track record in our 17-year history with a series of successful projects that are making a difference on the ground. We’ve helped Benin move from being an exporter of raw cotton to a clothing and garment exporter, exporting T-shirts to the USA and hopefully soon using football uniforms that are made in Benin for football leagues across Africa, in place of imports from Belgium and France.
As part of the Africa Continental Free Trade Area, we’ve worked with livestock producers in Chad to export beef to markets including Cameroon, Gabon and Angola.
And the AFC has been a key funding partner for Dangote’s refinery in Nigeria, which will go some way to reversing the perverse system where we export crude oil and then import refined products at a much higher price. It’s important to focus on successes like these.
There is growing unrest in Nigeria amid rising food prices, a crisis that many say has been exacerbated by the new government’s decision to end fuel subsidies and allow the naira to devalue. Does the government need to reconsider its reform agenda?
It always takes time for any new government in Nigeria or elsewhere to settle down, assemble the right team and put a workable framework in place for the delivery of outcomes, especially in the present case when there is a desire to implement significant reforms.
