The gap left by a paralysed US Exim has given other export credit agencies an opportunity to make inroads into new markets, particularly in Africa. Sanne Wass reports.
It hasn’t exactly been the easiest couple of years for the United States’ Export-Import Bank.
In 2015, the government-backed export credit agency (ECA) suffered five months of complete shutdown after Congress failed to vote on its reauthorisation. Then, in April 2016, after the bank had finally been reauthorised, Congress blocked the appointment of the third board member needed to complete its quorum.
As a result, the bank’s operations have hobbled along. The lack of sufficient board members has left US Exim unable to approve transactions exceeding US$10mn – a restriction that has effectively shut it out of financing larger projects, such as commercial aircraft, power turbines and other expensive infrastructure.
The consequences have been felt the world over – especially on the African continent, where ECAs play a crucial role in propping up a constrained banking market.
“For the financial year of 2017, we did roughly 106 transactions [in Africa] for only US$36mn, so you can see that under the small, short-term transactions, we really haven’t done much,” admitted Scott Schloegel, vice-chairman of US Exim and one of its two current board members, as the pressing question of US Exim’s future was addressed at the annual GTR Africa Trade & Infrastructure Finance Conference in London in late October.
What’s more, the election of Donald Trump as president hasn’t exactly boosted hopes for a boom in US-Africa relations. For the first seven months, the role of assistant secretary of state for African affairs, a key position that leads US diplomacy on Africa, was unmanned, until Donald Yamamoto was chosen – albeit temporarily – to occupy the role. The president has also promised to slash the budget for the State Department and USAID by 32% – which some experts point to as clear evidence that Africa is low on the Trump administration’s agenda.
“The reality is that Africa is not really a priority,” said Ronak Gopaldas, head of country risk at Rand Merchant Bank in his keynote speech at the conference. “If you look at the campaign rhetoric, Africa was mentioned around 11 or 12 times – and seven or eight of those mentions were about Libya and Benghazi. So Africa is really too insignificant to matter on the US’ foreign policy agenda.”
But there seems to be light at the end of the tunnel, at least when it comes to US Exim. Speaking as part of a panel on ECA appetite for Africa, which also included representatives from the UK, France and Belgium, Schloegel said he was hopeful that activities would soon resume as normal.
“I would expect that sometime within the next three to six weeks you would see US Exim’s board members voted on by the full Senate,” he said at the time, in late October, anticipating then that the bank would be supporting its first big transactions by January 2018.
But it may well be that Africa will need to hold its breath just a little bit longer: as this magazine goes to press, Trump’s nominees for the US Exim board are still awaiting a confirmation vote from the entire Senate.
Nevertheless, news that US Exim will likely regain full functionality soon was favourably received by companies, financiers and ECAs alike. “Welcome back, Scott,” quipped fellow ECA panellist Sam Hoexter, regional head of Sub-Saharan Africa at UK Export Finance (UKEF).
Schloegel explained that the bank has a “robust pipeline” for African transactions across a range of sectors, including oil and gas, transportation, power, petrochemical and infrastructure. Of US Exim’s current US$30bn pipeline, he said almost half of them (roughly US$13bn) are in Africa.
He denied that Trump’s approach to Africa is affecting the bank’s appetite for doing business on the continent.
“We are a demand-driven agency, so whatever applications are coming in the door, we will take a look at them,” he said. “The Congress has put a provision in our charter specifically for us to focus on Sub-Saharan Africa, so the overall administration policy is a factor, but certainly with the demand-driven nature of what we are doing, we have had a significant focus on Africa in the past.”
According to its latest Competitiveness Report, US Exim’s export credit volumes were down no less than 97% in 2016. While this has undoubtedly left many US exporters out in the cold, the dip has also opened up new opportunities for companies – and their lenders – elsewhere in the world.
“We had a pipeline that was north of US$40bn at one point,” Schloegel noted. “A significant number of transactions have gone off the books.”
In a lot of cases, he said, exports have instead been sourced from European countries. In other instances, other ECAs’ mandates have become more flexible and creative to enable them to snap up some of the unsupported US contracts.
Take the financing of a Boeing aircraft, for example. “Rather than putting on GE engines that are made in America, they may put on Rolls-Royce engines that are made in the UK and then UKEF can do some financing of that,” Schloegel explained.
His comments were echoed by his European counterparts. Anne Spreuwers, an analyst at Credendo, the Belgian ECA, said that although the absence of US Exim hadn’t directly caused a hike in demands from Belgian exporters, she has seen more creativity in the requests the ECA received. “I personally came across a deal where the US exporter was looking into a more creative structure where there was Belgian sourcing, and where we could play a role,” she said.
At UKEF too, many deals involve financing companies outside of the UK. “Contractors from all over the world are looking to tap UKEF and either set up in the UK to tap us, or ask us to finance US subcontractors. It might not be that widely known, but it doesn’t have to be a lead UK contractor for us to support a deal, it can have a UK sub-contract,” he said. As a result, the British ECA is experiencing its busiest year in Africa to date.
Competition from the East
But it’s not purely a competitive game, as the panellists pointed out. Hoexter, for one, said UKEF has billions of dollars of deals in the pipeline, some of which can only be closed with the co-backing of US Exim once it is fully functional.
“We are in a world of competition, but we are also in a world of co-operation,” added Maëlia Dufour, director at Bpifrance, the French ECA. “Just yesterday, I was with the CEO of US Exim trying to get a reinsurance agreement in which we would co-operate. Of course we have exporters that are competitors, but we are also there to develop the world economy.”
But certainly, elsewhere in the world, export lenders are more aggressively acquiring territory in US Exim’s absence.
“The Chinese have been extremely aggressive on the continent. In two years, China has financed more in export credit finance than US Exim has done in our entire 83-year history,” said Schloegel. “China in 2016 did US$34.3bn in medium and long-term transactions, US Exim did US$200mn. So that’s 172 times what we did. By comparison, the UK did US$3.9bn and France did roughly US$9.4bn, according to our competitiveness report.”
OECD countries, it seems, simply cannot match what China can offer. “If they come with a tenor of 25 years, where we can only provide 10 or 12 years, what can you do?” asked Dufour.
Bearing in mind the assertive nature of the Chinese on the continent, the rebirth of US Exim and the re-opening of its limits may just be a drop in the ocean of what these, much more ambitious ECAs, can offer.
For Africa, however, more competition means more opportunities, argued RMB’s Gopaldas.
“Whilst there are risks that traditional funding sources may dry up, over the longer term, this is an opportunity to pivot towards the East. The revocation of Trans-Pacific Partnership means there’s a lot more Asian trade and Asian money that needs to find another home. If I was an African policymaker, I’d be looking to exploit the various avenues across Asia to maximise the advantage, particularly given the declining interest of traditional western powers,” he said.