Eng. Hani Salem Sonbol, CEO of the International Islamic Trade Finance Corporation (ITFC), provides an overview of key African activities that the corporation is currently engaging in.
Q: ITFC engagements in Sub-Saharan Africa soared over the past five years, with an annual trade financing goal of US1bn by 2020. What key factors make ITFC’s trade solutions attractive to beneficiaries?
Sonbol: A fundamental part of ITFC’s strategy for African OIC member countries is to align our financing efforts with the national development strategies and goals of these countries. The integrated trade solutions that we provide, which combine finance with trade development, are better able to meet the needs of member countries and also open up paths to realising the full potential of intra-OIC trade.
To date, ITFC has provided US$17.5bn to 28 OIC member nations in Africa, to drive growth across multiple sectors, including high-growth import-export industries such as agri-foods and in critical industries such as energy and power generation, all of which are aligned with strategic growth priorities of these countries.
Government, private sector and non-governmental entities are also attracted to ITFC because of the suitability of our financing structure, the Islamic trade finance model and its Shariah compliance attributes. It is a significantly more stable route towards raising capital that avoids the pitfalls of national fluctuations in central bank rates and potential problems related to volatility in global markets.
In short ITFC is prepared to go where mainstream finance will not.
Q: African imports and exports tend to be to and from non-African countries. There is little intra-African trade going on. How does it affect the implementation of ITFC’s development strategy on the continent?
Sonbol: One of the key priorities for ITFC is to boost imports and exports between OIC countries inside specific regions and between the regions. The Arab-Africa Trade Bridges (AATB) Programme is an example of an intra-regional strategy, which facilitates partnerships for trade, investment and technology transfer between Arab OIC countries and African OIC countries.
In April this year, ITFC signed a US$500mn programme with the African Export-Import Bank (Afreximbank) to boost trade co-operation between African and Arab Member Countries. Developed within the framework of AATB, the new programme is called the Arab-Africa-Trade Finance and Promotion Programme (AATFPP). The AATFPP programme will play a role in enabling OIC countries to fully realise the potential for partnerships in trade, investment and technology transfer between the two regions. The significance of the programme is even greater in the context of the AU-led African Continental Free Trade Agreement (AfCFTA), which ITFC fully supports.
Q: ITFC’s activities in Africa focus on agriculture and energy. Does this strategy contribute to diversifying trade in Africa?
Sonbol: ITFC’s trade solutions approach is designed to create sustainable impact throughout key sector value chains, which has a direct impact on economic diversification and job creation because it opens up new industries. In 2018 alone, ITFC approved over US$1,847.8mn-worth of trade initiatives to support important sectors such as agriculture, energy and entrepreneurship in African countries to diversify their economies.
The agricultural sector accounts for around 65% of employment of the work force in Africa and contributes 32% of GDP, according to the World Bank. It is also one of the value chains that is ready for innovation and SME development. In 2018, ITFC trade finance approvals for the food and agriculture sector amounted to US$749.6mn.
ITFC’s agriculture financing has expanded significantly over the past years, targeting critical areas of the value chain, from farm input to processing, pre-export, and export. It addresses funding needs where it is difficult to attract commercial providers due to the perceived high risk. It is worth mentioning that a large portion of ITFC’s agriculture financing goes towards cotton and groundnut – two key commodities in many Member Countries in West Africa, including Burkina Faso, Cameroon, Senegal and The Gambia.
Investing in Africa’s energy sector is an important piece of the wider diversification jigsaw because it supports stable electricity supplies that are crucial for the future growth of industries across all sectors.
In Comoros for example, ITFC has been supporting the import of petroleum products since 2014 with cumulative financing approvals reaching US$100mn. This has played a crucial role in supporting the country’s energy security aspirations, necessary for sustainable and inclusive economic growth.
With ITFC’s financing, the government of Comoros was able to provide the country with uninterrupted supply of petroleum products, contributing to energy security, export growth, SME growth and job creation.
ITFC’s trade financing has similar positive impact in the energy security of Sub-Saharan African countries like The Gambia, Mauritania, Mali, Djibouti, Senegal, Burkina Faso and others.
ITFC launched the West Africa SME Programme in partnership with Coris Bank International (CBI SA) in 2018. The objective is to boost approval and disbursement of lines of finance placed at West African partner banks, enhance the capacities of banks and SMEs, and to ensure that financing products extended by ITFC reach SMEs. This programme will consist of the deployment of assistance to CBI SA to adapt and modernise its tools and its lending processes to further increase access to credit for SMEs. The programme will also support SMES through capacity development with the aim to increase their bankability.