Dr Okey Oramah, with over 22 years’ experience in trade finance, was appointed President of the African Export-Import Bank (AFREXIMBANK) last September. In this interview with the AnnualMeetings Daily’s Osaze Omoragbon, he spoke on the commodities price crash and the challenges of trade finance in Africa. Excerpts:
How would you assess trade generally in Africa?
Given the current commodity price shock that many African economies are experiencing, trade has weakened. It was running at almost $1.4trillion but it has gone down to about $1.2trillion to $1trillion essentially because of major decline in the prices of such commodities as oil, copper, gold, platinum, iron ore. So, many economies have faced price shock and this happened suddenly. That meant that export trading declined and this drop in export revenue also affected import, which in turn impinged on total trade.
Generally, there are now more of regional trade agreements because it seems easier to reach such agreements than forging a universal trade regime. In what way can Africa benefit from this norm?
I believe you are referring to trade agreements the United States is forging with the Asian pacific region and the EU, but we also have some things happening in Africa in that regard. We had a tripartite agreement that was signed in Sham el Sheik, in Egypt a couple of months ago which aims to bring together COMESA, EAC and SADC regional groupings which is a very positive development that aims to create a free market from Cape Town to Cairo.
Of course, with this type of agreement, it will facilitate or accelerate the goal of continental free trading. So, I wouldn’t say things are not happening in Africa. But can things happen in a faster way? Yes. However, some progress is being made and we need to maintain the momentum. I believe that focusing on attaining regional integration through some of these agreements should occupy a priority attention of countries in Africa and other parts of the world because it is when you are integrated and become strong that you negotiate better with other parts of the world.
We have been debating what has gone wrong with trade in Africa and it is simply over-dependence on commodities. If we trade more between ourselves, then we are going to attain a dynamic comparative advantage in manufacturing certain kinds of goods, especially light manufactures and that will quickly diversify our economies.
You have talked about gaining comparative advantage in light manufactures and many believe this could be achieved if we develop value chains across products and sectors. In what ways is the Afreximbank helping to develop this?
We have launched an intra-African trade strategy which was approved by our board in April. The strategy is built on four pillars — Create, Connect, Deliver and Measure. The ‘Create’ pillar outlines the initiatives that we have put in place, including a number of things we are doing, to support the creation of traded goods and services that enter intra-regional trade. It is not just about using our project and expert development finance, but we are also beginning to promote the emergence of industrial and processing parks, special economic zones which we believe will help us deal with the infrastructure deficit that make export manufacturing uncompetitive in Africa.
The ‘Connect’ pillar is intended to help us to connect the producers that we create with the buyers in a different market. Under this pillar, there are a number of initiatives, including supply chain financing products. But we have two important flagship initiatives. One of them is to support the emergence of export trading countries in Africa. The fact that almost 40 to 60 percent of intra-regional trade is done informally is evidence of institutional gap. The informal trader is taking part in the trade because there are no trading companies that support the trade.
So, we have to support the emergence of trading companies that are needed to operate in the supply chain to connect producers and buyers. We will bring this to pass through investment in equity and also use our usual trade financing, credits and guarantees products. Before the end of the year, we will also launch our intra-African mobile payment platform. This will help also to bring the informal trader into the formal sector because he will not have to travel to order goods. This platform will help the trader to order goods through a mobile phone and if she or he is guaranteed that the product ordered can be delivered, there will be no need to incur travelling expenses and also cut-off the bureaucratic hassle of obtaining visa and other travelling documents. This platform will complement our efforts in the emergence of the export trading companies and also help to reduce the foreign exchange component of trade because we would incorporate a clearing arrangement under that platform.
The ‘Deliver’ pillar is concerned with the logistics and infrastructure of trade. We can’t claim to be an infrastructure bank because the AfDB and the World Bank are in that space but there are things we like to do such as the construction of warehouses, support certain logistics services and also help to de-risk projects such as regional infrastructure. We would help through financing as we have always done with the airlines, and we are also looking at certain intra-regional shipping lines we can support.
The measure is to make sure that all this trade we have helped to create and finance are measured so that they don’t end up in the informal sector. We are making sure too that we will collaborate with the statistical offices to ensure informal trade is properly captured and become formal. We believe that if we do that, we will be able to integrate the supply chains but not only within countries but across borders.
Many continue to believe that climate change is posing serious challenge to trade. What can be done to limit its impact on trade?
The way to go is to continue to support the initiatives intended to preserve the climate and our ecosystem. We have a department that looks into this and we are actively supporting renewable energy in many of our member-countries including import of turbines for hydro, wind and solar energy projects. We ensure that everything we finance is consistent with our environmental and social management policies and procedures. We know there is a lot of pressure on our ecosystem such as deforestation, thanks to development. Moreover, people do not have any other means of energy other than fire wood. But any activity that supports the preservation of our environment will be supported by AFREXIMBANK.