The government is seeking $2bn-$3bn (about R34bn-R51bn) in support from the African Export-Import Bank (Afreximbank) for the transformation fund, which is intended to provide finance to black-owned enterprises.
The controversial fund is the brainchild of trade, industry & competition minister Parks Tau. It aims to address the difficulties black businesses face in accessing capital and to promote BBBEE.
SA is escalating its membership of the bank, which has assets of about $43bn, from class B share membership to full sovereign class A share membership. This move will offer significant and wide-ranging support to SA firms. The cabinet has already approved the accession, which requires parliamentary endorsement.
The absence of sovereign membership has restricted the bank's ability to extend support to SA projects. It has also meant SA cannot influence the bank’s strategic direction and resource allocation. Class A membership will give the country a seat on the bank’s board.
Parliament’s trade, industry and competition committee agreed Tuesday to recommend to the National Assembly the accession after a briefing by the department of trade, industry & competition’s acting deputy director-general of exports, Willem van der Spuy, who is also a director of the Export Credit Insurance Corporation (ECIC).
The ECIC provides risk insurance for SA goods and services exported abroad and for local companies investing in foreign countries. It helps facilitate access to finance by providing cover for risks that commercial lenders are unwilling or unable to accept.
Financial support for the Transformation Fund is just one of the Afreximbank-financed projects in the pipeline.
Van der Spuy told MPs the initial discussions under way — which were subject to final agreement by Afreximbank — were for around $2bn-$3bn for the Transformation Fund, and in addition, over $8bn earmarked for the country programme for strategic projects by SA enterprises here and in the rest of the African continent.
ECIC chairperson Delia Ndlovu added there was a pipeline of projects from Afreximbank of over $6bn (about R103bn), including for the Mozambique LNG project and the Motala import gas terminal project in Mozambique, as well as projects in Angola.
She said the country programme would give SA direct access to larger deal flows for high-value infrastructure projects in energy and industry and allow SA contractors and manufacturers to expand into the African continent.
“The ability for the ECIC to co-underwrite projects, to share political and commercial risks, is a huge advantage and will make the ECIC the export credit catalyst for SA companies to invest in the rest of the continent. The ability to shape policy and the pipeline and advance our interests is a big plus,” Ndlovu said.
Van der Spuy said the previous $1bn support for SA by the Afreximbank (now expired) included a $250m facility to Eskom to support power supply in the country, plus a R2.4bn facility to the power utility as well as $165m for Transnet for various projects, including the maintenance of port and rail infrastructure. This support was provided through an exceptional approval from the Afreximbank board.
SA’s shareholding in the bank is held by the ECIC and the Public Investment Corporation (PIC).
Afreximbank is a multilateral financial institution, headquartered in Cairo, Egypt, which aims to facilitate, promote and expand intra- and extra-African trade. It currently has 52 African states as members.
Van der Spuy said the African Continental Free Trade Area (AfCFTA) demanded a robust, well-funded trade promotion engine to secure market share for SA goods.
He said full membership of Afreximbank would give SA entities access to the bank’s preferred creditor status, thereby reducing the political and commercial risk of operating across Africa. It would also allow institutions like the ECIC to offer more competitive insurance and boost overall investor confidence in local projects.
Afreximbank’s provision of large-scale project finance for infrastructure and industrial projects would give SA access to large, structured deals that were otherwise difficult to finance.
“Leveraging the bank’s strong institutional rating, SA exporters and project developers will access better financing terms and lower borrowing costs for their continental activities, making their businesses more globally competitive,” Van der Spuy explained.
He said acceding to the bank’s establishment agreement would not impose any additional costs on the fiscus.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.