SA secures Afreximbank membership, scores R175bn in funding

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JIMMY MOYAHA: South Africa yesterday formally became part of the African Export-Import Bank [Afreximbank].

Read: SA secures R175bn loan package from Afreximbank

We’re going to be taking a look at this and seeing what it means for the South African economy and for the African continent. We’re joined, as always, for these sorts of conversations by banking specialist, director at Denker Capital, Kokkie Kooyman, to take a look at this and see what to make of it.

Oom Kokkie, lovely having you on the show. Thanks so much for taking the time. Give us a sense of the bank itself that we’re talking about here. This is a bank or multilateral financial institution that has been around almost as long as South Africa’s democracy and functions very differently to other financial institutions on the continent.

What have we become part of here?

KOKKIE KOOYMAN: Yeah, it’s very interesting. There are a few banks like that around the world. There’s one in Latin America as well. In fact, that one is listed on the stock exchange in America; we used to be invested in it. I understand, more or less, [as] we used to visit them and [try] to understand exactly how it works.

But generally, banks like this, the main purpose is to facilitate trade between countries on the continent and obviously its intra-Africa and extra-Africa to also help companies in those countries to do trade finance transactions with countries or companies outside the continent.

The one thing is trade finance, and the other one is also to help with construction or facilitate growth in key industries.

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It’s not necessarily long-term finance loans but generally shorter term. But the main thing is a bank like this is funded by the various countries or independent shareholders, or they also issue debentures. It’s normally publicly tradable as well, where it gives a good yield.

So it’s a bank that has to be profitable. That is very important, so it can’t just willy-nilly give loans or facilities to anybody.

Why have we become part now after more than 30 years, it’s an interesting one. I actually don’t know the history; why we’ve never become part of it. But you can imagine South Africa being the largest economy in Africa, or second largest, there’s always debate about that, but it is very important for the other countries as well.

It is to facilitate trade between South Africa and Nigeria, South Africa and Egypt, South Africa and all countries in Africa.

What a bank like this really does, it speeds up the process because it is a specialist in those types of trade finance transactions. It also has the contacts in the various countries to expedite transactions.

I think it’s very good for businesses in South Africa that want to trade or are thinking of trading in other countries in Africa but have never had the wherewithal or the contacts to start doing it. The finance is normally available at reasonable rates but as I said, the bank must be profitable. So it’s not a loan that’s given away.

But I think the main thing is it puts us very much into African trade.

There’s one interesting aspect here in that it’s exactly the opposite of what [US President] Donald Trump has been doing. Donald Trump has been weaponising trade, to use trade with other countries as a weapon to force them …

This is exactly what originally trade between countries was supposed to do, that each country can focus on what it’s good at, and the bank will help you find partners who need that product.

So, like Karoo sheep – I don’t know why I’m thinking of Karoo sheep, but it’s a speciality, or even our citrus – there are many markets in Africa that our citrus farmers can also sell their citrus to that’s been blocked in America. This bank will also help them finance that and put them in touch with the right players.

JIMMY MOYAHA: I see we previously were a Class B shareholder in the bank. It seems we’ve now become a Class A shareholder, which includes a board seat and preferential creditor status. So perhaps those are some of the changes there.

Oom Kokkie, before I let you go, I want to take a look at the other commitment that was made there, the bank president [George Elombi] announcing that there was an $11 billion funding package, something to the tune of a little over R175 billion. Of that, $3 billion, almost R50 billion going towards our transformation fund.

Listen/read:

Now, that’s a big injection into a transformation fund that we aim to get to R100 billion. It’s almost half of the fund from this one transaction alone. Take us through those mechanics and those funding packages. You did say they come at preferential rates, but surely this is a good thing?

KOKKIE KOOYMAN: Yes, sorry, I’m always sceptical about those things, especially when it’s not driven by markets.

I would almost stick my neck out and say maybe South Africa in the negotiations used that as a tool, as leverage, to say, sure, we’ll become … because they’re very keen, I think, to have us as a Class A shareholder and have us in the total agreement, to say, okay, but this is what we would want, funding for transformation.

Sure, it won’t be free. But look, in terms of transformation in South Africa, it is incredibly important for those loans to be available – but again, it must be profitable; the loans will carry an interest rate and will have to be repaid.

So it can’t be, as the government often did with many transactions, give it to players who are not worthy of it.

It will be up for scrutiny.

JIMMY MOYAHA: South Africa officially becoming a Class A shareholder, a full shareholder in Africa Export-Import Bank, and that coming with a certain benefits and perks. We’ll leave the conversation on that note. Thanks so much to Denker Capital’s Kokkie Kooyman for joining us to take a look at this and try and make sense of it.

Read: Afreximbank chief plays down Fitch junk-rating downgrade

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