Export Credit Agency supported financing

3 June 2021

Is West Africa the focus region for Export Credit Agency supported financing?

By David Sawyerr

Export Credit Agency (ECA) finance is an important lever for infrastructural development in West Africa. According to deal intelligence platform TXF Data, Africa was the second most active region globally in 2020 for ECA-supported financing with more than USD 35.5bn worth of ECA-supported debt.

This included some of the largest single financed projects in Africa, such as the Mozambique LNG transaction (USD 14.9 bn), Nigeria LNG train 7 (USD 3bn), and the Credendo/ICIEC covered USD 359m real estate project in Abidjan, just to name a few.

The success of an ECA project can be narrowed down to three factors: government involvement, digitalisation and direct financing. This was one of the topics discussed at The GTR West Africa 2021 Virtual Conference, held earlier this year.

Government as borrower

The COVID-19 pandemic aggravated the infrastructure deficit faced by the continent. West African governments responded quickly, finding new strategies to raise the deficit themselves – particularly with regard to social infrastructure. Unlike East and Southern Africa, West Africa raised finance on the Sovereign’s balance sheet, via the Ministry of Finance (MoF). This saw transactions closing efficiently, as some of these projects would be concluded under a Public-Private Partnership (PPP) framework. PPPs are notorious for their complexity and time-consuming structure on which to finance projects and the success of West Africa can be partially attributed to MoFs raising financing.

Digitalisation

African governments embraced digitalisation soon after the onset of the pandemic, which ensured that financing and trade financing deals continued to close. Various online telecommunication, legal contracting, deal origination, deal structuring and implementation platforms all played a facilitative role in ensuring that despite the significantly reduced travel, projects would continue to be financed. Digitisation efforts were already well underway before the pandemic but the use of these platforms was accelerated and their importance emphasised.

ECA Direct Financing

ECA direct financing is an integral part of financing in West Africa. This model of  financing is provided by most European ECAs are generally a ‘counter-cyclical’ financing mechanism that seeks to address market failure. In the 1^st Quarter of 2020, there was a global shortage of liquidity and this significantly raised the cost of financing. This caused ECAs to step up and provide direct loans to MoFs at extremely low OECD CIRR lending rates. Governments are aware of these financing arrangements and made use of the product offered by ECAs in 2020 (i.e. latest March 2021 OECD CIRR for 8.5+ year loan in USD is 1.91%). ECAs have mentioned that 2020 saw a significant rise in enquiries for this product and commercial banks (i.e. local & regional banks) also have assisted with providing the 15% commercial down payment that would enable such financing to be possible.

These trends are not unique to the Covid-19 pandemic. They are most likely to continue for the remainder of the 2021 as markets begin to stabilise and investors begin to provide more affordable debt. 2020 has shown that deep collaboration between the ECA/DFIs, Commercial Banks, private sector and public sector is required to ensure that the infrastructure deficit in the continent is resolved. Particularly, when it comes to Western Africa region, it will continue to be a focus area for financing and play an important role in countries resuming active market participation.

Sawyerr is Export Finance Transactor at Rand Merchant Bank