When news broke that the Export-Import (Ex-Im) Bank of the United States had lost its operating charter on June 30, 2015 due to congressional opposition, it was met with grave concern by many U.S. companies doing business in Africa, as many rely on the Ex-Im Bank for trade financing, insurance and loan guarantees.
Since 2009, the Ex-Im Bank has supported more than $6.6 billion in transactions throughout sub-Saharan Africa. It has provided the necessary finance to support infrastructure and construction work, including exports geared at transportation, power and port-related equipment. The removal of this critical source of financing could hurt U.S.-Africa relations, making it challenging for U.S. companies to compete for large-scale infrastructure projects and for small and medium size businesses to export to the region.
While there is little doubt that Africa’s development is gearing up, the state of infrastructure is in need of significant improvement. The lack of the necessary electricity, water, roads and information and communications technology (ICT) infrastructure cuts regional economic growth by two percentage points every year and reduces productivity by as much as 40 per cent.
Yet while governments across the region are committed to improving infrastructure, the World Bank has identified the lack of access to finance as a hurdle to Africa meeting its growth potential. The African Development Bank says as much as $93bn is required annually to meet Africa’s infrastructure needs through 2020, with only half that amount being currently met.
Foreign governments and export agencies all play a key role in supporting these infrastructure deals, with the success of many projects relying on the guarantee of government-backed funding or credit insurance. Unless companies are able to secure finance to support their projects, there is the risk that these will no longer be viable.
This is why the Ex-IM Bank matters to Africa:
- Since 2009, the Ex-Im Bank has supported more than $6.6 billion in transactions throughout sub-Saharan Africa. For the fiscal year ending September 30, 2014, it supported $2.05 billion in transactions in 20+ sub-Saharan countries.
- It works across a range of sectors on the continent, with many large-scale transactions supporting much needed infrastructure and construction work, including exports geared at transportation, power and port-related equipment.
- It has helped fund many significant projects, including $155 million towards exports needed for a hospital expansion project in Ghana, $108 million for locomotive kits for a rail, port and pipeline company in South Africa and $15.7 million for fire-fighting trucks to Nigeria.
- It works with multiple U.S. government initiatives focused on U.S.-Africa business and African development including:
- The U.S. Department of Commerce’s Doing Business in Africa campaign, promoting enhanced U.S.-Africa business
- The U.S.-Africa Clean Energy Development and Finance Centre, promoting the development of clean energy on the continent
- President Obama’s Power Africa initiative, focused on doubling sub-Saharan Africa’s access to electricity
The role of the Export-Import Bank in speeding the sustainable development of sub-Saharan Africa cannot be understated. It is a crucial source of finance for many infrastructure projects across the region and is a significant player in key U.S.-lead development initiatives. With the development of Africa relying on financing, the inability of the Ex-Im Bank to authorise funding will be widely felt across the region.
This article originally appeared on GE Reports.