Trump is driving Africa to ‘look inwards’ for growth, trade bank says

Donald Trump’s support for fossil fuels and his decision to pull the plug on trade incentives is benefiting Africa in unforeseen ways, according to the incoming president of the pan-African trade bank, one of the biggest investors in the continent. 

“Trump is turning out well for Africa, even if it’s unconscious,” said George Elombi, a Cameroonian ex-lawyer who took over as president of Cairo-based Afreximbank last month.

The US president’s backing for fossil fuels has slowed the pace of the global energy transition, inadvertently easing pressure on African countries whose economies are still reliant on income from oil production, he said. Tougher trade conditions were forcing African businesses and countries to think harder about opening up other markets, including on the continent.  

“He’s making Africans look inwards, so they have to deal with their own issues,” said Elombi.

Elombi said that the immediate impact of the end of Agoa, the 25-year US-Africa trade agreement that expired in September, would hit textile producers particularly hard. But he would be working with African governments to redirect some of their exports into regional markets that previously enjoyed preferential tariffs in the US. 

He would also prioritise financing processing facilities for raw commodities, so African countries retain more value — and jobs — from their resources while capitalising on renewed global interest in the continent’s mineral deposits. South Africa has a developed processing industry, but much of the rest of the continent’s metals are processed abroad, especially in China.

“Our balance sheet is big enough for us to transform certain sectors overnight,” Elombi said. “As soon as we start and it is looking promising, then you have other investors wishing to join us,” he said.

Afreximbank, which was set up by African states and private sector investors in 1993 to promote intra-continental trade, has grown its assets and contingencies from $6bn to $44bn in a decade thanks to shareholder support and capital generation. 

In the process, it has assumed an increasingly strategic role. It helped steer Africa through the pandemic, including by underwriting the continent-wide distribution of Covid vaccines. It disbursed $5bn to counter the inflation and supply-chain disruption that followed Russia’s invasion of Ukraine. Multilateral development banks were slower off the mark, according to analysts.  

But the bank has also attracted criticism for behaving like a development bank while charging the rates of a commercial one. It also enjoys “preferred creditor treatment” underpinned by a founding treaty that was intended to protect the bank’s lending in particular during financial crises.

“It is unfair on the likes of the African Development Bank if on top of the commercial margins they enjoy on their lending they are also awarded preferred creditor status,” said Bright Simons, vice-president at the IMANI think-tank in Ghana. 

Elombi said he would fend off what he portrayed as “co-ordinated attacks” against the bank’s “disruptive” model and was determined that Afreximbank should continue challenging development finance orthodoxy.

Afreximbank lends in ways and at times that others are unwilling to, he argued.

“When you take the processing we’re talking about, it’s risky. You do massive investments. And you build the infrastructure, which enables others to feel comfortable,” he said, pointing to investments in timber value chains in Gabon, and textiles in Benin, that have multiplied foreign exchange revenues for both countries.

Afreximbank was this year downgraded to a notch above junk by credit rating agency Fitch after disagreements over the classification of non-performing loans and concerns over sovereign exposure to Ghana, South Sudan and Zambia. Other regional credit agencies such as Japan’s JCR maintained an A- investment-grade rating. 

Elombi characterised the Fitch downgrade as part of a wider bid to pressure the bank into “taking a haircut” in countries strained by debt and claimed the credit rating agency had disregarded information the bank had disclosed.  

He said the vast majority of its loans were collateralised and sovereign debt accounted for no more than 10 per cent of the bank’s portfolio. 

A Fitch spokesperson said that if the bank notified the agency of “what they believe to be material factual errors in the information we use” they could appeal against the downgrade.

However, Deepak Dave, a former chief revenue officer at African Trade and Development Insurance, said Afreximbank, while becoming a catalyst for other commercial lending, had also taken “its status for granted and should have been more prudent on country lending”.

Hitting back at the criticism, Elombi said it ignored the hidden costs, in terms of job losses, loss of sovereignty and erosion of state capacity, that have historically come with concessional loans from other development lenders, in particular the Bretton Woods institutions.

“The conditionalities that push young people on to the streets, create the circumstances that lead to civil unrest and historically have restricted public investment in industrialisation” had, he said, “compounded Africa’s dependence on raw commodity exports”.

“We’ve been doing this for a good 50 years. It has not worked. Shouldn’t we try something else?” he said.