Wednesday, October 21, 2020

BancABC Financing deal raises questions of reciprocity

The Pan-African bank, BancABC, recently announced that it will provide access to trade financing which will allow African businesses to buy goods made in the U.S. however critics argue that the move could potentially draw back Africa’s position regarding the competitiveness of its own goods.   

The bank, which is a wholly subsidiary of Atlas Mara, since entering the local banking market has unreservedly identified itself a truly African Bank with a vested interest in uplifting African communities. The bank presented its financial results for the year ended 31 December 2015 to the media last week Wednesday where its Managing Director Jitto Kurian explained that the bank’s inclination towards Africa simply stands for its unwavering commitment to the continent and its development. It seems logical therefore to expect the bank to reflect this commitment by stimulating gainful activities to the African communities.           

However the critics’ concern with the trade financing deal is that it is regarded by the bank to be consistent with President Barack Obama’s Doing Business in Africa campaign aimed at strengthening U.S. commercial relationships in Africa, which they argue will only increase America’s thrust in growing its businesses and creating jobs while African businesses will not be granted the same opportunity. BancABC on the other hand proclaims that the move is intended to deepen trade between the U.S and Africa assisted by a partnership between Atlas Mara and ExWorks Capital. ExWorks Capital offers export trade financing solutions to both U.S. exporters and qualified international buyers using Ex-Im Bank. According to the framework agreement, a variety of trade finance models are available to African businesses, including: Long-term finance supported by a guarantee from the Export-Import Bank of the U.S. (Ex-Im Bank); Short-term finance utilising capital from ExWorks and other third-party funders; Full and partial loan guarantees through Atlas Mara’s banks in Botswana, Mozambique, Rwanda, Tanzania, Zambia and Zimbabwe.

Responding to Sunday Standard questions on how else African buyers will benefit from the partnership outside of access to trade financing, BancABC answered that “African buyers benefit in the form of lower costs and better loan terms.  For example, a longer loan tenor enables strong relations with suppliers, since the buyer can facilitate immediate payment in full, and better cash flow management, as the buyer can have a long-term payback period that better matches the timing of the profits that the purchased product can provide,” adding that other services such as logistics handling for trade transaction will be offered. The bank also explained to this publication that the partnership assists African buyers to buy goods made in the U.S. but the same does not apply to imports into the U.S. citing therefore that it is specific to US exports to Africa. At a total of $200 million, with the possibility of the amount increasing in the future, the bank refeErred to the agreement as a “long term partnership without a mandatory expiration date” and advised African businesses with financing needs to buy U.S. goods to tap into the facility it offers.   

The IDE Apec study centre discusses reciprocity as a means of trade liberilization in its 2001 working paper, defining first a reciprocal relationship as a balanced condition in which one side gives the other certain treatments while the other returns the equivalent treatments, a principle regarded as a means of promoting trade liberalization. Could the BancABC’s finance facility be held to this intent? 

The trade finance deal is one of the solutions which BancABC has provided the market with which as it seems have as a collective given the bank an impetus to negate the current headwinds. BancABC as a result recorded positive financial performance reflected by an increase of 68 percent of its profits from the previous year. “Through the introduction of new products and services and the enhancement of existing offerings, we have continued to improve our value proposition and offer a series of first-of-their-kind solutions to our customers. This has put the bank in good stead to continue on its growth trajectory,” Kurian asserts.

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