Rising commodity prices and disrupted supply chains have caused widespread food and energy insecurity across many parts of Africa.
Largely the result of the Russo-Ukraine conflict and related supply shocks and constraints, the crisis has caught Africa off-guard, while it focused on mitigating the effects of Covid-19 and staging a rebound.
Ukraine and Russia export billions of dollars of wheat to Africa each year, sending some countries, which import up to 80% of the staple commodity from the region, into a serious crisis.
Admassu Tadesse, President Emeritus and Group Managing Director of the Eastern and Southern African Trade and Development Bank (TDB), says that food and energy insecurity in Africa is currently high up on the development finance institution’s (DFI’s) agenda.
“These are two top areas that are receiving renewed focus,” he says.
“There is of course also the ongoing matter of pharmaceuticals and vaccines, which we are very sensitive to these days after what has happened in the last couple of years. That has also become a top priority. The issues around price inflation and supply chain blockages in wheat and critical inputs like fertiliser, have put food seriously up the agenda.”
Supporting food security
One of TDB’s core mandates is to support trade in Eastern and Southern Africa – it makes up around two thirds of the bank’s loan book. Within that remit, the trade finance business has focused on developing and securing supply chains for a diverse set of commodities such as fertilisers, food, pharmaceuticals and fuel. TDB has extended various facilities to clients this year once again, to help finance the importation of these commodities, with many of the transactions completed via blockchain technology.
Tadesse says that the recent crisis should reinforce policymakers’ attention to shortening supply chains and building up local and regional production that are closer to Africa’s home markets.
“One way Africa can learn from the shock is to boost the production and value-addition of commodities in African countries. They don’t have to be in every country but at least if they are close by, you have shorter supply chains and better security of supply, in addition to reducing the carbon footprint associated to shipping from far away.”
The bank is also addressing food insecurity by supporting critical agricultural infrastructure like storage facilities and various equipment.
Tadesse says that the crisis has been yet another “wake up call” for Africa. The continent will have to take regional and national food security much more seriously.
Alongside DFI interventions, he adds that there could be a case for government subsidies on fertilisers “but it should be done very carefully because in many cases, it is just not affordable” and there are other closely related important matters such as food storage and marketing, over and above production.
Building critical infrastructure
Aside from food security, DFIs have shifted to ploughing more money into social and healthcare infrastructure since the beginning of the pandemic.
The lack of vaccines and testing equipment has reinforced Africa’s need to produce its own medical technology, in the same way it needs to produce its own fertilisers.
“We’ve seen a range of projects and transactions come through for both pharmaceutical plants and hospitals,” he says.
“There’s been much discussion about public policy and investment in this area of the health sector within the continent. It is promising that South Africa, Kenya, Egypt, Senegal and Morocco are countries that are seriously looking to boost or establish pharmaceutical plants to produce medicines at a much more affordable and strategic level.”
Telecoms infrastructure is also another continued area of focus for the bank, notably investments in fibre optics and digital services. A further strategic priority for the bank is investment in power projects across the region.
“There is such a big demand for energy and power projects. And it cuts across social needs in addition to economic as well as environmental needs,” he says.
Transport is a key area as there is “a huge gap in terms of efficient and affordable transport in Africa”, he adds.
“You can have a great mining project or agriculture business but once you’ve got the product you’ve got to move it, and at times, it’s so expensive that it erodes all the initial attractiveness of the product.”
One of TDB’s latest investments in transformational transport infrastructure is Tanzania’s standard gauge railway (SGR), which will eventually link mostly landlocked Rwanda, Uganda, Burundi and the Democratic Republic of Congo (DRC) with the Indian Ocean.
The first phase between Dar es Salaam and Morogoro is complete, setting the stage for increased trade and development across the region.
In 2018, TDB directly allocated $100m to fund part of the project, complementing a $1bn sovereign facility arranged by TDB which is serving to fund development infrastructure projects in Tanzania.
More sovereign loans as such have been arranged in other member states, notably in Uganda last year, to help finance infrastructure and other sectors, and create fiscal space to deal with Covid-related shocks.
Another project is the Lake Turkana Wind Project in Kenya – Africa’s largest windfarm, with an installed capacity of 310MW and 365 wind turbines.
TDB was one of the primary co-financiers of this landmark project, with a combination of long-term financing and quasi-equity.
TDB also funds many run-of-the-river hydro projects in the region, and recently extended financing to an SME in Kenya which provides large solar home systems in rural and semi-rural communities and employs hundreds of women representatives in local communities.
In health, TDB has extended financing to various hospitals and clinics, to offer more services, with state-of-the-art equipment, as well to pharmaceutical companies.
One of the projects the bank is also very proud of is the Burundi Backbone System, which connected all of the country’s provinces to a fibre optic cable for faster and stable internet, creating opportunities for all sectors of society through improved digital infrastructure.
The multilateral bank, with 41 sovereign and institutional shareholders, also provided $99.2m in a senior loan facility for the Coral South Floating Liquified Natural Gas (Coral Sul FLNG) project in Mozambique – set to be the world’s first ultradeepwater FLNG unit. Mozambique’s government is expected to generate several billions in income in the form of royalties, taxes and dividends during the 25-year commercial life of the project.
The success of Coral South has served as catalyst for securing various additional mega onshore LNG projects, says Tadesse. It was the winner of the African Banker Awards Infrastructure Deal of the Year in 2019, and also a joint winner in 2021 for Tanzania’s SGR, along with Standard Chartered, the mandated lead arranger, and Nedbank.
Next area of focus
The bank has assets worth over $8bn and it disburses around $2bn each year.
Tadesse says the bank is in the advanced stages of concluding its next strategic five-year framework, as the previous framework comes to an end this year.
“We all know that climate finance is a leading issue,” he says. “There are many aspects around climate finance that we are looking at, not just mitigation but also adaption as well.”
He says that Africa has a “leapfrogging opportunity” to jump to cleaner forms of energy because of the historical lack of energy projects on the continent.
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