Press Release: Local private sector develop solutions to weather the export slump and economic downturn
Release date: Wednesday, 20 April 2016
Local private sector develop solutions to weather the export slump and economic downturn
The Country Club Johannesburg, South Africa – Wednesday, 20 April 2016
Following the drop in commodity prices and in the demand for Africa’s resources by China, African economies are slumping and GDP growth is stagnating in most of the continent’s emerging markets. South African corporates are hard pressed and struggling to stimulate economic activity that is in line with 2015 - 2016 growth projections.
Speaking at a business breakfast hosted by the Export Credit Insurance Corporation of South Africa (ECIC) and the NEPAD Business Foundation’s Africa Investment Desk (AVID), Lynette Chen, CEO of the NEPAD Business Foundation said, “The key to stimulating economic growth in Africa following the end of the resource super cycle, will hinge on how well African countries can quickly diversify their export portfolios and move away from heavy reliance on single resource exports to underpin economic growth.”
Africa is rich in natural wealth, which includes arable land, minerals and hydropower potential. This has been the bedrock of the continent’s economy and continues to represent significant development opportunities for its people. Statistics show that natural resources account for nearly 80% of total exports and around 42% of government revenues. This is why the slowing of China’s economy and the country’s increased focus on services is affecting most African countries negatively as their economic growth was being supported by revenue generated from extraction and export of resources.
Lynette Chen added ”Although Africa’s ‘look-East’ policy is still a viable economic strategy with a particular focus on Southeast Asian countries, the continent also needs to improve its levels of intra-African trade. This is why the NBF is working with the ECIC to encourage investment and exports in African countries, by working with investors to mitigate their risks in the current unstable economic climate.” ”
According to the World Bank, trade facilitation can provide important opportunities for Africa, however, most African countries face considerable challenges to achieving more open trade as the costs of trading remain high, preventing potential African exporters from competing in both global and regional markets.
In his remarks during a panel discussion at the ECIC-AVID business breakfast, Mandisi Nkuhlu said, “Due to the high cost involved in open trade on the international market, our exporters have been struggling with being competitive at a global level. This is why African policymakers have started paying more attention to addressing trade discouraging non-tariff barriers. The Export Credit Insurance Corporation (ECIC) of South Africa is one of the initiatives that support the exportation of South African goods and services to drive domestic job creation contribute to fixed capital formation and GDP and generate fiscal revenue for the country.”
Also, speaking at the ECIC-AVID business breakfast, Kutoane Kutoane, CEO of the ECIC added, “Essentially, the ECIC acts as an ‘insurer of last resort’ by providing insurance for export transactions that will otherwise not take place because commercial lenders are either unable or unwilling to accept the risks in medium-term and long-term transactions. These are the so-called unmarketable risks. The organisation’s vision is clear; it is to commit to sustainable business growth through innovative products, operational excellence, business development and strategic partnerships.”
Asked why export credit insurance was an important component of the financial solution for investment in African projects, Andre Kruger, Head of the AVID programme at the NBF said, “AVID was established to support economic development and regional integration in Africa by facilitating and arranging finance for companies, government institutions and or their projects. This facilitation role includes assistance with the structuring of financial solutions integrates risk mitigation products and services available from ECIC along with other types of blended finance options, which will ensure that bankable projects are successfully funded for implementation.”
Other panel members that participated at the business breakfast included Muzi Kubeka, Director, Norton Rose Fulbright; Hildabertha Kundu, Deal Originator, DBSA; Philna Potgieter, Head: Commodity, Export and Structured Asset Finance, Nedbank Corporate and Investment Banking; and Reetaben Ramanlal Ambaram, Head: Surety Global Corporate South Africa, Zurich Insurance.