“LA BOAD will continue to support the development of regional banking champions”
As part of our report “The 30 African banks with a strong regional impact”, published in number 82 of the monthly Financial Afrik, Serge Ekué, president of the West African Development Bank (BOAD), signed this exceptional editorial in which he reaffirms the institution’s commitment to supporting regional banking champions. Exclusive.
The flagship project of the African Union’s Agenda 2063, the Agreement for the Establishment of an African Continental Free Trade Area (AfCFTA) entered into force on January 1, 2021. It is the realization of an ambition African policy launched in July 2015 in the field of integration and development, thus extending the ambitions of the Lagos Action Plan (PAL) adopted in 1980 by the OAU (Organization of African Unity) which became the Union African (AU), which aimed to establish a true African economic community. The objective is to increase intra-African trade by around 52% or even double it, by eliminating customs duties and non-tariff barriers, thus promoting the free movement of people and goods and creating a market. single point of 1.3 billion consumers, representing a Gross Domestic Product (GDP) of around 2,220 billion dollars (1). This is a real opportunity for Africa to lift 30 million Africans out of extreme poverty and increase the incomes of nearly 68 million other people living on less than $ 5.50. per day. For the African private sector (companies and industries), an essential link in the creation of values and jobs, the AfCFTA intends to play a role of catalyst for investment, innovation and technology transfer in all sectors of activity. It should promote diversification and specialization in the sector with a view to strengthening its competitiveness and achieving economies of scale (2). Of course, states must play the key role of facilitator and regulator, by promoting and strengthening a favorable and competitive business climate (removing regulatory constraints, strengthening measures aimed at improving the business environment) . This is a prerequisite for attracting the continent to foreign investors. The banking sector will remain a strategic player for African companies and States in the implementation of the AfCFTA, by responding in particular to their needs at the level of two complementary components, namely infrastructure and the development of value chains.
Finance structural infrastructure to facilitate trade and market integration
African integration is affected by the lack of quality infrastructure, particularly in the areas of transport, energy and digital technology. It also suffers from the lack of financial integration and the persistence of the tightness of the market, both in terms of wealth creation and consumer purchasing power. Meeting the challenge of the infrastructure deficit is a prerequisite for the success of the AfCFTA because it promotes the mobility of factors (people, goods and services, technologies) and the emergence of markets of regional size. Strengthening infrastructure nevertheless requires the availability of long and stable resources (3) for the financing of large-scale structuring projects. However, the African banking system, characterized by fragmented institutions with limited capacities with strong technological and cultural disparities, only partially meets the continent’s financing needs. Even if the banks present overall a surplus of resources, they on the other hand have difficulties in obtaining long-term funds which would enable them to finance the investments over sufficiently long durations. This is what justifies the arrival on the continent of international majors in the field, with abundant resources at lower cost and long maturity, and in search of projects generating greater income.
In addition, faced with the gradual narrowing of the banking intermediation margin, competition is intensifying for African banks, which are not of the critical size compared to their counterpart in the North. The Covid-19 crisis has further aggravated this situation. Hence the absolute need to encourage banking consolidation processes and support the emergence of African banking champions, able to compete with those in the North by in turn capturing a significant share of the income from the financing of infrastructure projects ( inter-state roads, ports, railways, airports, energy, ICT and digitalization) and improve their financial performance. The idea of developing African banking champions has gained ground on the continent but still remains relevant given the economic and health context. With a better understanding of local realities, African banking champions could address a larger market size by draining more long financial resources, particularly in capital markets and technological capacities for financing trade and industry. With increased financial capacity, they could contribute to the financing of regional projects / programs (in PPP in particular) in a dynamic of post-covid revival of activity sectors. Learning lessons from the health crisis, they could, for example, help set up pharmaceutical industries on the continent for the production of vaccines.
Financing value chains to locally transform African raw materials
To fully play its role in the implementation of the AfCFTA, the African banking sector is particularly expected to i) finance innovation and research in order to promote an ecosystem of viable and competitive businesses and ii) finance the missing links in regional value chains in agriculture and industry with a view to strengthening intra-African trade (imports / exports of goods and services). On this last point, it should be noted that according to the results of a survey by the European Investment Bank (EIB) among African banking groups4 in 2020, they attach increasing importance to the financing of the value chains of the economy. manufacturing and agriculture in their loan portfolios. This will be likely to strengthen the creation of jobs and wealth. To achieve this, it is essential to improve the financial infrastructure in Africa, in particular the digitization of bank credit information systems and guarantee registers, support for SMEs which represent around 80% of companies in Africa, inclusion financial support for women and young people, as well as the development of capital markets (the stock market, in particular) to obtain long-term resources.
BOAD support for the WAEMU banking and financial system
In a logic of complementarity, and obeying the principle of subsidiarity, BOAD will continue to support the development of regional banking champions in order to contribute to improving their operational efficiency. This support currently takes three main forms, namely:
-i) project co-financing and the granting of refinancing lines,
-ii) equity investments,
-iii) term deposits.
Regarding the first component, the Bank is involved in the financing of large-scale operations within the framework of financing syndications with the local banking system. These operations are also an opportunity for BOAD to share its experience and expertise in infrastructure financing. Several energy and production projects were financed in this format: SOMAÏR5 (9.45 billion FCFA), COMINAK6 (12 billion FCFA), AZITO (32.5 billion FCFA), CIPREL (65.5 billion FCFA), projects electrical interconnection (114.6 billion FCFA).
Regarding refinancing lines, the Bank would have put in place an overall amount of FCFA 517.4 billion to refinance the bank loan portfolio for the benefit of private sector companies (MSMEs, large companies): Orabank: FCFA 25 billion , Coris Bank International: 59.7 billion FCFA, NSIA Bank: 30 billion FCFA, BDU: 5 billion FCFA. Regarding the second component, relating to equity investments, BOAD is working to support banks in its area of intervention, without however refraining from supporting private companies of a strategic nature. As such, its presence in the capital of said entities corresponds to an overall investment level of CFAF 176.7 billion, of which 44.4 billion in banks (Orabank, Afreximbank, BDU, etc.), 35.3 billion in companies (Asky, Air CI, etc.) and CFAF 97 billion in regional investment funds, in particular AGF (formerly GARI funds), the Seed and Infrastructure funds, the agricultural fund for Africa, the African fund for renewable energies (FAER), Yellen financial fund, Cauris growth and Cauris investment, etc.
In addition, the Bank is a shareholder in the main structures for the animation of the regional financial market of UEMOA, in particular SOAGA (218 M FCFA), CRRH-UEMOA (1.5 billion FCFA), BOAD Securitization (500 M FCFA), BRVM (280 M FCFA), DC / BR (140 M FCFA), Regional Bank of Markets (400 M FCFA). On the third component, BOAD constantly implements a strategy of term deposits of part of its liquidity with the local banking system. This makes it possible to strengthen the stable resources of banks and thus increase their intervention capacity. Over the last five (05) years, for example, outstanding investments of this nature have averaged 100 billion FCFA. In perspective and within the framework of its DJOLIBA 2021-2025 Strategic Plan, BOAD intends to support the creation and consolidation of competitive African banking groups. It will also remain attentive to strengthening their financial soundness and increasing their capacity to intervene in the region.
