Should Africa worry about the potential demise of US EXIM Bank?
There has been no shortage of well-intentioned laments about the expiration of the authorization of US EXIM Bank on June 30, 2015–since then, the Bank’s authority to issue new loans ceased and its operations have been limited to managing loans already in its portfolio.
The Bank has enjoyed a long history. It was established in 1934 by executive orders with the specific objectives of making loans to the Soviet Union and Cuba. It was later made an independent agency by the US Congress in 1945, which is notably the same year as the establishment of the International Monetary Fund and the World Bank. At that time, these agencies were conceived to facilitate financing for international trade and to support reconstruction and development of countries ravaged by World War II–with the rehabilitation of Europe high on the agenda. The focus of US EXIM Bank continued to evolve, with changes in the world economy.
There are now some 60 export credit agencies–sponsored by individual countries, such as China, Canada, France, or by multilateral institutions–and they play an important role in trade financing across the globe. Such agencies take on credit and country risks that the private sector is unable or unwilling to accept. In the global competition for trade, export credit agencies are particularly critical counterparts for Africa where the domestic banking systems have been relatively weak in their capacity to finance the purchase of goods from overseas.
Today, the consequences of Congress’ failure to re-authorize US EXIM Bank, notwithstanding the clear and powerful arguments in favor of doing so, are particularly poignant in relation to the Bank’s role in Africa. It would be a bitter irony if US EXIM is forced to disengage at the time when Africa’s rise and integration in the world economy is becoming more visible.
Among the many compelling arguments for reauthorization is that US EXIM Bank is highly effective in supporting US-Africa trade. The establishment of sub-Saharan Africa as a priority region for the Bank, recognizes the prospects of long-term economic growth and infrastructure development that would support US exporters’ efforts to increase their sales to the region. In 2014, the Bank approved deals worth $2.05 billion to support exports of US manufactured goods to sub-Saharan Africa (out of the Bank’s total support of $27.5 billion in exports through more than 3,700 transactions in 2014). Contrary to popular myth, the Bank does not cost US taxpayers any money, but rather has earned the US over $2 billion in its last five years of operation. The Bank has also been instrumental to developing and implementing important initiatives such as the Obama Administration’s Power Africa Initiative, which seeks to contribute to adding 30,000 megawatts of new electricity generation capacity and increasing electricity access by at least 60 million new connections.
Any good lawyer or lobbyist knows that sometimes you have to give up objective arguments and instead work with whatever you can to get a decision through. Notwithstanding the arguments in favor, the reauthorization of US EXIM Bank has been held hostage by other interests. Thus, it appears that the future of the Bank is dependent on appending a US EXIM Bank reauthorization to a “must-pass” piece of legislation, such as a long-term highway bill or a bill funding the US federal government’s operations after December 11, 2015 when the current continuing resolution funding the US federal government expires. Of course, the characteristics of these “must-pass” pieces of legislation have little to do with the merits of the case for US EXIM Bank or with the arguments in favor of its engagement with Africa. But Africa is too big to be contained by such constraints in vision.
The current stalemate over the future of the US EXIM Bank illustrates more broadly that if the U.S. can’t get it together to engage productively with Africa, others will no doubt fill the void, including through supporting the export of alternative goods from their countries to Africa.
The advantage of working for a global law firm is that I don’t need to pick winners or losers in the global competition for engagement with Africa. At this stage, the reauthorization of US EXIM Bank is more important as a signal US credibility in Africa, than it is to the future of Africa. Either way, Africa has alternatives.
The post Should Africa worry about the potential demise of US EXIM Bank? appeared first on Ventures Africa.