Africa Finance Corporation Hit By Economic Headwinds, But… | Independent Newspapers Limited
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Africa Finance Corporation Hit By Economic Headwinds, But…

Posted: Apr 11, 2016 at 3:06 am   /   by   /   comments (0)


Kirk Leigh

The Africa Finance Corporation (AFC) set up by a consortium of banks to cover the yawning gap in Africa’s infrastructure needs appears to have taken a hit from the inclement global economic weather as its bottom-line heads for the floor. But in the torrid atmosphere, the bank may have spotted winning opportunities across the continent.
AFC is an international organization established by treaty between sovereign states. It was established by twin legal instruments, with all the rights, privileges and immunities conferred upon international entities.
Current member nations are Nigeria (host country), Guinea-Bissau, Sierra Leone, The Gambia, Liberia, Guinea, Ghana, Chadand Cape Verde. In addition, various prospective new member countries are now at different stages of due diligence.
“2015 was characterised by a decline in oil prices from an average of US$96.3 per barrel in 2014 to US$51.2 per barrel in 2015. Similarly, the mining sector continued to experience a downturn with general pricing indicators declining for the fifth year in succession. Oil prices remained under pressure owing to a supply glut; a situation which saw prices plummet by approximately 50 percent during the year, as China’s demand for raw material imports decreased and the Chinese economy rebalanced away from manufacturing to services. The decline in Chinese and broader emerging market demand, tepid economic expansion in Europe and recovery in the USA, has negatively impacted commodity dependent economies in Africa”.
The above quote is straight out of the bank’s 2015 annual report, which states that its bottom-line shrank 30.7 percent to $72.6 million (N14.5 billion) from $104.69 million (N20.9 billion) even if net interest income, an indicator of whether a bank is doing well (or not) in managing its interest assets improved from $75.7 million to $104.9 million, a 38.6 percent rise.
Improving net income is on the back of a faster paced interest income over interest expenses, while interest income grew 52 percent to $158.73 million from $104.44 million and interest expenses rose 42.6 percent to $53.85 million from $28.79 million.
Things looked good for the regional infrastructure bank until held against the prism of operating income, which is an indicator of a firm’s ability to manage costs, as the item took an 18 percent backtrack to $114.8 million from $140 million.
Things got more depressed at the consideration of impairments, losses due to financial instruments and operating cost. These intervening items pulled down profit for the year 30 percent to $72.6 million, down from $104.7 million.
Although no risk asset was impaired during the year under review, the corporation’s first portfolio impairment charge of US$26.7 million was recorded, in light of increased default risks, particularly in the corporation’s oil and gas risk asset portfolio. Overall, the corporation remains strongly capitalized, with a capital adequacy of 50 percent. AFC is also very liquid, with approximately US$1 billion liquidity as at December 2015, positioning the corporation to take advantage of investment opportunities in 2016.
Despite the depressed economic situation, the corporation notes there is yet opportunity to be harnessed going forward. According to it, there are opportunities in natural resources, power, transportation and heavy industries.
“With Africa accounting for approximately 11 percent of global oil production and 18 percent of the continent generating more than 10 percent of its GDP from mining activities, the downturn in the natural resources sector has had a mixed impact across the continent, particularly as it relates to importer dependent versus export-dependent economies. Nevertheless, while recognising the cyclical nature of the sector, on oil and gas, “AFC continues to be optimistic and takes a long-term investment view. The current downturn whilst challenging, also presents significant opportunities. A commodity downturn usually adds fresh impetus to create a more diversified economy, and development of higher value domestic industries, which will result in increased investments in power, transport and heavy industry. It also allows import dependent African economies to earnestly focus and implement economic diversification strategies.”
Announcing its 2015 corporate result, AFC said despite a difficult operating environment, it delivered strong underlying operating results, achieving 25 percent growth in its balance sheet, with total assets in excess of US$3.2 billion, net interest income increased by 39 percent to US$108.4 million with net interest margins growing to 4.4 percent, a 7 percent improvement over the prior year, as the corporation continues to lower its borrowing costs. Fees, commissions and other income, however, declined by 85 percent largely due to one-off revenues of US$46 million recorded in 2014.
It would be recalled that in April 2015, as part of its efforts to diversify its funding base, the corporation successfully issued its maiden Eurobond of US$750 million as part of its established US$3 billion Eurobond Global Medium Term Notes (“GMTN”) programme. Reception of the bond was strong, and it was six times over-subscribed, positioning AFC in the capital markets as a strong African credit.
Andrew Alli, president & CEO, AFC, said: “We are pleased to report that despite the economic headwinds we have seen our total assets grow by 25 percent. Support for the AFC and its mandate as an investor in crucial infrastructure across Africa has also been met with the launch of our US$750 million Eurobond, which was six times oversubscribed.
“As global economic uncertainty persists, the AFC is well placed to continue to deliver returns to shareholders and new infrastructure that will bolster economic growth and have real social impact across Africa.”