Governments across Africa are aware that low access rates and lack of reliable electricity present a challenge to rapid economic development.
The challenge is not only in identifying the power programmes to invest in, but also how to finance the equipment needed for these projects.
Access to power not only lifts lives; it also changes economies. Electricity is needed to light a room at night so a child can study and to power blast furnaces, airports, hospitals, and industries. Nearly 600 million people across Africa lack access to power and deficiencies in electricity are evident up and down the value chain – from generation to transmission to distribution.
The United States is known throughout the world for high quality, innovative goods and services in the power and electricity sectors and many African governments and companies seek such imports. Unfortunately, this opportunity is often hindered by a lack of financing. African buyers need and expect open account credit terms or lenders are wary of providing loans to African buyers for purchasing capital goods and services.
Fortunately there is a solution. The Export-Import Bank of the United States (EXIM) is a federal government agency that enables US businesses of all sizes to sell to more than 180 countries, especially in emerging and frontier markets. EXIM supports the financing of a broad range of power exports, including oil, liquefied natural gas, nuclear, renewable, electrical parts and components, and coal.
Of particular importance to African buyers, EXIM support encourages US companies not to require cash in advance. Upfront payment has an adverse effect on the buyer’s cash flow as they typically wait for the product to be made, shipped, and then resold or used. Foreign buyers can negotiate credit terms up to 180 days with US companies up front. An example is the Trans-Africa Gas & Electric Corporation (TAGE) of Lagos, Nigeria, established in 1999 to provide power to end-users for productive use in homes, farms, corporate and government offices, and communities. In 2016 and again in 2018, the company purchased an off-grid cold storage power system from Leapenergy USA LLC of Tennessee.
The standalone cold storage facility allows farmers to cool and store their produce before bringing it to market, preserving perishable post-harvest produce and fisheries. The exporter, Leapenergy, obtained a single buyer export credit insurance policy to protect against buyer nonpayment and extend credit terms up to 120 days to TAGE. This transaction was a win/win that led to repeat business. TAGE did not have to pay cash in advance for a US-made product while Leapenergy was insured by EXIM for up to 90% of its sales invoice by the US government.
EXIM also assists African buyers of capital goods and services by providing access to longer term financing. With EXIM’s financing backed by the US government, lenders are more likely to provide African customers with loans at more competitive rates and with longer repayment terms (typically up to five, seven, 10, and possibly 18 years). Weldy-Lamont Associates Inc. of Illinois overcame foreign competition to win a $350 million rural electrification turnkey contract from the government of Ghana, and procured equipment and services from US suppliers around the country to fill the order backed by a $344 million loan backed by EXIM. The government of Ghana sees the ongoing effort to bring electrical connectivity to its populace as the underpinning for economic growth and poverty reduction. Its goal is to connect all eligible communities with a minimum population of 500 individuals, or approximately 3,800 villages, to the national grid by 2020. ESI
About the author
Jim Burrows, senior vice president of small business at EXIM Bank, has over 30 years’ experience in the public and private sectors of the financial services industry, including commercial banking, retail banking, and investment banking. Burrows held management positions at both large and regional commercial banks in the US. www.exim.gov