Africa: A ballooning ECA debt space

Africa has played host to a raft of innovative big-ticket financings in the ECA market over the past few years. And deal flow continues apace. The news bodes well for the wider export finance community given increased ECA collaboration and flexibility has long been mooted as intrinsic to taking a more holistic approach to large-scale project finance deals on the continent.

DFIs will be paramount to unlocking private capital, and as development banks stretch to combat Covid and the climate change crisis, ECAs will also play a greater role in getting deals across the financial line.

African buyers – especially sovereign borrowers given ballooning debt piles on the continent – have struggled to drum up the 15% down payment financing traditionally needed for ECA-backed buyer credits given the private insurance market’s stifled response to residual risk on such deals due to the Covid-19 pandemic. But this private market stagnation spurred innovation.

Western African risk appetite

ECAs and banks have engineered bespoke structures to provide 100% cover, including Ghana’s MoF, which last year signed a pathfinder €600 million ($712 million) dual ECA-covered financing for the construction of a 100km section of the West African country’s Western Railway Line. Shortly after, lead arrangers on that deal – Deutsche Bank and Investec, with support from EKN and ECIC – closed a €215 million loan to finance two major hospital projects in Ghana.

Ghana’s MoF sealed another landmark ECA-backed social loan last year too – a €280 million ECA-backed social loan financing for the Eastern Corridor road project, and a €78 million UK Export Finance-backed financing deal for a project to design, construct, and equip the new Eastern Regional Hospital.

These deals provided viable financial templates for future such financings: and in January this year Ghana’s MoF signed a 13-year $199.75 million Serv-backed loan to back the construction of nine centres of excellence for Council for Technical and Vocational Education and Training (COTVET) across different locations in Ghana, alongside an ECA-backed facility to support construction of a new 400-bed maternity block at the Korle-Bu Teaching Hospital in Accra. 

The latter deal demonstrates ECAs’ increasing appetite for Ghanian risk, with EKN providing 100% cover on a €147.4 million 13-year tranche with SEK as sole lender (in tandem with a €16.7 million five-year tranche solely provided by Afreximbank). 

This year expect more MoF deals in Ghana, Senegal and a small-ticket bus deal in the Ivory Coast, alongside resumed discussion around the multi-billion dollar ECA/DFI-backed Rovuma LNG project in Mozambique – which was put in the fridge during the pandemic because of a military insurgence in the region. 

Fossil fuels part of energy transition

Given the heightened energy security issues in the wake of the war in Ukraine, schemes such as Mozambique LNG and Rovuma are becoming more important to plugging Europe’s burgeoning gas supply issues. In fact, ECAs have completed evaluations on another large-scale scheme: TotalEnergies’ controversial $3.5 billion East African Crude Oil Pipeline (EACOP) project, with some bank commitments already in. 

And in North Africa, Egypt’s state-owned oil refiner Assiut National Oil Processing Company sealed an innovative $1.5 billion ECA-covered loan to back the Assiut oil refinery expansion project. The deal has provided a viable financial blueprint for future projects without a sovereign guarantee to cover the entire financing. Again, plenty of ECA innovation. 

So, as energy transition is now a buzzword baked into the mouths of government officials and policymakers, it is clear Africa still boasts plentiful oil and gas reserves which will help Europe plug its gas supply constraints. But there are still significant capacity issues for several gas rich countries on the continent – such as Algeria, Nigeria and Mozambique despite their plentiful reserve bases. 

ECAs have not supported a deal in Algeria for over 15 years, for instance, and there is real potential for export finance, in tandem with DFIs, given this currently sanctioned market has not hosted any international financings for nearly two decades. 

Domestically, annual investment of $25 billion would deliver universal energy access in Africa by the end of decade, according to the International Energy Agency (IEA), reversing a fall in electricity provision as a result of the economic impact of the Covid-19 pandemic and Russia’s invasion of Ukraine. 

Speaking ahead of the release of the IEA’s African Energy Outlook 2022, Fatih Birol, executive director of the Paris-based energy body, said only about 7% of the total climate finance flows from advanced economies to developing countries goes to African nations.

In short, ECAs and DFIs will be needed to lay the seedbed to provide comfort to commercial banks eyeing up big-ticket infrastructure finance deals in Africa, from carbon-intensive schemes to renewable projects (of which there have only be a handful of ECA-backed deals in recent years).

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