Bulls n Bears Entrepreneurship Zone :: Hani Salem Sonbol: Supporting a green economy in Africa through international trade

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For a decade, the International Islamic Trade Finance Corporation (ITFC)
has been a catalyst for growth in key African industries, acting as a major
source of capital and a springboard for cross-border trade and exports. With
the continent at the frontline of the global warming battle, the focus has
shifted towards building a profitable green economy in Africa. Never has
there been a more pertinent time in history for the role of international
trade in the realisation of Africa’s green economy through innovative and
sustainable trade financial instruments.

Since 2008, ITFC has been actively facilitating trade and finance in the
Organisation of Islamic Cooperation (OIC) countries. Most its member
countries, many of which are on the African continent, depend on the
agricultural sector as their primary source to drive development of their
economies. Despite the sector being amongst the most vulnerable to climate
change, the opportunities afforded by investing in Africa’s green economy
are significant. With the aim of highlighting the continent’s immense
economic potential to member OIC nations and fostering greater trade
collaborations, Africa will continue to feature strongly in ITFC’s target
sustainable financing strategy for the next 10 years.


The role of Islamic trade finance in facilitating sustainable agriculture
and food security


The various global climate-financing mechanisms that exist have not
necessarily been effective in addressing Africa’s needs and this is where
Islamic trade finance can play a fundamental strategic role. At the 2016
COP22 United Nations Climate Change conference in Marrakech, ITFC and the
Islamic Development Bank (IsDB) held a seminar on “International Trade and
Climate Change” to highlight the linkages that connect trade and climate
change and how trade policies applied by OIC member countries have impact on
climate change and on the physical infrastructure on which trade depends.

Since then, ITFC has been actively seeking to work with OIC member nations
to promote sustainable international trade and its role in financing green
economies. In 2017, ITFC injected US$826m into a range of trade financing
initiatives designed to support strategically important sectors in
sub-Saharan Africa, such as cotton, groundnuts and coffee. Amongst these
initiatives is the Arab Africa Trade Bridges Programme (AATB),launched in
February 2017 in Morocco to encourage greater South-South cooperation to
invest in the sustainable growth of African agriculture and enhance global
food security.

In West Africa, cotton is an essential commodity and a major cash crop for
farmers, positively impacting livelihoods and standards of living. Cotton
culture acts also as a guarantee for rural food security as farmers use some
of the available agricultural inputs, such as fertilisers and insecticides,
not only to enhance cotton growing but also food crops. This “white gold”
represents an important export and revenue-generating vehicle for the region
and is therefore a promising tool for poverty alleviation. For these
reasons, since inception, one of ITFC’s strategic areas of intervention has
been to help transform the region’s cotton sectors through the provision of
Murabaha trade finance and create direct links between exporters and
importers in OIC member nations.

In addition to financial investments, ITFC supports several technical
interventions designed to create a stronger, more sustainable cotton sector
in the region. These include:

*         A soil fertility project, which is a partnership with Tunisian
companies through the AATB programme, aimed at enhancing soil fertility in
cotton growing regions;

*         The Cotton Trade Bridge Project, which aims to create a direct
connection between exporters in sub-Saharan Africa with cotton importers
from Asia thereby eliminating costly intermediaries and enhancing revenues
for African exporters;

*         The DEDICOT Project, an ITFC partnership with the International
Organisation of Francophone Countries (OIF) to boost cotton trade and
investment between West African ginners and Moroccan spinners.

To date, ITFC has approved 21 sustainable financing operations in the
cotton sector in West Africa, in Benin, Burkina Faso, Cameroon, Côte
d’Ivoire, and Mali. Overall, in the sub-Saharan Africa region, ITFC’s
investments in the cotton sector are over $1.4bn to date.


ITFC and the next 10 years of advancing trade and improving lives in Africa


Without doubt, Islamic trade finance has a transformative role to play in
supporting a profitable green economy in Africa. Murabaha financing, an
asset-based financing structure, provides for maximum transparency on a
cost-profit basis, which supports stable financing. It is a significantly
more stable route towards raising capital that avoids the pitfalls of
fluctuations in rates and potential problems related to volatility in global
markets. For governments and/or government-owned businesses and private
sector companies in the key export sectors of cotton, coffee, wheat and oil,
this approach provides a significant advantage.

By harnessing the innate sustainability of Shari’ah compliant financing,
ITFC has been able to significantly boost trade between OIC member nations
hence an important instrument for poverty alleviation and a springboard for
enterprise and job creation.

Africa, in particular the sub-Saharan Africa region, will continue to be a
priority for ITFC’s sustainable trade develop strategy in the coming decade.
Like many parts of the world, the sub-Saharan Africa region faces
significant challenges, not least its booming youth population and
developmental challenges including trade logistics, infrastructure, energy
and connectivity.

This year, ITFC will roll out the West Africa SME Programme. This programme
is designed to bridge the substantial trade finance gap at the SME level
within the region by providing financing lines, capacity building and
advisory services to partner banks and SMEs in the West African Economic and
Monetary Union (WAEMU) nations, namely Benin, Burkina Faso, Cote d’Ivoire,
Guinea-Bissau, Mali, Niger, Senegal and Togo. A pilot project will be
implemented in Burkina Faso then an additional pilot will be implemented in
Senegal subsequently. Over the coming months and years, these activities
will be complemented by extending capacity building training to selected
SMEs as well as staff at partner banks to enhance the bankability of SMEs
and in turn improve utilisation of allocated lines of financing in favor of
a greener economy.—Howwemadeitinafrica 



Eng. Hani Salem Sonbol

 

 

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