Is US Ex-Im Bank Needed For Doing Business In Africa?

Written by D.A. Barber

The U.S. Export-Import Bank’s charter is set to expire Sept. 30 if Congress doesn’t act and there’s a divide in Washington as to whether it should continue to exist.

Letting the bank fold would be a huge mistake, according to Ex-Im Bank supporters who point specifically to Africa.

“It’s just absurd not to have an Export-Import Bank, no matter what the problems of the Bank may be,” said Stephen Hayes, president and CEO of the Corporate Council on Africa, in an AFKInsider interview.

Since 1934, the Ex-Im Bank has operated as an independent, self-sustaining U.S. federal agency that fills gaps in private export financing by providing loan guarantees, export-credit insurance and direct financing to help foreign buyers purchase American-made goods and services.

“I think this whole debate is really important for Africa, both in a substantive and figurative way,” said Toby Moffett, former Connecticut Congressman and senior adviser at national law firm Mayer Brown. “We’re right there on the brink of entities like Ex-Im, Overseas Private Investment Corp. and U.S. Agency for International Development really upping their activities in Africa. And if you take one of those big players out of it, it has not only a substantive impact, but an impact on the whole mood – the whole relationship with these countries.”

According to Ex-Im, financing of sub-Saharan African projects soared to an all-time high of $5.8 billion in the past five years, including a record $1.7 billion over the past 10 months.

“In the past four years, Ex-Im Bank has authorized more than $4 billion in financing for U.S. exports to sub-Saharan Africa, including $604 million in authorizations in fiscal year 2013,” according to Bank’s 2013 annual report.

Those projects included:

– A $155.4-million loan to Ghana for Miami-based Americaribe Inc. to design and build the Ghana Ridge Hospital;

– A $15.7-million loan to the state government of Lagos, Nigeria, for 32 firefighting trucks manufactured by Illinois-based W.S. Darley & Co.

– A  $108-million loan guarantee to South Africa to purchase locomotives manufactured by GE Transportation.

“We can not exceed the cap that Congress imposes on the bank’s lending activities overall, but there’s no sub-cap for sub-Saharan Africa,” an Ex-Im spokesperson told AFKInsider in a phone interview.

Mixed Support

Much of the debate focuses on how the bank functions.

In fiscal year 2013, Ex-Im approved more than $27 billion in total “authorizations” globally to support an estimated $37.4 billion in U.S. export sales, earning the U.S. treasury $1.1 billion above the cost of operations.

According to the Bank’s Annual Competitiveness Report for 2013 to Congress released June 25, Ex-Im support of American businesses is needed to maintain a level playing field against state-funded and state-subsidized companies in China, Russia and other countries.

“We’re not going to get to the point where we’re going to nationalize industries and pour as much resources into them as China is, so to say Ex-Im is going to (compete) is kind of silly,” said Diane Katz, Research Fellow in Regulatory Policy at the Heritage Foundation, in an AFKInsider interview. “And if China is such a problem, then maybe Ex-Im should stop financing projects owned and controlled by the Chinese government.”

The Bank’s Annual Competitiveness Report also highlights the threat of competition from countries not regulated by the Organization for Economic Co-operation and Development’s (OECD) agreed-upon free-market global export standards.

“Unless we want to re-authorize Ex-Im and say to OCED ‘we’re not going to follow your rules and we’re going to substantially increase the amount that we’re going to provide in subsidies,’ it’s not going to make any difference in terms of the so-called ‘level playing field’ with China or Russia,” Heritage Foundation’s Katz told AFKInsider.

Supporters say Ex-Im fills a gap in the U.S. is where commercial banks have largely withdrawn from supporting export financing for small businesses.

But according to the Heritage Foundation: “Ten companies benefited from 75 percent of the Ex-Im subsidies in FY 2013. Along with Boeing, these major beneficiaries included General Electric (valued at $267 billion), Bechtel Corporation (2013 revenues of $39.4 billion), and Caterpillar Inc. (with 2013 sales and revenues of $55 billion).”

“I think that’s probably accurate, maybe even more,” Hayes of the Corporate Council on Africa told AFKInsider. “And the airline industry has probably 50 percent or higher of that.”

Ex-Im said that the bank serves small businesses. Numerous companies – especially small businesses – rely on export financing and for whatever reason, they can’t find what they need in the commercial sector so they turn to Ex-Im to fill that gap.

Hayes questions how responsive Ex-Im is to smaller businesses, noting that the agency has conflicting mandates. Ex-Im was formed specifically to mitigate the financial risk to U.S. companies exporting their goods.

“But at the same time their performance is judged on how much they return each year to the treasury; in other words, how much money they make,” says Hayes, noting that any operation where performance is based on returns is going to reduce its risks. “And, in fairness, small companies are a higher risk,” Hayes said.

While some conservative members of Congress are trying to kill the Export-Import Bank, an odd mix of traditionally conservative business groups support the bank. In fact, re-authorization has become a political football within the Republican Party between Tea Party members and fiscal conservatives who are anti-bank, and more moderate Republicans who are backed by the U.S. Chamber of Commerce, the National Association of Manufacturers, and the coal and nuclear power industry, who support the Bank.

Africa Market at Stake?

With sub-Saharan Africa home to seven out of 10 of the world’s fastest-growing markets, U.S. companies want to get their products into African consumers’ hands and Ex-Im is expanding its African activities to keep up with this economic growth in Africa.

And with two-thirds of the population of sub-Sahara Africa lacking electricity; strengthening their power capacity means even more growth and more need for goods and services exported from U.S. companies.

One contentious issue that affects Africa’s energy development is a 2013 White House order that limits Ex-Im from lending money to build foreign coal-fired power plants, with a few exceptions in very poor countries. At the same time, renewable energy is a focus of the bank’s activities; in part because Ex-Im’s charter mandates it, and because the Obama administration specifically targeted 10 percent of the bank’s budget for renewable energy projects. This year, Ex-Im pledged up to $5 billion over the next five years in support of President Obama’s Power Africa goal of doubling sub-Saharan Africa’s access to electricity.

President Barack Obama along with former President Bill Clinton noted that the bank’s reauthorization is “critical to U.S. business” and called on business leaders to make their support known to Congress during the U.S.-Africa Leaders Summit. At the same time, Ex-Im officials announced another $3 billion in financing over the next two fiscal years to further support U.S exports to sub-Saharan Africa.

Still, critics maintain the expiration of the Ex-Im Bank will have little affect on U.S. companies doing business in Africa, citing the Bank’s 2013 annual report that indicates “Ex-Im-supported exports accounted for 3 percent of all U.S. merchandise exports to sub-Saharan Africa during the year.”

“It’s not like Ex-Im plays a big role in development in Africa,” Heritage Foundation’s Katz told AFKInsider, noting that are a lot of other ways to help develop trade with Africa….I think that we can do just fine without Ex-Im.”

Supporters counter by saying the recent U.S.-Africa summit really helped to increase the likelihood that there will be more done in Africa by Ex-Im and other agencies.

“These agencies got their marching orders from the White House that ‘you’ve got to be doing more in Africa,’ so clearly you can’t just look at what’s been happening in the past,” Moffett said.