Hani Salem Sonbol: Supporting a green economy in Africa through international trade

Eng. Hani Salem Sonbol

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.

Eng. Hani Salem Sonbol is the CEO of the International Islamic Trade Finance Corporation (ITFC).