CHAIRMAN'S
MESSAGE – Duarte Pedreira, ITFA ARC Chairman / Head of Trade Finance at Crown
Agents Bank
Dear Members and Friends,
It is with great joy that I write to you to
introduce the ITFA Africa Regional Committee’s first newsletter.
When you kindly elected me to join the ITFA Board
during last year’s conference in Edinburgh, I was given a mandate to grow the
Association’s reach and influence in Africa. The set up of the Africa Regional
Committee (ARC) formally initiated this process and when the members of this
new venture first met on the 15th November 2017, we set out an ambitious
agenda that will see a significant number of new Africa-related trade finance
initiatives being undertaken over the next few months. These will be focused on
fulfilling the ARC’s five strategic vectors: increase of ITFA’s African
membership, delivery of training and education initiatives in Africa,
discussing and lobbying with African regulators for ITFA related issues on
behalf of members, communication and provision of information, and Africa-focused
networking.
2018 is the year of Africa within ITFA as we
proudly welcome the legendary ITFA conference to the continent in September for
the first time in our history. As such, the ARC and ITFA are engaged in
significantly increasing our membership in Africa as we aim to get at least 20
new members joining the Association’s ranks from the African continent. This is
being spearheaded by Afreximbank who have sent out letters inviting hundreds of
African institutions to attend the conference, with all the other ARC members
being heavily involved in following up on these invitations and effectively
delivering towards our common goal. So far we have onboarded some new names,
including banks from Sierra Leone, Liberia and Malawi, which again are taking
the lead in showing the world that it is precisely those countries that are
considered to be the most challenging from a trade finance point of view, that
are taking the initiative and embracing the opportunity to claim their place in
the centre stage of the global trade finance industry.
We have also started working on delivering relevant
training and education initiatives for our expanding African membership. The
first of these initiatives will be a landmark training session being held in
Nairobi on the 23rd May in the afternoon, linked to the Global Trade
Review’s East Africa Trade & Commodity Finance conference. During this
session, we will have ARC members delivering training on topics such as forfaiting/distribution,
the MRPA, IFRS9, insurance solutions and other contemporaneous trade finance
matters of interest. We are also hoping to use this training session as a
vehicle to capture the attention of the many local banks in attendance, so that
they understand what ITFA is and the value it provides to its members.
The main goal for this newsletter is to keep you up
to date with our activities and provide our modest contribution towards your
increased awareness and interest around African trade finance topics. As such,
I am delighted to have in our first issue Louis Du Plessis from RMB telling us
more on why we should all be excited with the forthcoming conference in Cape
Town, Christian Karam from Africa Trade Finance sharing with us how
international trade financiers returned to Nigeria, and Alastair McLeod from
JLT discussing risk and reward in Ramaphosa’s South Africa. We are also
delighted to include an article from one of the Mentees in the ITFA Martin
Ashurst Trade Finance Mentorship Programme, Klisman Murati, who is a director
for the boutique consultancy firm Pangea Wire, addressing terrorist financing
in Africa.
Rest assured that our other ARC members (the
Afreximbank Forfaiting Working Group, Marieme Kamara from Wilben Trade, Simon
Cook from Sullivan and Worcester and Ian Henderson from GIB UK) are already
lining up their contributions for the second issue, which will be due in 3
months time. As part of that second issue, just before the conference in Cape
Town, we will be reporting on our inaugural event - the educational seminar in
Nairobi. We want to be as relevant as possible, so if there is a topic you
would particularly like to see covered here, do let us know and we will do our
best to accommodate.
Enjoy your reading!
Duarte
PS – have you registered for the Cape Town
Conference yet?
2018 ITFA CONFERENCE IN CAPE TOWN – Louis du Plessis, ITFA ARC Member
/ Head of FI Trade & Distribution at Rand Merchant Bank
The 45th
instalment of the International Trade and Forfaiting Association (ITFA) annual
conference will be held in Cape Town, South Africa. This is a very exciting
development as it will be the first of hopefully many ITFA annual conferences
to be hosted on the African continent.
Dating as far back
as the mid 1600’s South Africa and specifically Cape Town formed an integral
part of international trade environment where the Dutch East India Company (the
first large global trader!) set up a trading post to support shipping companies
traveling around the tip of Africa in the Euro/Asian corridor.
ITFA has branded
2017/2018 “the year of Africa” and in the same vein established a regional
committee dedicated to driving initiatives related to Africa on behalf of the
association. One of the main objectives of the African Regional Committee (ARC)
is to drive new membership from African banks and in doing so support the
development of trade finance on the continent. With more than 1.2bln people and
over USD 6 Trillion in GDP the continent represents a massive opportunity for
international investors in trade finance. Hosting the event in Cape Town
provides the perfect opportunity for ITFA members to catch up with existing
members in one of the best locations in the world as well as to interact with
banks, insurers and funds from all over Africa.
Our hope is that
this year’s event in Cape Town will be the catalyst for the expansion of ITFA
driven objectives on the continent which the ARC believes will add significant
value to trade finance development in Africa and globally.
Cape Town has
successfully hosted many international events and the location will certainly
not disappoint in living up to the high standards that ITFA members have come
accustomed to over many years! The African Regional Committee is looking
forward to welcoming everyone to the 2018 ITFA Conference.
10 (or 13) Things
you may not have known about South Africa
1.
The Cape Floral Kingdom is one of the world’s six floral kingdoms –
and the only one which is wholly contained within a single country.
2.
The oldest remains of modern humans were found in South
Africa and are well over 160,000 years old.
3.
Two Nobel Peace Prize winners lived on the same street. Both
Nelson Mandela and Archbishop Desmond Tutu had houses on Vilakazi Street in
Soweto.
4.
The Bloukrans Bridge, Western Cape, is the highest commercial natural
bungee jump in the world. The 216m (709ft) jump off the Bloukrans Bridge,
Africa’s highest bridge, falls over the Bloukrans river valley. The world’s
oldest bungee jumper, South African Mohr Keet, jumped from the bridge when he
was 96.
5.
It’s been estimated there are around 3,000 shipwrecks along the
3,000km coastline of South Africa. At some stage Lloyds of London stopped
providing cover for shipping companies traveling to or around the Cape of Good
Hope.
6.
South Africa has hosted the football (2010), cricket (2003) and rugby
(1995) world cups – it is the only country in the world other than England
to have done so.
7.
South Africa boasts 90% of the platinum group metals reserves on
earth.
8.
There are about 900 different bird species in South Africa,
which represents around 10% of the bird species of the world.
9.
The Tugela Falls in Kwazulu
Natal are the second-highest on the globe, measuring some 850 metres (or
2,789 feet).
10.
Dr Christiaan Barnard performed the first heart transplant in the
world in 1967. This took place at the renowned Groote Schuur Hospital in
Cape Town.
11.
South Africa host the largest individually-timed cycling race in the
world, the Cape Argus, and the world’s largest ultra-marathon,
the Comrades.
12.
Incredibly, South Africa is home to the largest bird (ostrich),
largest land mammal (elephant), tallest animal (giraffe), smallest succulent
(10 millimetres), largest tree (baobab), fastest land mammal (cheetah), largest
reptile (leatherback turtle), and smallest mammal (lesser dwarf shrew) amongst
other animal records.
13.
South Africa has the longest wine route in the world. The R62 which is
approximately 1000km takes you through some of the most beautiful winelands
where you are able to visit over 500 wineries.
APPETITE RETURNS TO NIGERIA WITH NEW TRADE FINANCE SYNDICATED LOANS
– Christian
Karam, ITFA ARC Member / Director at Africa Trade Finance
Nigeria’s United Bank for Africa (UBA) has raised
a US$160mn syndicated trade finance facility, which experts say is a sign that
appetite is returning for the financially beleaguered country.
Initially an amount of US$100mn was sought, but
this amount increased as the transaction was heavily oversubscribed.
Nine lenders participated in the one-year deal,
which was disbursed in December last year.
Bookrunners and co-ordinators on the deal were
Africa Trade Finance and Mashreqbank.
On the other hand Access Bank Plc is currently at
the advanced stages of a US$ 100 million syndicated trade finance facility.
Bookrunners and co-ordinators on the deal are also Africa Trade Finance and
Mashreqbank. The syndication is expected to close in April and will most likely
be oversubscribed.
Over the last couple of years, the Nigerian
economy has suffered from the scarcity of hard currency due to the significant
drop of the country’s oil proceeds. As a result some of the Nigerian banks have
delayed in repaying their outstanding with international lenders. Consequently the availability of borrowing to
Nigerian banks has been affected.
However the improved domestic environment and the
financials of Nigerian banks today creates the appropriate opportunity for
lenders to borrow.
Similar
transactions are currently being contemplated in the neighbouring country Ghana
whose banking sector is facing reforms and challenges.
RISK AND REWARD IN RAMAPHOSA’S SOUTH AFRICA
– Alastair McLeod, ITFA ARC
Member / Partner at JLT Specialty Limited
As Africa’s third
largest and most diversified economy, South Africa accounts for the vast
majority of all insurance premiums on the continent. South Africa boasts
sophisticated financial markets and an abundant natural resource base, while
also serving as a gateway to Africa’s expanding insurance market. According to
BMI Research, sub-Saharan Africa is forecast to be the world’s second fastest
economic growth region after Asia for the period 2017-2022, and the region is
forecasted to grow by 3.5% in 2018. Yet South Africa’s complex business
environment and on-going political tensions underscore the risks associated
with doing business in the country. South Africa therefore produces a
large amount of enquiries across the Credit & Political spectrum.
Risk
Insight
Cyril
Ramaphosa was sworn in as South Africa’s president on 15 February 2018, and is
expected to pursue a business-friendly reform agenda. However, the economic
outlook will remain weak in 2018, as corruption investigations continue to
deter foreign investment. Water infrastructure will be prioritised for
investment as the Western Cape water crisis continues.
Trading Environment
President Jacob
Zuma resigned on 14 February 2018 following a leadership struggle in the ruling
African National Congress (ANC). Zuma’s deputy, Cyril Ramaphosa, was sworn in
as the country’s president on 15 February 2018. As president, Ramaphosa is
expected to progress with business-friendly economic reforms. In a move likely
to improve investor confidence, he removed a number of Zuma loyalists during a
cabinet reshuffle in February 2018. Since becoming ANC leader in December 2017,
Ramaphosa has pursued a number of reforms, including replacing the board of
state-owned utility company Eskom. Ramaphosa intends to create a million jobs
in 5 years, introducing tax reform and creating special economic zones.
However,
Ramaphosa’s ability to restore investor confidence in South Africa will be
limited by the country’s otherwise weak economic outlook. The South African
economy is currently forecasted to grow by 1.3% in 2018, and a Ramaphosa
presidency is unlikely to have an immediate impact on this outlook. The ANC
remains divided on key policy areas, with a significant wing of the party
continuing to support expansionary fiscal policies. This will make it difficult
for Ramaphosa to enact reform measures, and many are likely to be watered down.
In addition, Ramaphosa must balance the need to please investors with pressure
to rebuild public confidence in the ANC ahead of 2019’s general election.
The on-going water
crisis affecting Western Cape poses a further risk to South Africa’s economy.
Severe dry-weather is likely to impact the region’s wine industry, with yields
estimated to fall by 20% this year. Given that Western Cape accounts for 13.6%
of GDP, a prolonged water crisis has the potential to weigh on South Africa’s
weak growth outlook in 2018.
Investment
Environment
In light of the
Western Cape water crisis, the government will prioritise investment into water
infrastructure. In November 2017, Cape Town’s city authorities allocated USD
140 million for 7 additional water projects, temporarily halting progress on
any non-water projects. Moreover, in February 2018 the deputy mayor revealed
plans for 2 temporary desalination plants in Cape Town, which are currently at
tender stage. The plants are expected to be operational in May 2018.
Foreign investors
may be deterred from entering South Africa’s infrastructure sector by a
challenging business environment. Allegations of ‘state capture’, in which Zuma
is accused of facilitating Gupta family influence over state institutions,
raise reputational risks for foreign firms. For example, major international
firms have been implicated in malpractice accusations after working for
companies linked to the Gupta family. In late 2017, the corporate registry
filed criminal complaints against McKinsey, KPMG South Africa and SAP over the
companies’ work for Gupta-linked companies. McKinsey was accused of fraud and
collusion after ignoring staff warnings about the legitimacy of firms linked to
the Guptas. In January 2018, state prosecutors indicated that they would
enforce an order to seize McKinsey assets over fees the company earned from
working with Eskom. McKinsey is reportedly seeking guidance from the
South African government over returning the money.
Country
|
CEND Risk Pricing Range
|
Sovereign Credit Risk Pricing Range
|
Full Political Violence
|
Terrorism & Sabotage Only
|
|
South Africa*
|
0.6% - 1.5% p.a.
|
1.0% - 2.25% p.a.
|
0.05% p.a.
|
0.03% p.a.
|
|
* Given political
uncertainty in the country, the range in pricing reflects the diverging
outlooks of underwriters.
WHAT YOU NEED TO
KNOW ABOUT TERRORIST FINANCING IN AFRICA – Klisman
Murati, Director at Pangea Wire (www.pangaeawire.com) and a mentee on
the ITFA Martin Ashurst Trade Finance Mentorship Programme
One need not look
too far to find evidence that terrorism has become a major threat in the world.
The growing verity of ways in which terrorist acts can be executed and
deployed, including the use of explosives, hostage taking, cyber acts on
critical infrastructure etc, has been of growing importance to governments and
financial institutions around the world.
Banks and those
involved in financial services, including trade finance professionals, play a
crucial role in providing a vitally important line of defence in spotting and
stopping the financing of terrorist groups.
The regional and potentially global impacts of terrorism, highlights the
importance of the international community taking all necessary steps to find
ways to deprive terrorist organisations of their funding.
Terrorist financing
in the African context
The issue of TF
becomes ever more complex especially in the African context as the continent
faces unique vulnerabilities and contextual factors, including;
•
A reliance on cash and use of money value transfer systems - according
to World Bank statistics in 2014 66% of Africans remain unbanked. The high use
of cash transactions means transfers cannot be monitored by banks and Financial
Intelligence Units. Furthermore, the high propensity of cash means that certain
sectors and industries are particularly vulnerable and exposed to TF including
charities and money service businesses like Bureaux De Changes (more on this
later).
•
Porous borders exacerbating the circulation of money & goods – In
western & central Africa, jurisdictional boundaries often do not coincide
with “natural” or ethnic boundaries and are difficult to control and police.
Criminal and terrorist groups take advantage of these porous borders to move
funds as well as legal and illegal goods through informal border crossings.
•
Corruption and wilfully complicit actors – Another major issue and one
that is not unique to the African continent is that the Risk Based Approach
which is considered the gold standard in AML and Customer Due Diligence
practices is not carried out to its full potential. The facilitation of TF by
officials and business professionals is carried out at times with impunity,
thus further weakening already struggling CTF infrastructure.
Sources of funding
The Financial
Action Task Force (FATF) have identified several “funding sources of terrorist
organisations in West and Central Africa which have been supported by
information or case studies provided by government sources.” These include;
extortion, the robbery & looting of banks and small businesses,
cattle/livestock rustling, kidnapping for ransom, abuse of Non-Profit
Organisations NPOs and funding of local businesses/commercial enterprises. The
latter two are perhaps more relevant to a financial services audience and
therefore deserve a more comprehensive explanation.
NPOs can be
exploited by terrorist organisations to collect money and raise funds, spread
propaganda, recruit members and hide a number of illegal activities. For the
reasons mentioned in the previous section, NPO’s are considered high risk
customers and therefore enhanced due diligence (EDD) must be performed to
assess the legitimacy of said NPO.
The following case
study is a pertinent case of a time where appropriate EDD lead to the
successful identification and shutting down of a trade-based terrorist
financing scheme. This case was initiated by an STR submitted by a bank to the
Niger FIU. The NPO received USD 6 million in illicit transactions over a
two-year period from two affiliated religious associations based in Europe.
Its directors were
originally from a Middle East jurisdiction. The NPO listed well-drilling for
water and general trade as its main activities. To facilitate the illicit
transaction, the directors created a shell import/export company in Nigeria.
More than 80 per cent of the funds received by the NGO were transferred to
account belonging to the shell company as payment for products/services
provided, where in-fact no real commerce took place.
Terrorist groups
like Boko Haram of Nigeria have found innovative and entrepreneurial ways to
finance their operations. Nigerian authorities have reported that BH provides
microfinance to SMEs, in turn creating an investment network and increasing the
organisations financial stability.
Furthermore, it has
been reported by FATF that BH are also suspected of operating Bureaux de Change
services around the country.
They have
successfully imbedded themselves into the fabric of trade and commerce making
it extremely difficult for banks and financial institutions to discern who are
BH operatives and who are legitimate law-abiding customers.
Recommendations for
banks & financial institutions.
There are four key
precautions that banks and financial institutions can take to protect
themselves against TF attempts. These include;
1.)
Working closely with international community - There is a clear need
for countries in the region to work together and with the broader international
community to conduct financial investigations, to share information with other
agencies and countries, as well as the private sector, and to work with
intelligence agencies in order to further identify and disrupt terrorism
financing within the region.
2.)
Filling Suspicions Activity Reports (SARs) - Employees must have a
vigilant eye to spot and report on suspicious activity and suspicious
transactions as soon as there is reasonable cause to believe that there is an
attempt to finance terrorism.
3.)
Appropriately screening customers, shareholders and directors for
terrorist affiliations - This is especially important for Politically Exposed
Persons (PEPs) who due to their position require EDD to avoid reputational
damage to the bank and financial institution. Counties like Sudan are also on
the US’s list of State sponsors of Terrorism; therefore, it is recommended that
banks closely monitor financial activity of neighbouring counties and also
screen individuals who may have connections to PEPs in Sudan.
4.)
Adopting a robust Risk Based Approach - As mentioned above, the RBA is
considered the gold standard in AML & CTF compliance. It is important that
the approach is followed properly and that those responsible for adhering to it
are not proven to be professionally negligent, wilfully blind or actively
complicit.
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