Export-finance transactions that crowd-in private capital can help drive the sustainable transition.
When Cameroon needed to upgrade the eastern entrance to the port city of Douala, Standard Chartered arranged EUR135.5 million of financing to make it happen. The project will improve and widen the main road into the city, supporting a major trade route with the country’s landlocked neighbours, Chad and the Central African Republic.1
UK Export Finance (UKEF) provided a comprehensive risk guarantee that helped unlock private capital to fund the project, which will also enhance safety at Douala’s eastern entrance by channelling pedestrian flows and installing adequate lighting. Standard Chartered partnered with UKEF on the deal, acting as lead arranger and lender. UKEF also contributed a direct loan to the government of Cameroon.
Standard Chartered and other commercial lenders work with export credit agencies (ECAs) like UKEF across the globe to deliver vital funding for high-impact sustainable development. The need for this sort of blended public-private financing is pressing: Africa alone requires annual investment of as much as USD170 billion a year to meet its infrastructure needs through 2025, with a financing gap that could exceed USD100 billion, according to the African Development Bank.2
The World Bank and other major development lenders have historically played a vital role in financing infrastructure projects throughout the developing world. The involvement of these experienced and influential institutions can have a helpful ‘halo effect’ that attracts private investors to deals they might otherwise have shied away from.
Yet, the full capacity of these multilateral development lenders for crowding-in private capital hasn’t been fully utilised. With its AAA credit rating and preferred-creditor status, the World Bank, for instance, has enormous potential to use loan guarantees to reduce the risk in these transactions and lure more private capital to invest alongside it.
ECAs are also stepping up. While their core mandate is to promote exports from their home countries, many ECAs are also seeking to tackle climate change and support the broader sustainable finance agenda – often via the construction of critical infrastructure in developing countries. UKEF, for example, increased financing for projects in Africa to more than GBP2.3 billion in 2020–2021, the highest level in two decades.3
“Our ECA-based business is thriving,” says Karby Leggett, Global Head, Public Sector and Development Organisations at Standard Chartered. “In a world of elevated debt and deficits, ECA-supported structures are proving highly effective in mitigating risk and crowding-in private capital.”
As investors increasingly seek out ways to make a real-world impact in addition to attractive returns, ECA-backed deals can offer extensive opportunities. In 2020, export-finance deals totalled USD114 billion, excluding pandemic relief,4 and the market is growing steadily.
“The deals that ECAs have been making alongside the globally active commercial banks are a form of impact investing,” says Richard Simon-Lewis, Director of Business Development, Marketing and Communications at UKEF. “When we reflect on the deals we’ve been involved in – in Africa in particular – we’re ahead of the curve. We’ve been doing this work for decades.”
A partnership approach
In addition to UKEF, Standard Chartered partners regularly with the ECAs of other countries. Together with Germany’s Euler Hermes, the bank delivered EUR280.5 million in financing to Ghana last year to develop a section of the country’s strategic Eastern Corridor Road. This was the first time a social loan had been structured in Africa. The project was eligible because its objective was to improve the country’s basic infrastructure network.
While the deal pipeline is in full flow, development banks, ECAs and commercial lenders face a number of challenges as they strive to scale up their contribution to financing the world’s sustainable-development needs.
One is deal size. The median blended-finance transaction is USD64 million,5 which is too small to lure some institutional investors. By pursuing bigger deals, banks and ECAs could help attract more of the USD35 trillion sustainable-investment market6 into larger, more effective projects.
“It will be difficult to meet the global investment requirements with a series of small-scale transactions,” Karby says. “We need to get to a place where we’re doing billion-dollar infrastructure projects – and doing those projects in a given country, year after year.”
Standard Chartered and UKEF have joined forces to deliver large, impactful projects such as the recent EUR2.4 billion green financing for Türkiye’s Ministry of Treasury and Finance to fund the delivery of the Ankara-İzmir high-speed railway project to improve Türkiye’s transport infrastructure. The new 503.2km electric-powered railway line will connect Ankara, the capital, to İzmir on the West coast, the country’s third largest city and one of its biggest ports. Connecting Türkiye’s major cities will bring economic, social and cultural benefits, encourage a reduction in the number of cars and buses and lower CO2 emissions.
Standard Chartered and other commercial lenders are also working alongside development banks to tackle additional challenges, for example, helping emerging-market governments meet the conditions for transactions to be classified as sustainable. They are also promoting common standards to replace the current patchwork of requirements that makes arranging these transactions more challenging.
Finally, both development banks and ECAs must be prepared to take risks by investing in the new technologies the world will need to make the transition to a sustainable, inclusive economy. Without a significant commitment from the public sector, there’s a risk the private investment won’t flow.
“I’ve never seen a clutch of technologies come through at the same time which are all potentially transformational and which are all industries in their own right – things like carbon capture and storage, hydrogen, floating offshore wind,” Richard says.
Previously, ECAs would have waited until a technology was mature and then supported the supply chains. “That’s completely wrongheaded,” Richard explains. “For us to develop the supply chains in the UK, we have to act as the lightning rod to crowd-in private capital.”
This sort of proactive approach will be essential in developing the technologies needed to mitigate the impact of climate change and economic inequality around the world, especially in developing countries which are among the most vulnerable.
By teaming up on transactions and harnessing the power of private capital, commercial banks like Standard Chartered and their ECA partners can help pave the way to a more sustainable future.
1 Trade Finance Global (21 January 2022)
2 African Economic Outlook 2018 (African Development Bank Group)
3 UKEF press release (20 January 2022)
4 Export finance 2021: A look under the hood of the global report (TXF, 27 April 2021)
5 Blended finance primer (Convergence)
6 Global Sustainable Investment Review 2020 (Global Sustainable Investment Alliance, 19 July 2021)
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