At midnight on July 1, the Export-Import Bank (Ex-Im)’s authorization expired due to inaction from Congress. The Ex-Im Bank, the official export credit agency of the United States, “fills in the gap for American businesses by equipping them with the financing tools necessary to compete for global sales, and, “because it is backed by the full faith and credit of the United States, Ex-Im assumes credit and country risks that the private sector is unable or unwilling to accept.” In other words, the bank is essential for U.S. companies doing business in emerging markets—which makes it particularly important for Africa.
In recent months, the small agency has received a wide variety of criticism by policymakers on the Hill, who often call the bank “corporate welfare,” claim that the private sector can fill in those gaps, or complain that Ex-Im costs too much. You can read my colleague Mike O’Hanlon and David Petraeus’ rebuttal of these claims here.
As I emphasized last year, the bank actually earns money for the U.S. government and supports American jobs. The White House, in a fact sheet condemning Congress for not reauthorizing the bank released on early this week, reiterated this point, saying:
“The Bank has financed the sale of more than $200 billion in U.S. exports over the last six years, supporting over 1.3 million private-sector American jobs, including 164,000 jobs in Fiscal Year 2014 alone. Last year, Ex-Im financed the sale of $27.5 billion in exports through more than 3,700 transactions, including nearly $16.6 billion in manufacturing exports—and jobs supported by exports are good jobs, paying up to 18 percent more on average than other jobs.”
In the same announcement, the White House also countered the argument that Ex-Im is “corporate welfare,” explaining that of the 7,500 business supported by the bank, two-thirds of them are small businesses. Similarly, in the 2014 fiscal year, 90 percent of the bank’s transactions directly supported American small businesses.
Trade experts are similarly mystified as to why many in the private sector want Ex-Im to go away. As quoted in the Washington Times, Brookings Global Economy and Development Nonresident Senior Fellow Miriam Sapiro noted that getting rid of the bank makes “little sense as a cost-saving measure because it is funded by the interest it receives from its loans.” In addition, she added, the Treasury Department receives any extra money at the end of the fiscal year. And default rates? They stand at just over 0.175 percent.
And what of American competitiveness? Also in the Washington Times, Sapiro noted that getting rid of Ex-Im could hurt American competitiveness, stating “China would be delighted to see Ex-Im go away.” Even Chinese officials have admitted so.
So what does the failure to reauthorize the Export-Import Bank have to do with sub-Saharan Africa?
The Export-Import Bank is mandated to focus on three regions, one of which is sub-Saharan Africa. And in sub-Saharan Africa, the bank has been expanding. As I wrote in 2014,
“In 2013 [the Ex-Im Bank] financed a record 188 transactions in Africa with authorizations totaling over $600 million supporting exports in 35 of 49 sub-Saharan African countries. In the first seven months of the current 2014 fiscal year the Ex-Im Bank authorized $1.1 billion for sub-Saharan Africa, amounting to over $5 billion over the last five years. Its website notes that the majority of its authorizations for sub-Saharan Africa benefit ‘small-business exporters of spare parts, consumer goods and other products’ through short-term export credit insurance, which is contrary to notions that the Ex-Im Bank is just supporting big businesses.”
The commonly cited high growth rate of so many African countries in Africa (sub-Saharan Africa has averaged 5.2 percent since 1995) is just one of the many reasons the United States should continue its commercial relationship with the continent. With the recent reauthorization of the African Growth and Opportunity Act (AGOA), U.S. businesses will continue to be assured special preferences when investing on the continent. Thus, continuation of AGOA gives promise to U.S. businesses looking to Africa.
However, there is no doubt there are risks to working in Africa, as challenges such as weak institutions and poor infrastructure create a myriad of obstacles for businesses. For these and other reasons, small and medium enterprises typically face difficulties in obtaining financing from commercial banks for export purposes (and this problem is not exclusive to sub-Saharan Africa). The high transaction costs and costs of risks that private banks face make them unlikely to loan businesses exporting from sub-Saharan Africa. So, without export credit agencies like the Ex-Im Bank, these businesses will struggle to get the financing they need to grow. In addition, the lapsing of the Ex-Im’s other financial products, such as its export credit insurance, which protects businesses against the risk of foreign-buyer or other foreign-debtor default for political or commercial reasons, might turn businesses that might have looked towards Africa away.
Not only is the bank important for African and U.S. businesses, but it also plays an integral part in the United States’ engagement with Africa overall. The Ex-Im Bank is involved in the U.S. Department of Commerce’s Doing Business in Africa campaign, the U.S.-Africa Clean Energy Development and Finance Center, and the Power Africa initiative, as well as coordinates with other active U.S. agencies on the continent like the U.S. Agency for International Development, the U.S. Trade and Development Agency, the Overseas Private Investment Corporation, the Department of State, and the Department of Energy.
As I stated last year, “If the Ex-Im Bank ceased to exist it is possible that some projects couldn’t proceed or would be delayed due to unavailability of financing or similar constraints, but what is more likely is that one of the many big players outside the U.S. would be the partner of choice instead.” With this failed reauthorization, that warning will likely become a reality.
So where do we go from here? The role the Export-Import Bank plays (or played!) for small business in the United States and the potential it offers (or offered!) for sub-Saharan Africa cannot be understated. The government and the Hill need to find a way to bring the Ex-Im Bank back to life either in its current form or at least by preserving its function.