The US Export-Import Bank has signed a deal worth $2-billion (R17.4-billion) in loans to South Africa funding renewable energy projects involving US companies. The move was announced at the South Africa-United States business recently and is strongly endorsed by the both the bank’s presidents and US Secretary of State Hillary Clinton.
Though not the first deal in South Africa, the scale is noteworthy and will see $2- billion (R17.4-billion) imported into South Africa, a country the US Export-Import Bank has described as one of the most forward reaching when it comes to energy policies focused on diversifying power.
“We have been an active financier of solar and wind energy all over the world,” said the bank’s president Fred Hochberg. “In fact last year we were the largest single financier of solar power in India, we would like to do the same thing here.”
The South African deal includes the installation of 3 275MW of renewable energy sources, meaning 42% if South Africa’s generation is on the cards in light of the impact the new deal will have on the country’s energy sources and thus energy security.
So how does it work?
The bank’s commitment is to ensure companies witnessing the country’s massive potential are provided with the means to take up investment in South Africa. The Export-Import Bank, says it does not compete with private sector lenders but provides export financing products that fill gaps in trade financing. “We assume credit and country risks that the private sector is unable or unwilling to accept.”
Given that the rise in Africa’s prospects has not translated into complete private sector confidence, gaps the market is not willing to fill are backed by state credit on the debtor books of the US government. Based on precedent, the loan comes on the back notable successes in South Africa to date.
The Export-Import Bank of the United States approved a request from Delta Technology Corporation in Houston, Texas, to support the sale of two electronic colour peanut sorters to P-Farms Agente BK of Hartswater, South Africa in the amount of $51 063 (R1.3-million). “With the use of Export-Import Bank’s single sale, multiple shipment insurance policy, the exporter – Delta Technology Corporation – was able to directly finance this transaction over a two-year period,” noted the bank.
In a separate case, Legacy Medical of Pretoria was able to purchase $50 000 (R436 179) of nonvascular stents from Alveolus Inc., a small business located in Charlotte, North Carolina. Alveolus used a multi-buyer, small business insurance policy from the Export-Import Bank of the United States to support this sale.
The burden of the loan rests on the US companies making in the investment and not the South African taxpayer. The model’s benefit to the host country is that of investment, while the investing partner is able to ensure its home grown companies can generate revenue abroad through backing by the host country’s government, in this case the United States.
The $2- billion (R17.4-billion) is only available to US companies seeking to bid, given the objective to grow US-based companies, but the spin-offs for energy security and job creation in South Africa are tangible, given production and operations take place domestically.
In a banking arrangement linked to a government entity and not a private institution, political change can signal some effect on the risks side. In a rare show of party agreement both the Republicans and Democrats support the bank’s mission and lending arrangements.
While the latest deal meets objectives around carbon emission and energy security, the pure trade and business approach is not lost on commentators. “A potential boon for both the electricity-hungry nation and US business interests,” is how SmartPlanet.com’s Charlie Osborne described the deal. Evidently the deal is good for business and a win-win across multiple stakeholders in society.
Anastasia Tubanos of the African Business Journal reports that “only 4% of the world’s energy is generated in Africa, which seems odd considering the continent has a landmass equal to the area of the United States, Europe, Australia, Brazil and Japan combined”.
“The continent has an enormous untapped resource for renewable energy opportunities, and we’re beginning to see a lot of interest and growth.” Tubanos adds that the $2-billion (R17.4-billion) deal was described by Andrew Schrage, economist and co-owner of Money Crashers Personal Finance, as “a potential boon for the country’s business interests,” and adds “it will provide South Africa with much needed support for its struggling power sector.”
“Renewable energy supports local economic growth by providing cheaper and reliable energy,” argues William Jaffray, energy engineer at Associated Renewable, a full service energy consulting and carbon management business. In comment relayed by journalist Anastasia Tubanos he argues, “since South Africa is considered a nation that is especially vulnerable to the impacts of climate change due to its high dependency on agriculture and limited supply of water, renewable energy will relieve the stress on such issues and will thereby have a positive effect on local economic growth.”
Bank president Fred Hochberg told journalists that in recent years South Africa has begun to benefit from the economic reforms enacted throughout the last decade. “Recovering from the 2009 recession, we expect to see modest growth this year and new investments. With the success of the World Cup, which re-introduced the world to a vibrant and market friendly South Africa, we see much potential in many sectors.”
The agency believes South Africa’s modern, well-diversified economy continues to be an attractive place to do business because of its strong institutions, developed infrastructure, political and economic stability, stable banking sector, rich natural resources, and role as a financial and business centre. “It has a large domestic market and is well-positioned technologically to be able to compete in the global marketplace,” according to their research.
Trade between the United States and South Africa shot up to $16.8-billion (R146.5-billion) last year, up 18% from the previous year, according to Business Report. That makes the United States the third largest source of foreign direct investment in Africa’s biggest economy.
Economic growth in South Africa benefits the rest of the continent concluded the Obama Administration’s Hillary Clinton, as she signed the final deal through the bank on behalf of the US government during her recent African visit.
