Banks see opportunities in Belt and Road Initiative

As projects under the Belt and Road Initiative, or BRI, gain traction, African financial institutions have stepped in to add value and drive expansion ventures.

In Kenya, Chinese construction and manufacturing firms have turned to these institutions for easily accessible financial solutions.

Recently, Standard Chartered Kenya, a subsidiary of the British multinational conglomerate headquartered in London, announced a $20 billion facility by 2020. Local projects under the BRI are set to benefit from this.

The bank has pledged to support Chinese firms in establishing and expanding their operations locally. It has predicted that the funds would be a game changer in the manufacturing and construction sectors that have largely been under government-to-government agreements.

Standard Chartered is among global institutions that have signed a Memorandum of Understanding with China Development Bank to facilitate trade and investment relating to the BRI. It also has a strong strategic partnership with the Silk Road Fund, Asian Infrastructure Investment Bank, New Development Bank, and Chinese commercial banks.

Chinese tile manufacturer, Twyford Ceramics Co Ltd, plans to expand its operations in the Kenyan market by injecting $25 million. The company, which exports 70 percent of its products, said by introducing bigger size tiles, it would meet market demand and generate an additional 500 jobs.

Its expansion is backed by a booming housing demand in Africa. Uganda is facing an annual deficit of 1.6 million housing units, Kenya 2 million units, Tanzania 3 million units, South Africa 3 million units and Nigeria 17 million units, according to Shelter Afrique, a pan-African finance institution focused on housing and real estate.

"Through local banks, we can easily access financing. Besides, we need a partner that understands our business, market environment and who offers insights, which informs our decisions," said Twyford managing director, Li Ruiqin.

Kenya's biggest infrastructure constructors behind the standard gauge railway, China Communications Construction Company (CCCC) and the operator China Road and Bridge Corporation (CRBC) have also looked for local partners.

"A local institution provides us with a qualitative approach to financial market risks through comprehensive solutions. This helps us maneuver through an uncertain and volatile financial market. CCCC, therefore, needs tailored trade and cash management products among others," said Steve Zhao, spokesman for CCCC.

He said that Chinese construction companies are challenged by the rise of protectionism, foreign currency risks, interest rate and credit risks.

"Operational risks, especially due to lack of understanding of the unique social, political, and legal environment and culture of the operating countries also needs to be mitigated," he said.

Alex Litu, an economic consultant, said the move by local banks has helped Chinese firms to shift from government-to-government engagement to private-led growth. "It will drive growth within the BRI countries," he said, adding that it will also help the government to reduce debt burdens.

Besides large companies, the initiative will also encourage the growth of small and medium-sized firms, which are the backbone of Africa's economic growth.

"A targeted facility tailored toward the informal sector would also increase private sector participation in the BRI. Considering that most African countries' markets are largely informal, consisting of small and medium enterprises, availability of financing around the BRI infrastructure will enhance mutually beneficial regional and international value chain development," Litu said.