The Trade Hub is promoting large cashew factories to large financial institutions. To date, the nascent larger cashew processors are having difficulties in finding local banks to provide adequate working capital facility loans to purchase raw cashew nuts and cover their operational cost. For example, a local bank could loan $1million, another $2 million, when the processor’s actual need is around $5 or $6 million. And based on the capacity of these large cashew processing companies of between 5,000 MT to 30,000 MT per year, the working capital needed could go up to $30 million if they are to operate at full capacity.
To remove this bottleneck, the Finance and Investment Team Lead, Mr. Jean Francois Guay, met with several large cashew processing companies including CASA, SOTRAPACI, FMA Industry and INC in Côte d’Ivoire from June 9 to 16, as well as Tolaro Global in Benin, to find out their financing needs. These cashew processors have a total processing capacity of 60,000 MT, and are planning to increase it to 100,000 MT in the next 3 years; but the local banking sector cannot support these high trade financing needs as the individual credit risk appears too high after a $3-4 million threshold.
With a better understanding of the processors’ financing needs, Mr. Guay then held a working session with Afreximbank in Abidjan. Afreximbank is an international development bank, owned by African States and the African Development Bank. One of their mandates is to sustain the growth of African export companies, through trade financing. Their main vehicle is to finance credit lines into local banks. However, as mentioned above, local banks are careful to limit their risks per transaction. Afreximbank is also active in large private sector transactions, preferring to finance deals between $10 and $200 million, like those in the hospitality and health sectors as well as large agribusinesses.
The Hub introduced the large cashew processing factories to Afreximbank to provide working capital facilities between $3 million and $10 million in the first year, which would be for the 2018 cashew season. If each firm receives $5 million in trade financing for the first year, the entire financing package for the cashew industry in Côte d’Ivoire could easily reach $25 million. What is more appealing to Afreximbank is the growth potential, as these cashew processing companies cumulate an operational capital need of $100 million and expenditure capital needs of $10-20 million.
Trade Hub could connect the large cashew processing companies to U.S. buyers, promoting off-taker agreements, which is an important condition for these kinds of transactions. In addition, the project could support U.S. certification process, ensuring quality kernels and best possible prices to the U.S. buyers.
“All the large cashew processing companies welcomed the technical assistance and facilitation from the Trade Hub. Accessing trade financing remains a challenge for West African players. A project like the Trade Hub could make the difference.” Mr. Guay explained.