Societe Generale S.A.

Africa Financial services

Our investment

The trade finance risk sharing programme with Societe Generale enables CDC to support local businesses and importers across Africa by increasing access to trade credit, a need that is enhanced during COVID-19 with disruptions in supply chains and an increasing retrenchment of capital. The facility allows the bank to extend the limits for local banks, which in turn strengthens its ability to provide critical funding to local importers for essential inputs and commodities.

Impact

Support economic opportunities and growth, contributing to an increase in jobs as large importers increase their distribution networks to deliver increased output. This will enable increased access to commodities for households at more competitive prices, improving and smoothing consumption (SDG 8.1, 9.1).

How?

Enabler: Providing a risk-sharing arrangement to target smaller and/or less recognised financial institutions in countries that have limited access to larger more reputable confirming banks or directly to international markets. Corresponding banks can extend higher trade credit to businesses, enabling greater trade flows to harder to reach geographies. This will allow businesses to import greater volumes of commodities such as gasoline, rice, sugar and wheat from outside Africa, and support business growth in these countries by contributing to an increase in production and output.

Stakeholder Geography Characteristics
Employers, consumers

Pan-Africa. Impact will be variable based on demand. SocGen’s current exposure is over 50 per cent to ‘A’ & ‘B’ countries, which includes countries such as Nigeria, Cameroon, Mauritania, Ivory Coast, Burkina Faso, and Guinea.

Given the variance of industries in which the businesses operate, for characteristics of people who ultimately benefit from the enabled trades, we assume mass market characteristics and demographics of the respective geographies.

Scale Depth/Duration

$120 million trade credit facility which we estimate to enable $400 million in additional trades. While it is difficult to model the number of stakeholders affected, we expect scale to be large because of the need for imports in the countries proposed in the pipeline.

Depth is expected to be high, although visibility on the impact on underlying borrowers depends on the financial institution’s capacity to provide data on underlying borrowers. The countries in the trade book are dependent on commodity imports. For a sample of countries, energy products as a percentage of total merchandise imports range from 14 per cent to 30 per cent, with more developed countries such as Morocco (17 per cent) displaying a similar reliance on energy products imports as less developed countries such as Mauritania (18 per cent) and Cameroon (14 per cent). This indicates comparable economic dependence on energy products across, despite the developmental stage of a country.

Grid Score Contribution

2.6

(exposure will be adjusted on a rolling basis with use of facility)

To help us direct our investments, we use a tool called the Development Impact Grid. The Grid scores every investment we plan out of a score of four, based on two factors: the difficulty of investing in the country and whether investment in that sector will lead to jobs.

Financial: SocGen is currently inhibited in expanding trade programme due to internal and external controls on risk particularly to non-subsidiary banks. CDC’s investment will allow the bank to increase and diversify portfolio into more riskier geographies and financial institutions because of the flexibility offered by the MRPA.

Risk
  • Execution: Obligor banks may be concentrated around the wealthier African countries such as Nigeria and Morocco. SocGen may not diversify into less-developed / harder-to-reach geographies. Analysis on transactions on a select sample of countries reveal increasing demand from less developed countries such as Mauritania, Ivory Coast, Guinea and Burkina Faso. CDC is also incentivising SocGen for trades to category ‘A’ & ‘B’ countries. Mitigation: CDC will annually review banks; exposure/utilisation reports.
  • Unexpected: SocGen’s trade book has exposure to oil and gas products. Mitigation: We have ensured that our programme is aligned with CDC’s Climate Change Policy with no exposure to crude oil. SocGen is currently in the process of aligning its portfolio in accordance with the Paris Agreement, which includes increasing its commitment to finance renewables.
  • Execution: CDC’s MRPA will stay static in terms of the number of obligors or the risk ratio, posing a risk to both scale and long-term sustainability of the MRPA. The pipeline currently identified by SocGen is demand-driven, which gives us comfort on the expansion of the list. Mitigation: CDC will annually review banks, exposure/utilisation reports and potentially require adjusting of credit limits based on flows; quarterly calls with SocGen and reporting of letters of credit confirmed through the facility. Over the past year, SocGen has added new obligors in category ‘A’ countries such as Mauritania, Guinea and Burkina Faso.

Environmental and social aspects

We worked with SocGen to ensure that environmental and social standards are applied to trades supported under the facility.

Key facts

Status:
Active
Region

Since 2012, we’ve only invested in Africa and South Asia. Investments outside these regions are from our pre-2012 portfolio.

:
Africa
Sector

We have seven priority sectors. However, we continue to invest outside these sectors, largely in the most challenging regions, as new investment supporting any sector helps to underpin the private sector, and create jobs and livelihoods for people.

:
Financial services
Investment type

We provide capital in three broad ways: direct equity, debt, and intermediated equity (principally through investment funds).

:
Direct Debt
Start date

For direct investments, this is the date CDC committed capital to the business or project.

For funds, this is the date that CDC committed capital to the fund.

For underlying fund investments, this is the date that the fund invested capital into the business.e

:
May 2020
Amount

For direct investments, this is the total amount that CDC has committed to the business or project (it may be a combination of equity and debt).

For funds, this is the total amount that CDC has committed to the fund.

:
$60m
Domicile

This is the investee company’s place of incorporation; or a fund’s jurisdiction.

:
France

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