The News
African policymakers and bankers are exploring ways to unlock trillions of dollars tied up in the continent’s institutional funds to build infrastructure amid growing uncertainty around international investment caused by erratic US trade policies.
“There is about $4 trillion in Africa, mostly in banks, pension funds and foreign reserves,” Samaila Zubairu, CEO of the Africa Finance Corporation, a Lagos-based multilateral lender, told Semafor during this week’s Africa CEO Forum in Abidjan, citing research by his institution. “The issue is, how we get it to flow into projects.”
The topic was a recurring talking point for business leaders during this week’s conference, with the need to deploy local capital becoming more acute after the White House dismantled its main foreign aid body USAID, piling new pressure on African government finances.
Ethiopis Tafara, vice president of the International Finance Corporation, the World Bank’s private investment arm, told delegates there was a need to mobilize private capital to plug gaps left by the withdrawal of aid. Governments and the private sector need to engage in more dialogue, he said, to help administrations shore up the “bankability” of projects that could not be funded with public money.
Know More
Zubairu said AFC, which specializes in infrastructure development, is in talks with authorities in Angola, Botswana, and Kenya to replicate InfraCredit, a Nigerian credit institution that supports pension fund investments in infrastructure projects, with the west African country’s sovereign wealth fund providing guarantees on local currency debt. AFC is an equity investor, along with the Nigerian Sovereign Investment Authority, which strengthens InfraCredit’s capital base.
African investors have long wanted to unlock private capital from existing institutional funds. The thinking is that if more domestically held capital supports major projects then the continent could draw larger pools of international funds at more favorable interest rates.
In areas such as infrastructure, for example, Africa is estimated to have a $100 billion a year funding gap. One way to bridge that shortfall, analysts say, would be to unlock a larger portion of African funds, which have been concentrated in more conservative assets such as fixed income and treasury bills.
One institution that has had some success in changing that mix has been Africa50, a development finance platform that seeks to help tackle infrastructure gaps. Last year Africa50’s Infrastructure Acceleration Fund announced it had raised $225 million, predominantly from African development banks and funds, and hopes to hit a $500 million target this year.
Room for Disagreement
Joseph Atta-Mensah, a senior fellow at the African Centre for Economic Transformation think tank in Accra has argued that Africa’s relationship with the World Bank and International Monetary Fund must change in order to drive economic development.
“Africa needs to make the international financial infrastructure work in its favour,” he wrote in a London School of Economics blog. The continent “needs a new global financial architecture — one that reduces dependence on expensive commercial debt and expands access to concessional finance,” Atta-Mensah wrote. “Innovative instruments like debt-for-climate or debt-for-investment swaps can tie sustainability to solvency.”
The View From startup investors
While private capital from angel investors has played a vital role in helping to build the foundation of Africa’s startup investment space, it has been heavily reliant on international funds once the startups need venture capital. There’s been a push to further professionalize and expand the impact of local angel investors, according to Fadilah Tchoumba, president of Africa Business Angels Network.
“We’re really focusing on accelerating local capital participation by refining our key investment vehicles to give more potential investors confidence,” said Tchoumba. “We’ve also doubled down on recruiting even more African angel investors to expand our local capital base while also building partnerships with domestic and international financial institutions to increase their impact.”
Notable
- Pension funds can be a catalyst for solving Africa’s financing crisis, according to the Africa Private Capital Association. But encouraging capital allocators to deploy capital in Africa is a challenge.