How can Africa Harness its Demographic Dividend?
Africa’s people are one of the continent’s greatest strengths, but without sufficient investment in skills, jobs and financial inclusion the continent’s rapidly growing population could undermine the region’s development. With a current median age of 19.7, Africa is the youngest continent globally and expected to be home to over 2 billion people by 2050, representing 1/3 of the global workforce.
Extract from The Africa Debate 2022 Report
Africa’s people are one of the continent’s greatest strengths, but without sufficient investment in skills, jobs and financial inclusion the continent’s rapidly growing population could undermine the region’s development. With a current median age of 19.7, Africa is the youngest continent globally and expected to be home to over 2 billion people by 2050, representing 1/3 of the global workforce . Harnessing the power of Africa’s youth is a regional and global priority with significant repercussions for economic growth, digital transformation, and global security.
Upskilling Africa’s Youth
Strive Masiyiwa, Founder and Executive Chairman, Econet Group
For companies targeting long-term growth in the region, investing in skills is a must. In the eyes of Strive Masiyiwa, Founder and Executive Chairman of the telecoms giant Econet, “having young people is not enough, we have to have skilled young people”. In conversation with Invest Africa CEO, Karen Taylor, Masiyiwa emphasised the importance of investing in science and technology if Africa is to compete with the likes of China and India. This was echoed by Charles Murito, Regional Director, Sub Saharan Africa, Government Affairs & Public Policy for Google, who called on governments and businesses to invest in technical and vocational training as well as colleges and universities, citing the Learning Lions programme in Kenya as an example of using remote learning to improve broad-based digital skills
Embedding Life-Long Learning
Participating businesses also highlighted the need to build more robust education systems from early years up through to adult learning. Where governments must lead the way in setting national curricula and investing in core education, there is plenty of scope for private companies to support life-long learning across the continent. 4G Capital for example is a neo-bank which provides training alongside micro-loans to business owners in the informal sector, filling the adult education gap with courses in record keeping, budgeting and client centrality. The company’s CEO, Wayne HennessyBarrett points to 4G Capital’s high repayment rates as evidence that this approach to continuous skills development creates wealth for the continent’s MSMEs. At a continental level, Afreximbank and the African Development Bank have demonstrated the importance of investing in a skills base for new growth sectors through partnerships with leading institutions in the creative sector with the leadership from both institutions emphasising the importance in those areas where Africa has a comparative advantage
Mobilising Human Capital panel discussion, The Africa Debate 2022
Investing in Jobs
Just as important to capacity building as training and education itself is building an enabling environment that allows people to harness their skills to create wealth and jobs. To truly unlock growth at the scale Africa needs to outstrip its population explosion, Africa will need to take a continental approach focused on regional connectivity. For Hennie Heymans, DHL’s SubSaharan Africa CEO, the key is unlocking the potential of Africa’s 44 million SMEs. “If we can get those SMEs to start trading beyond their borders and demystify that process, that will an enormous enhancement” he explains. This calls for a continental approach to unlock barriers to trade and transform the continent’s economies from exporting primary goods to trading value added products. According to Chinelo Anohu, Senior Director of the AfDB’s Africa Investment Forum, only by investing in manufacturing and processing will Africa successfully be able to transition “from dependency to productivity”.
As the largest employer across the continent, developing Africa’s agricultural sector beyond subsistence farming to enable countries to start exporting agricultural goods, will be key to developing a growth strategy that enhances people’s lives and creates jobs. This is why Gary Vaughan-Smith, Chief Investment Officer of SilverStreet Capital, invests exclusively across the agricultural value chain with a focus on upskilling smallholder farmers. In recognition of mounting appreciation of the importance of the sector, Mohammed Dewji, Founder and President of one of Tanzania’s largest companies, MeTL Group, stated that he sees agriculture as the key to unlocking Africa’s full potential and plans to make a $2 billion investment in the sector calling on regional leaders to focus on “growing our own food, feeding our own people, and exporting it to the world.
What is Africa’s Role in the Global Race to Net-Zero?
Africa contributes less than 4% of global greenhouse gas emissions and yet is suffering some of the most severe impacts of climate change. The continent’s rivers are drying up, rain patterns are changing and crop yields diminishing – all of which threaten lives and livelihoods in the region. As Sanjeev Gupta, Executive Director for Financial Services at the Africa Finance Corporation (AFC) highlighted, in Africa, “climate change is not a theoretical discussion”.
Extract from The Africa Debate 2022 Report
Africa contributes less than 4% of global greenhouse gas emissions and yet is suffering some of the most severe impacts of climate change. The continent’s rivers are drying up, rain patterns are changing and crop yields diminishing – all of which threaten lives and livelihoods in the region. As Sanjeev Gupta, Executive Director for Financial Services at the Africa Finance Corporation (AFC) highlighted, in Africa, “climate change is not a theoretical discussion”. Going into COP27 in Egypt in November 2022, the continent needs to prioritise outlining what a just transition looks like for a region that has a “long road to run in terms of human and economic development”, according to Dr. Christopher Marks, Managing Director and Head of Emerging Markets at MUFG Bank.
Continental Climate Leadership
“Africa boasts 60% of the best solar resources available globally and has only installed 1% of its total solar capacity.”
As Africa looks to continue progress towards its development goals, expand access to energy and contribute to the global fight against climate change, panellists emphasised the importance of a coordinated approach, which aligns with Africa’s own priorities and specific market conditions. In addition to the 600 million people who do not have access to electricity in Africa, around 900 million people also rely on dirty fuels such as wood and charcoal for domestic use – a situation which poses both health and climate risks: as the region’s forests act as global carbon sinks absorbing between 1.1 billion and 1.5 billion tonnes of carbon dioxide annually. Meanwhile, Africa’s installed solar capacity is only 1% of the region’s full potential which includes 60% of the best solar resources available globally. The continent is also home to one third of all remaining global mineral reserves, which will be essential to the global energy transition. With the world facing interlinked strategic challenges of energy security in the wake of the Russia-Ukraine war and accelerating progress towards net-zero, Africa’s leaders should focus on building a continental approach to unlocking the region’s full energy potential.
Boosting Investment in Renewables
Accelerating investments in renewable energy and leveraging Africa’s natural resources to create prosperity on the continent emerged as core priorities from the discussions. Jennifer Boca, Head of Environmental Social Governance at Lekela Power, a renewable power generation company which delivers utility-scale projects across Africa, acknowledged the importance of investing in a range of technologies, including renewables, to meet Africa’s development goals. Given diversity in resources across the continent, panellists emphasised the importance of setting out country specific strategies with clear policy frameworks in place. In Kenya, for example, 70% of energy production is already from renewable sources with geothermal energy alone accounting for 39%. Senegal, Tanzania, and Uganda, meanwhile, are more reliant on gas as a transition fuel. For those countries with significant mineral deposits, investing to develop processing capacity closer to mines should be a priority, and will significantly reduce emissions from unnecessarily shipping raw minerals.
Mobilising Natural Capital panel discussion, The Africa Debate 2022
The Russia-Ukraine conflict is pushing energy security up the global agenda, offering gas and mineral rich countries an opportunity to plug the gap. The UK has already begun seeking coal supplies from Zimbabwe while Italy has Algeria, Egypt, Angola, and the Republic of Congo to make up its lost Russian supply, and the EU is considering Senegal, Algeria and Angola as potential partners. According to Joel Kibazo, Senior Adviser at C-Pesa, this renewed focus on gas calls for a more nuanced approach focused on stages of development rather than blacklists, to give investors clarity and countries the ability to optimise their energy mix.
Leveraging Green Finance for Africa
Marc-Andre Blanchard, Executive Vice-President, CDPQ
The challenge for Africa remains leveraging finance to develop new sources of power at the scale the continent needs to meet its growth targets. The funding gap for emerging markets, including Africa, to meet net-zero by 2060 is $94.8 trillion, while 95% of financing needed to meet the Paris Agreement will need to come from the private sector. As Daniel Hanna, Head of Sustainable Finance at Standard Chartered Bank explained, harnessing the resources of wealthier countries to plug this gap makes financial sense as much as it is equitable. If emerging markets are expected to secure financing themselves, they will be $2 trillion a year worse off whereas leveraging global capital will support global growth.
Expanding carbon markets, green bonds and blended finance mechanisms offer opportunities to significantly expand green investments in Africa, with democratising access to sustainable finance set to be a central topic at COP27. Several recent developments in this area point to pathways to scale up the flow of global capital into adaptation and mitigation projects in Africa. In November, Standard Chartered Bank has placed a 3 billion ZAR fixed rate green bond on behalf of DBSA, the first in the UN-backed SDG 7 Programme to fund green energy in Africa. MUFG, FinDev Canada and the Quebecois pension fund, CDPQ, have developed a $1.2 billion blended finance platform for lending in 25 emerging markets, including ten in Africa, which promises to provide a template to de-risk green investments in Africa for institutional investors.
How Can Africa be More Competitive?
In times of high volatility, as the global economy is currently experiencing, capital tends to retreat to markets closer to home. Africa’s funding gap is such that private capital, both domestic and international, will have to fill the bulk of the region’s development needs. Emerging from the challenges of the pandemic, it is more evident than ever that Africa will have to drive the solutions to its own challenges and advocate for its own interests in global markets.
Extract from The Africa Debate 2022 Report
In times of high volatility, as the global economy is currently experiencing, capital tends to retreat to markets closer to home. Africa’s funding gap is such that private capital, both domestic and international, will have to fill the bulk of the region’s development needs. Emerging from the challenges of the pandemic, it is more evident than ever that Africa will have to drive the solutions to its own challenges and advocate for its own interests in global markets. Though the continent has long suffered from a number of factors holding back private sector growth, the region also boasts structural strengths that can provide a springboard to unlock growth.
Cheryl Buss, International CEO, Absa Group
Transforming African Trade
For businesses assembled at The Africa Debate, market fragmentation, policy instability, shallow capital markets and foreign exchange volatility were highlighted as key barriers to attracting investment in Africa. For Uche Orji, CEO of the Nigerian Sovereign Investment Authority, the weakness of the continent’s capital market’s means that the region “doesn’t have the liquidity to drive the sort of growth you’ve seen in OECD countries.” For this reason, Cheryl Buss, CEO of Absa International, called to prioritise “better integration into global markets and global trade” while Nisrin Abouelezz, Managing Director and Head of the Africa Group, and SMBC, highlighted the importance of governance as the thread linking the challenges facing private capital in Africa.
“Our goal is for Africa to one day become as globally competitive as any other part of the world.”
In the African Continental Free Trade Agreement (AfCFTA), the continent has set down a marker of its ambition to transform from an exporter of primary products to a region that trades in valueadded products and is able to assert its role in the global economy. Addressing representatives from the African private sector and international capital custodians, Wamkele Mene, Secretary General of the AfCFTA Secretariat, outlined the agreement’s ambition “to consolidate this market of 1.3 billion people with a combined GDP of 3.4 trillion dollars to make it competitive, industrial, and of course to create jobs and attract investors.” As well as reducing tariff barriers to trade, the AfCFTA Secretariat is working with Afreximbank to address the non-tariff barriers faced by businesses on the continent. Afreximbank’s PanAfrican Payments and Settlements System (PAPSS) will facilitate payments between 42 countries across the continent, reducing cost and time for businesses, with 60% intra-African trade expected to flow through the platform by the end of 2022. An Africa Trade Gateway is also set for launch this year which will become the largest KYC platform in the world. The vision from Africa’s leaders for the continent to “one day become as globally competitive as any other part of the world” was clear throughout the discussions with welcome support from the UK Government.
Harnessing Positive Global Tailwinds
Despite ongoing barriers to trade, including inefficient transport systems, limited industrial capacity and weak infrastructure, investors and businesses expressed optimism about the AfCFTA’s ability to take advantage of the global tailwinds that could act in Africa’s favour. Chief amongst them, a shift to multipolar supply chains with greater emphasis on reliability than cost, consumer preference for sustainable products manufactured locally, improving policy frameworks for private investment and an abundance of in-demand natural resources. Amongst these, producing for intraAfrica trade emerged from discussions as the most significant opportunity in Africa for businesses planning a long term strategy. Gagan Gupta, Co-Founder of the infrastructure and trade platform, Arise IIP, Arise IS & Arise P&L, is already taking advantage of this explaining that through robust private-public partnership frameworks it is already possible to trade successfully in Africa, and the advantage of the AfCFTA lies in allowing “Africa to build pockets of excellence” as countries specialise in different value chains.
Finding the Right Financial Model
To fully capitalise on these opportunities Africa will need to significantly expand sources of private finance. Traditional private equity models imported from the US and Europe, with low risk appetites and short tenures, may not be the best model for to crowd in the type of finance Africa needs. “In the West, development is not done by private equity”, explains Babatunde Soyoye, CO-Foundering Partner and Managing Partner at Helios Capital Partners, “it’s a different type of capital that takes on high risk such as large corporates or governments”. Hence the central role that development finance continues to play in African markets. “We’ve done a better job of investing our own capital than we have of mobilising other people’s capital” acknowledges Nick O’Donohoe, CEO of British International Investment. The organisation is now redoubling efforts to develop new models of financing and work more closely with larger private companies to maximise the de-risking role that development finance can play.
Developing local sources of capital is also an essential piece of the funding puzzle. For Mohan Vivekenandan, Group Executive: Origination & Coverage at Development Bank of Southern Africa (DBSA), growing local pension funds is key as international investors will take comfort in being able to invest alongside local entities. “If we don’t create the local pension funds, it’s going to be very difficult to solve for some of these problems” he warns. Similarly for Ade Ayeyemi, CEO of Ecobank, who believes that Africa’s difficulties raising investment stems “not from a lack of capital but a lack of imagination”, encouraging the financial sector to take a holistic approach and build from the ground up so that local savings can be deployed to generate wealth. savings can be deployed to generate wealth.
Africa’s Role in a Time of Geopolitical Turmoil: A Conversation with Control Risks
With the Russia-Ukraine war compounding international supply chain issues and driving up inflation, the global economy has emerged from the pandemic into what is beginning to feel like an endemic crisis. We sat down with Nick Allan, CEO of Control Risks, after the Africa Debate to discuss his assessment of how Africa will be impacted by these global trends.
Extract from The Africa Debate 2022 Report
With the Russia-Ukraine war compounding international supply chain issues and driving up inflation, the global economy has emerged from the pandemic into what is beginning to feel like an endemic crisis. We sat down with Nick Allan, CEO of Control Risks, after the Africa Debate to discuss his assessment of how Africa will be impacted by these global trends, which political and economic headwinds businesses should prepare for in the region, and where he sees strategic opportunities on the continent over the medium to long term.
Navigating Elevated Global Risk
“It is hard to remember a time when there has been so much political and security turmoil” Allan begins. “If you look at everything that’s going on globally, none of it is positive and Africa will be affected” he explains. Even though the Russia-Ukraine war doesn’t present a direct conflict risk on the continent, Africa is nonetheless already feeling the spillover effect as it once again finds itself buffeted by external shocks. It is not just rising fuel prices that will pose a challenge for Africa, Allan expands, but also, in a region where up to half of household spending is on food, rising prices of fertilizer, grain and cooking oil will have a very real impact. Hence the President of Senegal and Chair of the African Union, Macky Sall’s, recent visit to Moscow to discuss the importance of reopening grain exports. It remains to be seen whether the deal struck between Ukraine and Russia to reopen Ukraine’s ports will alleviate pressure in the short term.
“So many of the solutions that the planet needs are to be found on the African continent.”
With little sign that the macro-economic environment will improve in the short term, however, inflation and food insecurity are likely to “flow into political unrest and populism” closer to home. Over the last 18 months, the continent has already experienced elevated political insecurity with coups in Sudan, Chad, Mali and Guinea. Elevated debt burdens coming out of the pandemic have left governments with limited options to cushion the cost of living crisis and, while economic growth struggles to keep pace with population growth, there is strong potential for mounting frustration. As governments come under pressure from these social consequences of economic downturn, there is a risk that they will seek new sources of revenue from the private sector, Allan warns. With key elections taking place against this challenging backdrop in Kenya, Nigeria and Angola, investors and businesses will need to monitor these trends closely.
Capitalising on Long-Term Opportunities
Despite these short-term challenges, however, Allan sees a “world of opportunity for investors in Africa” over the medium to long term with those companies already experienced operating in the region best placed to capitalise. Whether it’s rebooting global growth or confronting the climate emergency, for Allan “so many of the solutions that the planet needs are to be found on the African continent”. The demographic transformation in the region is “both Africa’s greatest strategic challenge and its greatest strategic opportunity”. The continent’s population is set to boom to over 2 billion people over the next thirty years with Nigeria’s population alone projected to double to 400 million, more than the USA today. Given that typically economic growth is found where there is a growing population, Allan suggests, Africa should be focused on harnessing its young population as a structural advantage.
This will call for accelerated investment in a challenging environment making improving access to capital the central challenge facing Africa’s leaders. Realignments in the global economy as countries look to mitigate supply chain and reduce emissions could play in Africa’s favour. “In theory,” says Allan, “trends of near-shoring and shorter supply chains should present great economic opportunity in Africa”. BioNTech’s investment in vaccine production in Rwanda demonstrates that there is a real opportunity for the continent to expand its local manufacturing capacity. Another sector with strong potential in this respect is mining with demand for so called “green minerals” set to increase dramatically as the world seeks to expand battery storage capacity for renewables. The recent cooperation agreement between the DRC and Zambia to capture the value chain in electric batteries and clean energy is a sign of how mineral-rich countries are approaching the green energy opportunity. On the global energy transition, Allan feels that “there is a real opportunity for Africa to be part of the solution” and to harness this in a way which serves the continent’s interests calls for a strong focus on “fair and equitable transition” going into COP27.
African Unity vs Global Fragmentation
It is clear that the solutions to the challenges that hamper Africa’s ability to harness these opportunities “are going to have to come from the continent itself as the rest of the world is increasingly disengaged and distracted by issues closer to home.” The fact that Africa has bucked the global trend and come together in an era of global fragmentation should stand in its favour. Allan points to their response to the pandemic, an increasing willingness to engage with security challenges at a regional and sub-regional level and the ongoing efforts to push through the AfCFTA as demonstrations of the power of African unity. One of the positive trends of previous decades, he suggests, is the expansion of the remit of African multilaterals as “people take real comfort in being able to invest alongside the likes of the African Development Bank, Afreximbank and the Africa Finance Corporation.” In the midst of an extremely challenging immediate environment, it is crucial for governments to continue to have a strategy to secure the continent’s long-term future and double down on efforts to improve on the governance frameworks that attract investment.
A holistic view of Africa's role in combating climate change | Oxford Economics Research Briefing
The ground has shifted and cheap budget funding in frontier markets is a thing of the past. In the current climate, African nations will struggle with a narrowing investor pool as high inflation and FX risks undermine attractiveness of Treasury securities. The funding gap has scarcely been so wide and widespread. However, funding options have also never been so diverse, and for those putting the correct policies in place, a new age of funding beckons.
Oxford Economics Africa has released its third and final report of an exclusive series highlighting the topics that will be discussed at The Africa Debate.
Key points:
A holistic view of the continent's role in combating climate change necessitates a critical look at the status quo and the potential outcomes of current trends. Keeping African hydrocarbons underground while investing in renewables does not constitute an economic or environmental success if the forests are shrinking and the lack of access to electricity and clean cooking remains an untraversed developmental hurdle.
Author: Jacques Nel | Head of Africa Macro | Oxford Economics Africa
Should you like to know more about Oxford Economics Africa services, contact them at africainfo@oxfordeconomics.com or meet their team at The Africa Debate.
Unlocking the potential of Africa's most valuable resource | Oxford Economics Research Briefing
The ground has shifted and cheap budget funding in frontier markets is a thing of the past. In the current climate, African nations will struggle with a narrowing investor pool as high inflation and FX risks undermine attractiveness of Treasury securities. The funding gap has scarcely been so wide and widespread. However, funding options have also never been so diverse, and for those putting the correct policies in place, a new age of funding beckons.
Oxford Economics Africa has released its second report of an exclusive series highlighting the topics that will be discussed at The Africa Debate.
Key points:
Africa’s greatest potential asset is its youth – the population of those younger than 25 years is set to more than double by 2050. By providing these individuals with the tools to contribute to a modern economy, the continent could see an unprecedented increase in productivity and inclusive growth. Leveraging technology and focusing on digital literacy in schools will be central to preparing these individuals for the future.
Author: Shani Smit | Economist at Oxford Economics Africa
Should you like to know more about Oxford Economics Africa services, contact them at africainfo@oxfordeconomics.com or meet their team at The Africa Debate.
A fundamental change in funding beckons | Oxford Economics Research Briefing
The ground has shifted and cheap budget funding in frontier markets is a thing of the past. In the current climate, African nations will struggle with a narrowing investor pool as high inflation and FX risks undermine attractiveness of Treasury securities. The funding gap has scarcely been so wide and widespread. However, funding options have also never been so diverse, and for those putting the correct policies in place, a new age of funding beckons.
Oxford Economics Africa has released its first report of an exclusive series highlighting the topics that will be discussed at The Africa Debate.
Key points:
The ground has shifted and cheap budget funding in frontier markets is a thing of the past. In the current climate, African nations will struggle with a narrowing investor pool as high inflation and FX risks undermine attractiveness of Treasury securities. The funding gap has scarcely been so wide and widespread. However, funding options have also never been so diverse, and for those putting the correct policies in place, a new age of funding beckons.
Author: Irmgard Erasmus |Senior Financial Economist at Oxford Economics Africa
Should you like to know more about Oxford Economics Africa services, contact them at africainfo@oxfordeconomics.com or meet their team at The Africa Debate.
Leveraging investment in Africa | Interview with Nick O’Donohoe, CEO, British International Investment
Africa’s growing significance as a strategic partner with the UK will help both regions further their sustainable development agendas and strengthen their in the global geopolitical landscape. Synergies across clean energy, technology and finance provide firm footing to grow the UK’s relationship across the continent. We teamed up with Standard Chartered Bank to produce a paper providing a lay of the land, areas for growth and recent stagnation in trading relations. We included regional overviews from Standard Chartered Bank, spoke with CEO of British International Investment and gathered insights from companies on the ground.
As the UK’s largest investor into Africa, you have a unique insight into cross-border trade and investment. Following two years of a global pandemic and decreasing FDI flow into African markets, what is your current view on the status of UK-Africa trade & investment?
Covid has had a very significant impact on Africa in terms of slowing economic growth. It has been a significant health crisis but also a humanitarian one, driven by very low levels of vaccination across the continent. Due to a lack of domestic capital markets, Africa relies heavily on foreign direct investment and international investment has slowed down dramatically. As is usual in crises, investors tend to retreat from markets that are furthest away from them, which is what has happened across Africa and other frontier markets, which were hit hard by a lack of risk appetite.
Overall, however, I still believe the investment case for Africa is strong, driven in large part by demographics. By 2050, there will be 2 billion people, a quarter of the world’s consumers, living in Africa, which will drive significant cyclical growth. The other important driver in the longer-term African context is the growth of technology and the digital economy. Fintech, for example, is transforming financial systems in countries like Nigeria and Kenya. Although this technology has been slower to develop in Africa due to a lack of infrastructure, it nevertheless enables businesses and economies to grow in an unprecedented manner.
Over the last decade, there has a move within the DFI community towards embracing the idea of risk, return and impact in investment decision-making. In June 2021, we were instrumental in establishing a consortium at the G7 meeting to commit $80 billion of impact-focused investment in Africa over the next five years. The impact asset class approach to investment is growing quickly alongside an increase in available blended and concessionary finance. As people become more conscious of the impact of their investments, the hope is this will have a beneficial effect on Africa. Overall, looking at the challenges in the medium-to-long term, we are quite optimistic. 60% of our investments go to Africa. That is likely to continue in the new strategy cycle, in which we are planning on investing $2.5 billion a year.
“60% of our investments go to Africa. That is likely to continue in the new strategy cycle, in which we are planning on investing $2.5 billion a year.”
You mentioned some of the factors that have hindered FDI flows into Africa. How can the DFI community as a whole help to overcome some of these challenges?
There are constraints we can overcome in collaboration with our partners and government, and there are some we cannot.
It is much easier for the private sector to grow in countries that have scale - the challenge with Africa is that it is fragmented, 54 countries in total. If you look at India, a country in which we invest heavily, once you get the basic enabling infrastructure in place, the private sector can drive growth quickly. The fragmentation in Africa means that businesses tend to be relatively small. For example, Ethiopia has around 20 companies with revenues over $50 million, whereas the UK has 10,000 businesses of that size. This fragmentation makes it much harder to grow large companies, and that holds Africa back.
The Africa Continental Free Trade Area (AfCFTA) will be instrumental in allowing businesses to scale and we are eager to see fast progress in this area. In the same way that the European Union, over 50 years, made Europe a much more homogeneous scalable market, AfCFTA can offer the same potential for Africa.
We try to find companies that can grow across borders, whilst recognising that there are challenges and costs associated with such growth. Liquid Telecom is a good example - they were established in the UK, headquartered in Johannesburg and their ambition has seen huge investment in ensuring they build a fibre network that is pan-African.
Another issue holding back trade and investment into Africa is currency risk and the perception that currencies in Africa have largely been weak, which in turn leads to less availability of local currency. If you look at West Africa, the Ecowas common currency zone has been relatively successful and has helped the region to develop. We aim to address this issue by providing more project finance in local currency. As part of our next strategy cycle, we are hoping to increase the amount of local currency and hedge the local currency risk we will take through our Catalyst portfolio, in which we are mandated to take a flexible approach to risk in exchange for pioneering impact. We’ve used this strategy, for example, to make currency loans to home solar businesses in Kenya and Uganda and we anticipate more local currency loans over the coming years.
This lack of liquidity through local capital markets leads to a huge reliance on international institutions and banks. That was particularly important at the start of the pandemic. As many international banks withdrew funding, we saw organisations like BII and other DFI partners stepping forward to provide liquidity through instruments such as trade finance. DFIs can help in that respect, although it’s worth noting that we are not a substitute for domestic savings.
Finally, all of this builds into a greater perception of risk of investing in Africa. Whilst there is some truth in the level of risk, it is not as high as people perceive it to be. For example, there is recent data from Moody’s that shows default rates on infrastructure projects in Africa are much lower than in Western Europe and that demonstrates that there are some areas where I think the risk in Africa is more perception than reality.
It is encouraging to hear that there has been some progress, particularly on the issue of fragmentation through the AfCFTA. What other policy areas do you think could help improve the perception of Africa as an investment destination?
One thing that would help increase investment flows into Africa is the creation of scalable investment ecosystems. We spend a lot of time thinking about how, as a DFI we can channel more concessionary capital and technical assistance to Africa. It is, however, a two-way street; governments have an important role to play in driving the real commercial flows to Africa. For example, stable macroeconomic policies are needed to moderate fiscal deficits, which in turn leads to lower inflation, lower interest rates and more stable currencies. These improve governance, transparent tax policies and bidding processes, all of which helps to attract international investment. BII, and DFIs more generally, can support these areas, and the FCDO has a lot of experience in developing institutions and governance processes. Again, looking at India, the government has implemented several steps that have enabled investments into the country, whether that is their procurement policies in renewable energy, or the low-cost ID verification banking systems they have made available. These are the types of infrastructure that make a country investable.
Outside of more traditional policy areas, development finance can also help to develop infrastructure in its broader sense, not just hard infrastructure like power which remains critical in Africa. For instance, if you look at mobile money in Kenya, a country in which 80% of people work in the informal economy, cash has disappeared. Initiatives like M-PESA, although slow to find its way around Africa due to potential conflicts it brings between other mobile companies, banks and regulators, has created an enabling environment to allow businesses to prosper and reach a much larger part of the lower-income population.
Finally, we need to break the link between economic growth and carbon emissions and build green infrastructure and green power that can help support development in Africa.
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White Paper: Opportunities for UK-Africa Trade & Investment in a Time of Geopolitical Flux
Africa’s growing significance as a strategic partner with the UK will help both regions further their sustainable development agendas and strengthen their in the global geopolitical landscape. Synergies across clean energy, technology and finance provide firm footing to grow the UK’s relationship across the continent. We teamed up with Standard Chartered Bank to produce a paper providing a lay of the land, areas for growth and recent stagnation in trading relations. We included regional overviews from Standard Chartered Bank, spoke with CEO of British International Investment and gathered insights from companies on the ground.
Executive Summary
Africa is a strategically important partner for the UK with growing political and economic weight. Strengthening partnerships in Africa is an important pillar of the UK’s wider geopolitical priorities as well as the shared drive towards sustainable development.
UK-Africa trade and investment has historically underperformed with FDI flows from the UK into Africa stagnating over the last decade. With the UK no longer part of the EU, there is now an opportunity to reshape the country’s trading relationship with Africa.
Despite the setbacks of the pandemic and the disruption of the Russia-Ukraine conflict, Africa remains an attractive market for international investors and offers significant opportunities in sectors where the UK has a competitive advantage including tech, renewable energy and financial services.
Businesses interviewed for this paper highlighted a number of barriers to investment in Africa, including weak infrastructure, instability and fragmented markets, as factors dampening UK-Africa trade and investment flows.
With significant development finance commitments through British International Investment and the financial weight of the City of London, the UK has the tools to support alternative financial methods to promote local investment and cross-border solutions in Africa.
British businesses already operating in Africa have been attracted to the continent’s demographic boom and see the region as of long-term strategic importance. Successful businesses in the region have focused on developing local supply chains and investing in understanding individual markets due to current fragmentation.
The African Continental Free Trade Agreement (AfCFTA) demonstrates the ambitious approach of Africa’s policy makers and can provide the framework to support further flows of trade and investment between the UK and Africa by facilitating cross-border trade and investment and promoting regulatory alignment.
Businesses are optimistic about these opportunities over the longer term but are conscious that further support will be needed to ensure a successful implementation of the AfCFTA and create enabling infrastructure for trade. The recent Memorandum of Understanding (‘MoU’) between the UK Government and the AfCFTA Secretariat pledging up to £35m to support the implementation of the AfCFTA is a positive step.
Africa has an essential role to play in the global green energy transition and, to successfully build on the agreements at COP26, driving investment into Africa’s renewable energy sector must be a priority ahead of COP27. British businesses in the renewable energy space have a strong track record of building partnerships with African governments and these should be expanded.
The UK should continue to support Africa’s priorities for sustainable economic and social development as outlined in the African Union’s Agenda 2063 through robust partnerships which will allow the UK and African private sectors to work most effectively together to tackle the pressing challenges facing both regions.
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The Africa Debate 2021: The ‘Great Reset’? Summary
From 14th to 16th September 2021, Invest Africa hosted the 7th Africa Debate virtually assembling over 1,000 business and policy leaders from over 50 countries to discuss the most pressing social and economic issues facing the African continent.
Throughout the discussions four key priorities for public and private cooperation emerged: strengthening Africa’s institutions, building more resilient health systems, boosting trade and investment and investing in a sustainable future.
From 14th to 16th September 2021, Invest Africa hosted the 7th Africa Debate virtually assembling over 1,000 business and policy leaders from over 50 countries to discuss the most pressing social and economic issues facing the African continent.
Throughout the discussions four key priorities for public and private cooperation emerged: strengthening Africa’s institutions, building more resilient health systems, boosting trade and investment and investing in a sustainable future.
Summary of points:
Though the pandemic has exposed weaknesses in African economies, particularly their over-dependence on international partners, the Continent should take the opportunity to reshape its economies with a focus on building resilience, boosting regional trade and investing in sustainability.
Progress has been made in Africa’s drive to secure a fair allocation of global vaccine supplies when countries in the region have worked through African institutions such as the Africa Centres for Disease Control, the Africa Export-Import Bank (Afreximbank) and the African Union. These institutions should be strengthened with a focus on investing in local manufacturing of vaccines.
The private sector has a critical role to play in building resilience in Africa’s healthcare systems and achieving the goal of universal health coverage. Dr. Tedros Ghebreyesus, Director General of the World Health Organization (WHO), encouraged a change in mindset across the healthcare value chain positioning the private sector as a co-investor and partner in mixed healthcare systems.
The African Continental Free Trade Agreement continues to receive support from public and private stakeholders and offers the Continent a unique opportunity to transform its economic model away from exports of primary products towards a diversified economic base, including manufacturing, services, agro-processing and technology.
Good governance and robust institutions are essential to attracting foreign direct investment and capital looks for investable opportunities in stable and transparent markets.
As global investors increasingly look to incorporate ESG targets, alongside financial targets, into their decision-making and monitoring processes, robust ESG practices are more important than ever to the fundraising process for African businesses.
Africa is vulnerable to climate crisis and leveraging sustainable finance to invest in mitigation and adaption measures is a clear priority for businesses and governments alike. Delegates called on the green transition to be reframed as a $3 trillion investment opportunity in Africa to attract private capital and fill the Continent’s green finance gap.
Economies are not shaped from above and economic and social development in the region will rely on creating an enabling environment for MSMEs. Small businesses in Africa continue to face numerous barriers to growth including lack of access to appropriate capital, knowledge gaps and small market sizes.
Zambia’s new president, H.E. Hakainde Hichilema, to join the IMF, WHO and IFC at The Africa Debate next week
The newly elected President of Zambia, H.E. Hakainde Hichilema, will address over 1000 global businesses and investors at Invest Africa’s flagship event, The Africa Debate, on 15th September. The virtual broadcast will see President Hichilema outline his plans to restore macro-economic stability to Zambia in conversation with the Chairman of Invest Africa, Rob Hersov.
06/09/21 - London, UK
The newly elected President of Zambia, H.E. Hakainde Hichilema, will address over 1000 global businesses and investors at Invest Africa’s flagship event, The Africa Debate, on 15th September. The virtual broadcast will see President Hichilema outline his plans to restore macro-economic stability to Zambia in conversation with the Chairman of Invest Africa, Rob Hersov.
Hichilema was elected to Zambian presidency last month on the promise to tackle the county’s debt problem and usher in a return to growth. Zambia has been hit hard by the pandemic, falling into its first recession since 1998 last year. In November 2020, the country became the first African nation to default on its sovereign debt since the start of the pandemic. The global shutdown came on the tails of a challenging few years which had seen growth slow to around 3% since 2015.
In his inaugural address Hichilema stated that his government’s “focus over the next five years will be on restoring macroeconomic stability”. He promised to “grow [the Zambian] economy so that we can list more people out of poverty than ever before.” Securing an IMF deal is high on the new President’s list of priorities as he seeks to rebuild his nation’s financial credibility globally. He has appointed former IMF advisor, Situmbeko Musokotwane, as his finance minister, promising to balance the budget and tackle corruption.
At The Africa Debate, President Hichilema will join a line up that includes senior representatives from the IMF, the African Development Bank, the International Finance Corporation, the Development Bank of Southern Africa and Afreximbank as well as private investors Ninety One, Alterra Capital, Leapfrog Investments and Renaissance Capital.
The online forum will provide the opportunity for Africa’s newest leader to introduce his policy platform to global investors and businesses. Securing private sector buy-in will be essential to the incoming government’s promise to stimulate growth and create jobs for Zambia’s young population.
Karen Taylor, CEO of Invest Africa said, “We are delighted to welcome H.E. Hakainde Hichilema to The Africa Debate following his election to the Zambian presidency last month. The Africa Debate has a long history of hosting Heads of State from across the Continent and providing a platform for direct dialogue with international investors and multinational businesses. We look forward to receiving an update from President Hichilema on his government’s priorities for the Zambian economy going forward.”
For more information about The Africa Debate and how to attend please click here.
ENDS.
About The Africa Debate:
The Africa Debate is the flagship event of Invest Africa taking place from the 14th – 16th September 2021. Now in its seventh year, The Africa Debate connects the international trade and investment community with businesses across the Continent via our interactive online platform. By bringing together leading investors, businesses, policy makers and entrepreneurs the conference aims to promote the flow of sustainable financing and investment towards catalytic projects across the Continent.
Over three days, 1000 businesses, investors and government officials will discuss how to best support Africa’s transformative recovery as part of the ‘Great Reset’. The Forum will open on 14th September with a half-day investment summit focused on our country partner, Ghana. The following day will see industry experts, business leaders and policy makers take the stage to debate the issues that will define Africa’s recovery before closing with a dedicated MSME financing forum on 16th September.
About Invest Africa:
Invest Africa is a leading business and investment platform with a global footprint of more than 400 member companies, comprising multinationals, private equity firms, institutional investors, development finance institutions, professional service organisations, government bodies and entrepreneurs.
Formerly the Business Council for Africa, founded in 1956, Invest Africa leverages sixty years’ experience in Africa to provide its members with unique information and exposure to business opportunities. The organisation regularly works closely with governments and investment promotion agencies across the Continent to encourage private sector support and international investment in line with national and international development objectives.
Headquartered in London, Invest Africa also operates in four additional chapter cities: Johannesburg, Cape Town, New York and Dubai.
Our vision is to play a central and influential role in Africa’s socio-economic growth by guiding sustainable capital towards key prospects on the continent.
Press contact: eleanor.brown@investafrica.com
The President of Ghana, H.E. Nana Akufo-Addo, and key Ministers set to address international investors at Ghana Investment Forum during The Africa Debate 2021
The President of Ghana, H.E. Nana Addo Dankwa Akufo-Addo, will address international investors and businesses at Invest Africa’s annual Africa Debate from 14th-16th September as part of his government’s drive to diversify the Ghanaian economy and boost foreign direct investment (FDI). The President will be accompanied by the Ministers of Finance, Energy and Food and Agriculture at the dedicated Ghana Investment Forum on 14th September.
25/08/21 - London, UK
The President of Ghana, H.E. Nana Akufo-Addo, will address international investors and businesses at Invest Africa’s annual Africa Debate from 14th-16th September as part of his government’s drive to diversify the Ghanaian economy and boost foreign direct investment (FDI). The President will be accompanied by the Ministers of Finance, Energy and Food and Agriculture at the dedicated Ghana Investment Forum on 14th September.
Despite the challenges of Covid-19, the Ghanaian economy avoided contraction in 2020 with modest growth of 0.3%. The country is now predicted see its GDP grow by 4% in 2021, according to the African Development Bank, placing it in a strong position to attract FDI. In speaking directly with over 1000 global businesses and investors, the President and his Ministers aim to ensure that inbound investment aligns with their goals to create jobs and diversify the economy, highlighting opportunities across three key sectors: Agriculture, Energy and Financial Services.
Agriculture is an essential pillar of Ghana’s recovery and better tapping into returns across the agriculture value chain is a clear priority for the government as it looks to mobilise the private sector to invest in agro-processing through the One-District-One-Factory initiative and a recently enacted Public-Private-Partnership law. It is hoped that private financial backing for these initiatives will redress the imbalance which currently sees the country touch $2 billion annual revenues from the $130 billion a year global chocolate industry despite supplying nearly one fifth of the world’s cocoa.
Similar initiatives are underway in the energy sector where the expansion of renewables presents an untapped opportunity for investors. Already a net-exporter of energy to neighbouring Togo, Benin and Burkina Faso, the Minister of Energy, H.E. Matthew Opoku Prempeh, hopes to secure buy-in to the Renewable Energy Master Plan which will see energy exports increase. The Ministry of Energy is looking to raise $5.6 billion for renewable energy projects by 2030 with 80% of financing coming from the private sector.
Developing local financial services underpins efforts to create a healthy business environment. Ghana has had successes on the international bond market and raised $3billion this year. The Ministry of Finance now aims to develop local financial services, reducing dependency on foreign debt markets. A EUR 170 million loan from the European Investment Bank has led to the creation of the Development Bank of Ghana while the Capital Market Master Plan outlines a blueprint to grow the domestic capital market. H.E. Ken Ofori-Atta, Minister of Finance, will take the opportunity of the Ghana Investment Forum to present how these reforms have improved financial options for businesses in Ghana and seek further international financial partnerships.
In partnership with Invest Africa and the Ghana Investment Promotion Centre, the Ghana Investment Forum aims to connect businesses and investors with key opportunities in Ghana.
If you’d like to hear more from The President of Ghana or any of the other speakers who have confirmed for The Africa Debate including Dr. John Nkengasong, Director of Africa CDC, Abebe Aemro Selassie, Director, African Department, IMF and Dr. Tedros Adhanom Gebreysesus, Director General of the WHO, then there’s still time to secure your place.
Review the full agenda and get your ticket on The Africa Debate website.
ENDS.
Notes for editors
About The Africa Debate:
The Africa Debate is the flagship event of Invest Africa taking place from the 14th – 16th September 2021. Now in its seventh year, The Africa Debate connects the international trade and investment community with businesses across the Continent via our interactive online platform. By bringing together leading investors, businesses, policy makers and entrepreneurs the conference aims to promote the flow of sustainable financing and investment towards catalytic projects across the Continent.
Over three days, 1000 businesses, investors and government officials will discuss how to best support Africa’s transformative recovery as part of the ‘Great Reset’. The Forum will open on 14th September with a half-day investment summit focused on our country partner, Ghana. The following day will see industry experts, business leaders and policy makers take the stage to debate the issues that will define Africa’s recovery before closing with a dedicated MSME financing forum on 16th September.
About Invest Africa:
Invest Africa is a leading business and investment platform with a global footprint of more than 400 member companies, comprising multinationals, private equity firms, institutional investors, development finance institutions, professional service organisations, government bodies and entrepreneurs.
Formerly the Business Council for Africa, founded in 1956, Invest Africa leverages sixty years’ experience in Africa to provide its members with unique information and exposure to business opportunities. The organisation regularly works closely with governments and investment promotion agencies across the Continent to encourage private sector support and international investment in line with national and international development objectives.
Headquartered in London, Invest Africa also operates in four additional chapter cities: Johannesburg, Cape Town, New York and Dubai.
Our vision is to play a central and influential role in Africa’s socio-economic growth by guiding sustainable capital towards key prospects on the continent.
Press contact: Eleanor.brown@investafrica.com
Unlocking the potential of Africa’s next generation of entrepreneurs
In fact, most African SMEs struggle to leverage appropriate capital from formal financial sources. According to the World Bank, the SME financing gap in Sub-Saharan Africa sits at $331 million. Blockages to finance for this ‘missing middle’ exist on both the supply and demand side of the SME financing ecosystem. For SMEs deficits in corporate governance and technical skills as well as lack of collateral or proof of concept make access to credit or equity challenging. For investors and banks these same factors contribute to the high-risk perception of African markets and make it difficult to accurately assess credit ratings and potential market share. Bridging the finance gap for African SMEs is critical to the Continent’s recovery and can offer investors an opportunity to tap into growth in the world’s youngest continent.
When Ugandan entrepreneur Daniel Mukisa founded his award-winning e-commerce delivery company, Ridelink, he had his mother in mind. As a young boy, he had seen her struggle to find an affordable way to deliver her goods to the local market and vowed that he would find innovative transport solutions for SMEs.
The environment for female entrepreneurs in Africa has moved on since Daniel’s mother ran her business. In research released by Mastercard into SMEs in the Middle East and Africa in August this year, 81% of the region’s female entrepreneurs have a digital presence for their businesses compared to 68% of their male counterparts but few have access to funding for their business growth. And yet, recent research by the Harvard Business Review shows that investing in women pays off, often achieving greater credit turnover and delivering double the return of other businesses.
In fact, most African SMEs struggle to leverage appropriate capital from formal financial sources. According to the World Bank, the SME financing gap in Sub-Saharan Africa sits at $331 million. Blockages to finance for this ‘missing middle’ exist on both the supply and demand side of the SME financing ecosystem. For SMEs deficits in corporate governance and technical skills as well as lack of collateral or proof of concept make access to credit or equity challenging. For investors and banks these same factors contribute to the high-risk perception of African markets and make it difficult to accurately assess credit ratings and potential market share. Bridging the finance gap for African SMEs is critical to the Continent’s recovery and can offer investors an opportunity to tap into growth in the world’s youngest continent.
Although access to finance remains difficult for these SMSE’s, the growth in this area continues and is represented by multiple Pan-African organisations, from the Lionesses of Africa to the Branson Centre for Entrepreneurship, the Graca Machel Trust and the Cherie Blair Foundation for Women, to name a few.
The Cherie Blair Foundation for Women helps release the potential of women entrepreneurs in low- and middle-income countries and close the global gender gap in entrepreneurship. In a space of 13 years, they have directly supported over 175,000 women, many of whom are based in Africa. Backed by global entrepreneur and philanthropist Sir Richard Branson, The Branson Centre in South Africa helps entrepreneurs get investor ready, by supporting them through a six-month go-to-market programme. The Centre’s current focus is on businesses with an impact across the themes of Zero Waste, Create Local and Tech4Good. “South Africa sees some 10 million tonnes of food at a cost of more than R61.5 billion go to landfills each year,” says Rowan Le Roux of the Branson Centre Zero Waste & Circular Economy Advisory Board.
Another organisation that is focused on food and the agricultural sector is the Graca Machel Trust, headed up by Dame Graca Machel, former First Lady of South Africa and a huge advocate for the rights of women and children. She has long called for African women to “be in the driving seat of national discourse…women need to be at the centre of our economies”.
The African Women in Agribusiness Network (AWAB) that she created aims to address challenges in food security and identify opportunities for women in the agricultural sector. The network connects women to projects in this sector, with the goal of improving their access to resources, knowledge and training.
The SME agricultural sector in Africa is showing interesting developments, with on one hand, the Covid pandemic increasing the challenges to smallholder farmers while at the same time accelerating innovative efforts in digital technology, leapfrogging past practices and traditional solutions.
There are plenty of successful examples in this sector. Since 2014, Twiga Foods in Kenya has provided a business-to-business, mobile-based, e-commerce marketplace platform, that sources quality fresh and processed food from farmers and food manufacturer and delivers it to thousands of vendors, at a fair price.
HelloTractor, a Nigerian agricultural tech company, connects tractor owners to smallholder farmers in need of tractor services. As the founder of HelloTractor Jehiel Oliver points out on their twitter feed, “most farmers can’t afford to own a tractor but if they have easy access to it, that’s as good as owning one”.
In an interview that Invest Africa did earlier this year with Nick Allan, CEO of Control Risks, he discussed the findings of their most recent Africa Risk-Reward Index. In relation to tech, Allen stated that, “The pandemic has increased the tech uptake everywhere and Africa is no exception, [we will see] tech being used to deal with some of the business challenges that are distinctly African”, although Allan warned that rooting solutions in a local context is key to success.
The continent has a wealth of entrepreneur ideas and opportunities and SMEs who are providing innovative solutions for local problems. To unlock the potential of Africa’s next generation of entrepreneurs, access to patient capital and hands-on support are essential.
Invest Africa hosts its (digital) flagship event, The Africa Debate on the 14th – 16th September. The third day of the event will showcase Next Generation Africa – the MSMEs that form the backbone of Africa’s economies.
Next Generation Africa: Supporting growth for Africa’s MSMEs
MSMEs form the backbone of Africa’s economies and are the engine of the region’s job creation drive, accounting for 70 percent of employment in the region. With a high proportion of informal enterprises, many of Africa’s MSMEs, which already faced significant challenges, have been hit hard by the pandemic.
MSMEs form the backbone of Africa’s economies and are the engine of the region’s job creation drive, accounting for 70 percent of employment in the region. With a high proportion of informal enterprises, many of Africa’s MSMEs, which already faced significant challenges, have been hit hard by the pandemic. Addressing the structural barriers to growth that small businesses in Africa face will be essential to both the Continent’s short-term economy recovery and long-term development.
MSMEs in Africa have historically faced numerous barriers to growth. Sitting at the riskier end of the spectrum, access to private financing for early-stage businesses is challenging. Small market sizes and low levels of regional integration preclude many private investment options, accounting for the so-called ‘missing middle’. Meanwhile commercial banks struggle to offer adapted loans where collateral is limited and credit assessments are often unreliable, leaving smaller businesses faced with higher interest rates than their larger peers. In sub-Saharan Africa lending to MSMEs accounts for only between 5 and 20 percent of traditional banks’ portfolios compared to a range of 20 to 60 percent for OECD countries. Even where financing can be secured, to be successful it needs to be accompanied by technical support to combat the skills deficit faced by many MSMEs.
Supporting growth in the MSME segment calls for an ecosystem approach, bringing together targeted small scale financial products and wider business development support. Incubators, VCs and angel investors can play a key role in this respect through mentoring, capacity building and advisory initiatives. For larger investors or commercial banks partnering with these smaller locally embedded actors can help overcome the information gap and allow greater penetration with smaller businesses.
The recent partnership between 4G Capital, a company using tech to drive financial inclusion through micro-loans to small businesses accompanied by training programmes, and Citigroup, the American multinational investment bank is a prime example of the ecosystem approach in action. Innovative financial structures, in particular blended finance, have a transformative role to play in facilitating such partnerships and aligning investments with social and financial inclusion goals. The deal between 4G Capital and Citigroup was underwritten by the American development finance institution, DFC, as part of their Scaling Enterprise guarantee facility. This integrated approach allows the patient capital of DFIs to leverage commercial financing and support in-country programmes providing direct support to small business owners.
Stimulating joined-up thinking is the core aim of Invest Africa’s upcoming Next Generation Africa Forum, taking place during the annual Africa Debate 14-16th September which will bring together entrepreneurs, DFIs and private investors in a series of workshops and discussions aimed at building solutions to the most pressing challenges faced by African MSMEs. Find out more here.
What does the ‘Great Reset’ mean for Africa?
Few countries have been spared the profound social and economic impact of Covid-19. The crisis has demanded coordinated mobilisation both nationally and internationally, drawing on the expertise of both the private and public sectors. The World Economic Forum has called on leaders to seize the “unique window of opportunity to shape the recovery” and framed the challenge as “The Great Reset”. However despite this momentum, the pandemic has also deepened global inequalities, highlighting the need for any recovery to bring with it heightened investment in underserved communities and emerging markets and a more unified approach to global challenges.
Few countries have been spared the profound social and economic impact of Covid-19. The crisis has demanded coordinated mobilisation both nationally and internationally, drawing on the expertise of both the private and public sectors. The World Economic Forum has called on leaders to seize the “unique window of opportunity to shape the recovery” and framed the challenge as “The Great Reset”. However despite this momentum, the pandemic has also deepened global inequalities, highlighting the need for any recovery to bring with it heightened investment in underserved communities and emerging markets and a more unified approach to global challenges.
According to the World Bank, the pandemic has pushed up to 40 million people in Sub-Saharan Africa into extreme poverty, with women, young people and those in informal low-skilled jobs the worst affected. Now, as richer nations hit their vaccination targets, the IMF has warned that a “two speed” recovery could undermine promises to “build back better”. With 17% of the world population, the Continent has received less than 2% of vaccines leaving its people exposed to further waves. Estimates suggest that faster access to vaccines for at risk populations could save half a million lives over the next 6 months alone. As well as this moral imperative, allowing the virus to continue to thrive in Africa could undermine global recovery efforts as new variants force further lockdowns and flagrant inequalities create instability at the heart of the global economy, dampening investment and growth prospects. Swift action to finance global vaccinations and unblock supply chains could yield returns of up to $3 trillion by 2025.
“With 17% of the world population, the Continent has received less than 2% of vaccines.”
The international community needs to act quickly to accelerate Africa’s vaccine rollout through financial and logistical support. The weakness of Africa’s pharmaceutical supply has been exposed by the pandemic which has seen many countries use their global weight to secure domestic supplies. The private sector has an important role to play in investing in the Continent’s vaccine production capacity. If the ‘Great Reset’ is to place Africa in a stronger position to tackle existing and future health crises, investments in African healthcare must be made now for the long-term. Recent news that the South African pharmaceutical company, Aspen, has received a $600 million long-term financing deal from the IFC, Proparco, DEG and DFC points to the role that blended finance can play in supporting the fight against Covid-19 and setting the Continent on a more robust footing for the long-term. Meanwhile the World Health Organisation’s plan to support the creation of vaccine production hubs across Africa shows the right ambition to invest in the long-term health of the Continent.
An ambitious approach to recovery will be essential to Africa’s long-term success as leaders grapple with the fallout of Covid-19. Beyond vaccines, investing in manufacturing is key to setting Africa’s economies on a more prosperous and sustainable path. Where the pandemic has highlighted deep inequities in the global economy, the African Continental Free Trade Agreement offers some means to redress structural economic imbalances. African economies continue to be over-reliant on soft commodity export while under-investing in value addition. The cocoa producers of West Africa provide a prime example of this, exporting 75% of cocoa as raw product leaving producers and retailers in Europe and Asia to take advantage of the value-add opportunities. Facilitating trading relationships between African countries, which tend to exchange more processed and manufactured goods amongst themselves, is one way to begin to redress this imbalance.
However, the AfCFTA will not be enough on its own. Dr. Carlos Lopes has emphasised the need to understand the unique characteristics of industrialisation in different countries and regions. Africa is looking to raise significant investment for its industry and infrastructure at a time when global value chains have never been more complex and automation is transforming production and transport. Only by leaning into these technological innovations can Africa thrive in the 21st century economy. Where manufacturing drove job creation in Asia, Africa’s industrial strategies must also be targeted towards industries without smokestacks. Agro-processing, tourism, tradable services and light manufacturing are all high job creation sectors which can allow African countries to compete more effectively in the global market.
“Investing $800 million on climate adaptation measures in emerging markets could result in benefits of between $3 billion and $16 billion per year.”
Efforts to diversify Africa’s economies must also place the climate crisis at the heart of national and international strategies. In addition to Covid-19, Africa faced a heavy burden of environmental disasters in 2020. From swarms of locusts in the Horn of Africa to drought to the South and floods in the East, the frequency of extreme environmental events is clearly increasing. The financial case for investing in climate mitigation and adaption measures is clear. Without action Africa is set to see its GDP decrease by 30% by 2050 due to climate-related disruptions. The Global Center on Adaptation has predicted that investing $800 million on climate adaptation measures in emerging markets could result in benefits of between $3 billion and $16 billion per year. Africa has an opportunity to seize on the growing interest in green deals as well as the falling cost of renewable energies to make green investments a central pillar of recovery.
As Dr. Ngozi Okonjo-Iweala has highlighted this week, though there is still work to do, “it is still within our grasp to try to do what is necessary to put us on a sustainable and inclusive recovery”. Amidst warnings of a trust deficit between developed and developing countries, the global efforts to build back better after the crisis cannot succeed if they exclude Africa. Significant investments in future healthcare preparedness, climate adaptation and new industries are needed to empower the Continent to emerge from the current crisis on a stable and sustainable footing. The good news is that capital is available in the global market and, as investors look for returns in a challenging global context, Africa can lean on its strong fundamentals to attract international investment. It is incumbent on all stakeholders from public and private sector alike to ensure that the opportunity of Africa’s ‘Great Reset’ is not missed.
Interested in shaping Africa’s ‘Great Reset’? Join the debate 14-16th September. Register here.
Africa's Tech Enablers: How to Build Resilient Digital Infrastructure
Tech has often been heralded as Africa’s great accelerator. The tool that will allow the Continent to leapfrog middle income regions, solve complex social challenges and establish itself as the emerging market for the fourth industrial revolution. All eyes are on Africa’s tech industry to provide future opportunities for growth through the Covid-19 crisis.
Tech has often been heralded as Africa’s great accelerator. The tool that will allow the Continent to leapfrog middle income regions, solve complex social challenges and establish itself as the emerging market for the fourth industrial revolution. All eyes are on Africa’s tech industry to provide future opportunities for growth through the Covid-19 crisis.
However, these promises cannot be realised without investment into robust digital infrastructure and stronger tech ecosystems. Amrote Abdella, Regional Director at Microsoft4Afrika, has highlighted that, though Covid-19 has “pushed digital adoption forward in vast leaps”, it has also revealed “disparities of infrastructure across Africa, as well as gaps in adoption and policy.”
These shortfalls may go someway to explaining the slow adoption of online retail across the Continent, even as restrictions have pushed changes in consumer behaviour. In Q2 2020 Jumia’s revenue was 10% down on last year compared to Walmart’s e-commerce boost of 97%. In an interview with TechCabal, the company’s Chairwoman, Juliet Ammanah, explained that where the US government has shored up consumer purchasing power similar initiatives have not been possible in Africa.
Africa’s fintech companies, such as 4G Capital, have been looked to fill this gap. The company’s Founder, Wayne Hennessy-Barrett has called for investors to look beyond the pandemic and remember that “good businesses will continue to need funding”. He remains positive that growth in the fintech sector is accelerating and innovation will build new markets.
Despite the challenges, there continues to be capital available in the market. African VC is a young industry and funds raised since 2017 are still in operation. TLCom’s TIDE fund raised in February of this year totals US$ 71 million to invest in tech-driven companies across the continent. Though the impact of Covid-19 on the funding ecosystem remains uncertain, DFIs can lend some stability to a sector that had achieved record breaking funding rounds in 2019. Now is the time to invest in a more resilient tech ecosystem.
Africa's Tech Enablers - Can they lead the way?
Over the last few months, Invest Africa has been speaking to the Continent’s leading entrepreneurs about the market creating businesses they have built, how they have responded to the pandemic and their hopes for the future of Africa’s tech ecosystem.
The investment climate for Africa’s tech sector has been booming over the last five years. WeeTracker estimates that $1.3 billion were invested in African tech companies in 2019 compared to just $200 million in 2015. As investors grew more comfortable backing African startups, we saw booms across key sectors such as fintech, agritech and mobility and in core markets including Nigeria, Egypt and Kenya.
It is unclear how Covid-19 might impact the momentum building in Africa’s tech ecosystems. The early signs are mixed. Briter Bridges has reported that African startups raised $350 million in Q1 2020 compared to $300 million in the same period last year. However, with Covid-19 hitting economies hard from March funding for African startups could fall by as much as 80% this year.
And yet Africa’s tech sector will form an integral part of the Continent’s recovery. From healthtech providing safe access to tests and PPE to edutech building new platforms for learning outside the classroom, from fintech building new financial products to e-commerce ensuring consumption can continue safely. These innovators will have key role to play in diversification and job creation for post-Covid economies.
Over the last few months, Invest Africa has been speaking to the Continent’s leading entrepreneurs about the market creating businesses they have built, how they have responded to the pandemic and their hopes for the future of Africa’s tech ecosystem. Enjoy some highlights from the series below.
Chijioke Dozie | Carbon
Ife Oyedele II | Kobo360
Vivian Nwakah | Medsaf
Sim Shagaya | ULesson
12th March: Coronavirus Update
Following the World Health Organisation's announcement that coronavirus/COVID-19 outbreak is classified as a pandemic, we have taken the difficult decision to postpone The Africa Debate to the 5th November 2020.
Ensuring the safety of all attendees at our events is our top priority and, given the fast-moving situation in the UK and globally, we have chosen this later date to allow all delegates and speakers to participate safely.
Please note that all registered delegates will automatically receive a ticket to attend The Africa Debate at The Guildhall in November. If you have any questions please contact a member of the team at theafricadebate@investafrica.com.
We would like to thank all of our partners for their support in this decision and apologise to any delegates or speakers who may be inconvenienced. The Invest Africa team remains committed to our mission of promoting sustainable business and investment across the continent.
Best regards,
The Invest Africa Team
The infinite resource: Africa’s data economy with Rob Withagen
“Rather than drilling for oil, Africa should be building for the data economy”. This was the message Vera Songwe, Executive Secretary of the UN’s Economic Commission, sent to Africa’s policy makers last year. Data is rapidly becoming one of the world’s most sought after commodities. To thrive in the future global economy, African markets need to ensure they are not left behind. Asoko Insight is a corporate data company seeking to bridge the knowledge gap for investors operating in African markets. Ahead of Invest Africa’s flagship event, The Africa Debate, we sat down with one of its co-founders, Rob Withagen.
Rob Withagen, CEO, Asoko Insight
“Rather than drilling for oil, Africa should be building for the data economy”. This was the message Vera Songwe, Executive Secretary of the UN’s Economic Commission, sent to Africa’s policy makers last year. Data is rapidly becoming one of the world’s most sought after commodities. To thrive in the future global economy, African markets need to ensure they are not left behind. Asoko Insight is a corporate data company seeking to bridge the knowledge gap for investors operating in African markets. Ahead of Invest Africa’s flagship event, The Africa Debate, we sat down with one of its co-founders, Rob Withagen.
Why did you start Asoko Insight?
The idea for Asoko Insight was born out of the frustration of working as an analyst and not having access to reliable information on local African companies. The single biggest challenge investors face when looking at an African investment opportunity is a lack of data. For private equity funds looking at deals in Africa, due diligence costs can be a major deterrent. A lot of capital is eaten up deciding whether the investment should be made in the first place. There is a danger that the significantly higher costs of collating the data for a deal in Africa could paralyse the investment potential of the continent.
We have built a research infrastructure specifically adapted to the challenges of Africa’s data space. We leverage in-country personnel alongside data aggregation software and natural language processing, which involves filtering information out of unstructured data sets like news articles and social media feeds. We now have a database spanning 25 countries which subscribers can access and that data allows us to deliver bespoke research projects on behalf of clients.
You’ve recently launched a DealRoom in partnership with the UK Department for International Trade. What was the idea behind the DealRoom and how does it work?
As I’ve said, the cost of identifying and verifying deals in Africa can be prohibitive to UK capital finding a home in Africa. The DealRoom removes a lot of those costs because the deals are identified and taken through a data quality process by Asoko. Asoko takes deals submitted to the platform through a stringent verification process to ensure that all the submitted data is correct and there is a real investment proposition on the table. Once the deals are on the platform, it becomes a market-based evaluation. Investors can choose those they would like to start conversations with, and we are able to offer feedback to those which are not picked up.
Which sectors are seeing the most interest from investors on the Asoko platform?
Currently, we’re seeing significant interest in consumer-facing industries such as agro-processing, FMCG, logistics, healthcare and education. Within those, there is a particular interest in demand-driven industries. This largely follows Africa’s growth dynamics. Consumer industries have experienced strong growth over the last fifteen years, and this has accelerated over the last five.
Since the start of the decade investors and corporations have become smarter at identifying where the real market opportunity lies. Previously the market had been slightly overestimated and the potential for growth was generalised across all sectors. Now we’re seeing investors hone in on an African middle class that is starting to have the appetite and the disposable income to spend on better consumer goods.
According to Partech, Venture Capital funding for African tech companies was at the highest it has ever been last year. What do you think is driving this growth?
It’s partly an evolution of the value chain. Investments are becoming bigger because tech start-ups are becoming bigger and more mature. Four to five years ago the larger investments in the tech space were sitting at two to three million dollars, since then there’s been a tenfold increase.
Another factor is the entrance of Chinese capital. Last year we saw OPay, PalmPay and Lori Systems raise a combined $240 million from Chinese investors. Of course, Chinese investment in Africa has been significant for some time now, but now that the venture capital layer has been added to that funding suite, it’s only a matter of time before the Chinese VC ecosystem, and the wider Asian market, moves to Africa.
Beyond venture capital, which other funding sources will be key for African tech in 2020?
The big missing piece thus far has been global corporates. Ultimately, investors are looking for financial returns and will weight their investments accordingly. When we talk about Africa taking a more prominent role on the global data stage, it’s much more a matter of a better connection between a global FMCG company like Unilever or P&G with African start-ups or SMEs that have a data-driven view of the African consumer or the African supply chain to bring to the table. Some global corporates have taken advantage of these opportunities such as VISA and Mastercard’s investments into Interswitch and Flutterwave.
At The Africa Debate this year we will be exploring how to accelerate sustainable growth across Africa. Africa’s knowledge gap is often overlooked in this conversation, but reliable data is a key part of both investor confidence and accurately measuring progress on the SDGs. How can Africa bridge its data gap in measuring both corporate impact and progress towards the SDGs?
As ESG becomes a more important part of attracting investment, we’re increasingly doing work in that area. Companies want to be recognised as SDG compliant and our data platform can encourage companies to submit data they would not otherwise have had an incentive to measure. In many markets local regulations are not there on ESG and transparency-related issues and, where they are, they are not always enforced.
For example, we are currently working with the United Nations on developing an interface specifically designed to map African corporates according to their impact on the 17 SDGs. By the end of the project we should have a comprehensive pan-African map of any African corporate with the potential to contribute to an SDG. The investment community is becoming smarter and smarter at encouraging companies to be more transparent. Clearly when it comes to ESG, the stick approach is not going to get us there. We need a carrot and investor interest in ESG performance is a massive incentive for companies to capture that data.
The beauty of data, unlike oil, is that it is an infinite resource. From a purely commercial perspective that makes it a very interesting commodity. The challenge remains getting enough data out of Africa at a viable cost but, as Africa’s data and tech landscape matures, we’re seeing improvements. For example, a fintech company like 4G Capital or Cellulant is always building data on where money is, how it’s circulating in the economy and how big Africa’s consumer pool really is. That data is gradually becoming part of a global ecosystem and I think if African start-ups continue down this trajectory, we’re going to see Africa rapidly close the data gap.
With the sustainable financing, environmental management and social performance on the rise in investment globally, The Africa Debate is an opportunity for those in positions to shape Africa’s economies to discuss how to build and support sustainable businesses that respond to the long-term needs of the continent. Join the Debate on 29th April to hear more from Rob Withagen.
For more information about how to participate in the UK Department for International Trade’s DealRoom click here.
Meet the Tech Enablers Panel
‘One of the toughest problems to crack’: how to make micro-finance work in Africa. A conversation with Wayne Hennessy-Barrett, CEO of 4G Capital
On a continent where 76% of the workforce is engaged in informal labour, the question of how to inject capital into businesses overlooked by traditional banking services has weighed on the minds of developers and financiers alike for decades. If opportunities are to be created for Africa’s booming population, a financial ecosystem that works for micro, small and medium sized enterprises needs to be developed.
Wayne Hennessy-Barrett, CEO, 4G Capital
On a continent where 76% of the workforce is engaged in informal labour, the question of how to inject capital into businesses overlooked by traditional banking services has weighed on the minds of developers and financiers alike for decades. If opportunities are to be created for Africa’s booming population, a financial ecosystem that works for micro, small and medium sized enterprises needs to be developed.
Invest Africa member, 4G Capital, believes it has found a model that works for both lenders and their customers. We sat down with 4G Capital’s founder and CEO, Wayne Hennessy-Barrett to discuss what makes the company’s model stand out from other micro-lending solutions, how to make micro-finance a viable driver of financial inclusion and the role of tech in driving growth for Africa’s entrepreneurs.
‘The right credit with the right knowledge on the right terms’
4G Capital is an initial lender that provides working capital exclusively to micro and small businesses to enable them to grow. Named one of the London Stock Exchange’s companies to inspire Africa this year, Hennessy-Barrett credits this recognition to 4G Capital’s focus on their customers’ business development. Through a combination of business training and loans, clients have achieved growth rates of an average of 82% a year. It is by moving beyond credit alone that the company has achieved remarkably high repayment rates of over 92%.
Equally important to 4G Capital’s success is the company’s evolving Evaluation Algorithm (EVA), named after Hennessy-Barrett’s daughter. Focusing on smart data over big data allows 4G Capital to identify the ability of businesses to digest the unique combination of credit and training on offer. For its CEO, this blend of personal support and AI is what allows 4G Capital to offer ‘the right credit with the right knowledge on the right terms for each individual business’.
‘Tech is a lifter of good businesses’
Wary of the tendency to point to fintech and other tech-driven companies as the magic solution to Africa’s challenges, Hennessy-Barrett sees technology primarily as a ‘lifter of good businesses’. For 4G Capital, this means using mobile solutions to unlock underserved markets that would be impossible to reach with traditional brick and mortar financial services.
In Africa, this underserved market is huge. The funding gap for SMEs across Africa is estimated to be $331 billion. By using mobile money and mobile applications 4G Capital has built scalable access platforms for their clients, distribution partners and staff. This model integrates previously fragmented value chains and provides liquidity in raw capital. For small businesses, over time, this boosts sales and value whilst eventually bringing prices down for consumers.
Whilst technological innovation is at the core of 4G Capital’s impact and success, Hennessy-Barrett is keen to emphasise that technology cannot replace people. Aware of the ‘alarming trend towards total automation’ the company ‘operates a hybrid approach of using technology and data science to do what technology and data are good at and celebrating what people bring to the table, which is relationships, innovation, long sight and genuine insight’.
‘One of the toughest problems to crack’
This blended approach, Hennessy-Barrett believes, will allow his company to overcome the pitfalls that have plagued micro-finance in the past. Since it was first developed in the 1970s, the use of micro-loans to drive development has had a ‘chequered track record’, arguably contributing to debt dependency across developing markets. In Kenya alone, he points out, short term digital lending has created almost 3 million blacklisted customers, 400,000 of whom had taken loans of less than $2.
The challenge is learning from the mistakes of the past to find a business model that is not ‘dependent on shoving the maximum amount of credit on the maximum amount of people’. Rather than moving directly to scale, 4G Capital has focused on making the economics work for itself and its clients first. Aware of the responsibility of dealing with low-income people who are inherently vulnerable, 4G Capital follows its customers’ growth rates closely. By remaining ‘laser focused’ on businesses, the company ensures that its capital is adding value to creditors rather than trapping them in a debt cycle.
‘Governance, governance, governance’
Given the scale of the SME financing gap in Africa, this is clearly not an issue that 4G Capital can address alone. For business models like 4G Capital’s to be replicated, fintechs will need to ‘work with regulators and banks to build regulation that focuses on customer protection and cyber protection’.
Ultimately, financial inclusion in Africa needs to be addressed holistically by fintechs, banks and regulators alike. It is not a question of banks versus fintechs, but of building a diverse and complementary range of financial products. Whilst it may be unfair to expect banks to be overly risk-taking, Hennessy-Barrett points out, there is a key role for them to play in fostering innovation by tempering the risks faced by fintechs. For example, by providing local currency financing that would allow fintechs to move into higher risk areas which would be ‘uneconomical or uncomfortable for banks’. Not only does this approach benefit banks and fintechs, but it also allows ‘higher risk customers to transition to banks’ as their needs evolve.
‘The African opportunity is undeniable’
Despite the challenges, Hennessy-Barrett is optimistic that financial services in Africa are moving in the right direction – towards a responsible, diverse and competitive industry. As a business, 4G Capital is diversifying and evolving into ‘genuine multi-sided platform’. The company is looking to develop its offering to large multinationals and distributors alongside its traditional client base of trade retailers.
In the next 4-5 years, 4G Capital aspires to have a presence in Africa’s largest economies, expanding to South Africa, Nigeria and Egypt while consolidating their presence in Kenya. Distrustful of a ‘drag and drop approach’, the focus for the future will be on developing bespoke solutions for new markers. Hennessy-Barrett encourages investors to visit African markets where he says they will find that the concentration of risks in developed markets is in reality much higher than those 4G Capital faces in Kenya and across the continent. ‘The African opportunity is undeniable’ he concludes and 4G Capital has ‘barely begun’.
Wayne Hennessy-Barrett will be speaking on Africa’s Tech Enablers at The Africa Debate 2020.
