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Financing: spotlight on ten initiatives to watch for

Shaken economically by the COVID-19 pandemic, Africa must now mobilize the financial resources needed for its recovery. A considerable challenge. Yet, far from the usual clichés about the supposed lack of funding, solutions exist. Innovative and above all adapted to the realities of the continent. Here is a review of ten of them. 

By Dounia Ben Mohamed

In the wake of the COVID-19 health and economic crisis, which severely impacted the public finances of African states in 2020, the issue of the lack of financial resources on the continent is more topical than ever. For infrastructure alone, the African Development Bank estimates that there is an annual shortfall of around 100 billion dollars in financing for the whole of Africa, while Proparco, the subsidiary of the French Development Agency (AFD) dedicated to the private sector, estimated the uncovered financing needs of very small and medium-sized enterprises (SMEs) in sub-Saharan Africa at 330 billion dollars in 2019, with only 20% of SMEs being financed by banks. 

“There is an annual shortfall of around 100 billion dollars in financing for the whole of Africa”

However, solutions do exist and when put together they can make a difference. In addition to public initiatives such as deposit funds, which allow governments to mobilize long-term local financial resources – besides funds from abroad – formulas based on mobile money applications could also serve as a catalyst for accessing a portion of household savings, thus creating forms of institutionalized “tontines”. As we can see, when it comes to financial engineering, the only limit in the search for solutions is creativity, as shown below by these ten initiatives or trends, which could be game changers in terms of financing. Here is an overview. 

A 30-million-euro fund dedicated to impact investing 

Active in France and around the world in several real estate-related segments (shopping centers, golf courses, senior residences), the Duval group is increasingly focusing on Africa with the development of activities as diverse as drilling, waste recycling, microfinance and insurance. In addition to its commercial operations, the company at the end of October announced its intention to position itself in the impact investing niche, a financing solution designed to support economic activities with a strong and immediate impact on local populations. For this occasion, the Duval group will mobilize, with the support of the French bank Crédit Agricole, a fund of 30 million euros dedicated to microfinance and impact investing on the continent. In practice, the fund will enable the Duval Group to finance investments and external growth operations or to refinance already-made investments. As for the projects supported, they should primarily concern social housing, microfinance, micro-insurance and access to drinking water.

A short-term financing vehicle to support energy companies 

The Energy Access Relief Fund (EARF), established by a consortium of investors and development financing institutions, is a financing vehicle designed to provide short-term solutions to African – and also Asian – energy companies facing difficulties in accessing finance, particularly due to the economic crisis caused by the COVID-19 pandemic. The fund, launched in early September, has already raised 68 million dollars. It will be led by the management company Social Investment Managers and Advisors (SIMA), which will provide short-term loans to nearly 90 energy supply-focused companies in sub-Saharan Africa and Asia. This support could very quickly make a difference: of the energy companies eligible for short-term financing, 77% of them would need emergency financial assistance to stay afloat, SIMA’s teams point out. In the long term, EARF hopes to raise some 80 million dollars to ensure access to energy for at least 20 million people in sub-Saharan Africa and Asia.

The rise of green bonds 

The first “green” bond issue of the West African Development Bank (BOAD), which was carried out on the international debt market at the end of January, raised 750 million euros, with a maturity of twelve years and a very attractive rate of 2.75%. Shortly afterwards, in February, the Development Bank of South Africa (DBSA) followed in the footsteps of its West African counterpart with the issue of its first “green” bond for 200 million euros. These bond operations intended to finance projects with a high social and environmental impact (agriculture, renewable energy, basic infrastructure, health, education, social housing, etc.) are another success for green subscriptions on the continent. They should only grow stronger over the next few years, “as sovereign states [focus] on sustainable development and issuers [become] more familiar with sustainable debt instruments”, according to the teams at the financial rating agency Moody’s. 

Public structure dedicated to financing bankable projects

To overcome the difficulty of leveraging public funding for structuring projects, the Gabonese Strategic Investment Fund (FGIS), in partnership with the Islamic Development Bank, set up in October 2020 an ad hoc financing vehicle called Regional Investment Supranational Entity (RISE). The objective: to mobilize resources on international markets to finance the initial stages of projects considered strategic and potentially profitable. In this regard, FGIS announced on September 1, 2021 the signing of the first pre-concession contract with the Gabonese government that will cover the design, development, financing, construction and future operation of a toll road for the southern bypass of the Libreville agglomeration, known as the Owendo Bypass. The pre-concession contract will be managed by the Société d’Aménagement du Grand Libreville (SAGL), an entity specially created by RISE for the development of this project. This is a new illustration of the strength of public-private partnerships, which are more essential than ever to meet the challenge of financing African infrastructure.

An innovation fund for urban digital services

Recognizing the many challenges facing the continent (urbanization, transport, energy, health, education) and the digital revolution underway, which is already providing solutions (mobile banking, intelligent transport, e-learning….), the Global System Operators Association (GSMA) launched the Urban Digital Services Innovation Fund last June. According to its promoters, the fund – financially supported by the UK government’s Commonwealth Foreign and Development Office – “will provide grants and additional support to small and growing enterprises that leverage digital technology, particularly mobile, to deliver services with socio-economic and environmental/climate impact”, mainly in the “energy, water, sanitation and plastics and waste management” sectors. As for the grants awarded, they should vary between £100,001 and £500,000 ($135,000 to $675,000), the fund being primarily intended for countries in Africa and Asia. An innovative approach to watch for and one that is added to the Innovation Fund for Rural Connectivity launched in 2018. 

Innovative and tailor-made financial solutions for agricultural exporters

The Abidjan (Côte d’Ivoire)-based hedge fund Obara Capital was created in March 2018.  It specializes in the mobilization and deployment of financial resources to sectors with high economic and social impact, such as agriculture. As such, this alternative fund targets above all African economic actors seeking to diversify and optimize their financing conditions. The Beninese company SODECO has thus secured structured pre-export financing of €71.5 million in March 2021. This will enable this African champion of cotton ginning to improve its competitiveness, and on terms that are far more favorable than what it could have obtained through a bank. Similarly, the Ivorian cocoa trader Kineden Commodities raised 4.5 million euros in April 2021. Better still, this type of innovative financing solution, combining agility and a tailor-made approach, is now in full development, with several specialized structures gradually positioning themselves in this niche, such as EBI, the international subsidiary of the Ecobank group, and Enko Capital.

A community fund dedicated to financing integrative projects

Launched in 1983, the Economic Community of Central African States (ECCAS), like other community spaces on the continent, has often suffered from the limits of its own resources to advance regional integration, with available funds often covering only the functioning of ECCAS, and rarely investment. Recognizing these difficulties, ECCAS ministers agreed last May to set up a compensation, cooperation and development fund for Central Africa, “the operationalization of the fund being the first step in a long process that should allow the Community to have a certain financial autonomy,” said the Congolese Minister Delegate for the Budget, Ludovic Ngatsé. The project is part of the ECCAS medium-term strategic plan 2021-2025. It aims to harmonize actions on regional integration of Central African countries, on the one hand and to channel adequate sources of funding to provide effective and sustainable solutions, on the other hand. This is pending the launch of other initiatives to make a difference in terms of financing, such as the establishment of community development banks. 

Mobile wallets to provide subsidies to farmers 

Capitalizing on digitalization, Nigeria and Kenya were the first African countries to develop systems for distributing fertilizer subsidies directly to farmers through partnerships with fintech and mobile operators. In practice, farmers receive electronic vouchers via their cell phones to purchase fertilizer from approved distributors.  In Nigeria, no less than 4.3 million farmers have benefited from fintech Cellulant’s mobile wallet program for fertilizer subsidies. The result has been a dramatic reduction in costs, from $225 to $22 per farmer. The same is true in Kenya, where the E-Fertilizer solution, provided by the operator Safaricom, has made it possible to offer subsidies to 3.5 million farmers, while optimizing costs. Better still, these digital platforms – which combine private sector expertise and innovation with public support programs – are enabling millions of farmers to have a financial register, the first step towards accessing the formal financial system for these otherwise unbanked populations. 

A global fund dedicated solely to global warming mitigation 

Created in 2014 to support the transition of developing countries to a sustainable growth model, the Green Climate Fund (GCF) has once again confirmed its vocation by allocating in October $1.2 billion in funding to support programs aimed at resilience to the effects of climate change around the world. Among the beneficiaries are many African countries such as Niger, which will receive – through this allocation from the VCF – 35.5 million dollars for the implementation of its hydro-agricultural development project aimed at intensifying agricultural production in a sustainable manner by improving crop yields thanks to developments designed with solar energy irrigation and pumping systems. Finally, beyond Niger, the FVC has released $150 million for the “Desert to Power G5 Sahel” facility, implemented in five Sahelian countries (Burkina Faso, Mali, Mauritania, Niger and Chad), as part of the “Desert to Power” solar energy electrification initiative, supported by the African Development Bank (AfDB). In this way, renewable energies also contribute to Sahelian populations’ resilience to the challenge of climate change.

A pioneering PPP in irrigation sector 

The Guerdane irrigation project (Taroudant province), which supplies water to 10,000 hectares of citrus plantations, is the first public-private partnership (PPP) ever undertaken in the irrigation sector in Morocco. It was inaugurated in 2008. With the region’s 1,900 agricultural producers threatened by the continuing decline in groundwater levels, the country’s authorities quickly decided to engage into PPP to finance the construction and management of an irrigation and distribution network to transport water from a dam located 65 km away. In the process, a 30-year concession contract was awarded, structured so that the operational, commercial and financial risks were shared among the various stakeholders. In exchange for financing the work, which was provided by the private sector, the Moroccan government undertook to cover part of the potential losses for the grantee, in particular by assuming the financial risk in the event of a major drought. Today, more than a decade after its launch, the initiative is a success: in addition to a 100% water supply rate, the livelihood of an entire agricultural sector has been sustained. 

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