16 Aug Financing African development
The continent’s vast natural resources provide for myriad of opportunities. The challenge lies in financing their development, enhancing productivity and improving socio-economic conditions.
by Geoffrey Qhena, CEO of the Industrial Development Corporation
Africa’s investment and trading patterns are changing visibly. The continent’s vast natural resources provide for myriad of opportunities. Investors are also attracted to this continent by a fast growing, relatively young market of almost a billion people.
Amidst all this potential, economic development has been painfully lacking. The challenge lies not only in accessing the resources, but financing their development, enhancing productivity and improving the socio-economic conditions of the people of the region.
The opportunity of fast tracking social and economic development and access to the market lies in regional integration, the development of infrastructure and value-adding industrial development.
It is critical that value be added to extracted minerals prior to exportation, that primary agricultural production is complemented by food and beverages processing, and globally competitive industrial bases be developed and diversified. Such initiatives will help reduce poverty, create sustainable and skilled employment, and provide for efficient services support for the primary and secondary segments of Africa’s economies. Furthermore, such objectives should be pursued in a socially- and environmentally responsible manner.
The traditional sources of funding intended for Africa experienced challenges in the recent global economic crisis. During this period Development Finance Institutions (DFIs) played a countercyclical role by increasing investment when other financiers were reducing their exposures.
DFIs also provide opportunity for innovative financing, early project development, and de-risking projects by offering very long term finance that traditional funders cannot tolerate. This long term view supplements conventional project requirements for funding, and includes generic mezzanine finance, a variety of debt instruments, early stage venture capital.
A number of private equity funds have earmarked funding for large infrastructure and industrial projects in Africa and the DFI’s role is to crowd in the private sector by ensuring the viability of these projects.
Recently, African DFIs have re-evaluated their positioning and role, taking steps to improve their governance systems, aligning their strategies to the objectives of their regions. The intention is to offer investors strategic partnership in the development of projects in their countries and regions.
The DFI’s perceptions of risk often differ from those of traditional investors, as do their recognition of conceivable returns and approach to investment. DFIs balance the financial returns with the requisite responsibility of socio-economic returns of the investments.
A partnership with local and regional DFIs adds a valuable dimension to projects, as they typically would understand the socio-economic dynamics of their countries, the nuances of the politics of the regions.
The development of these opportunities is also dependent on other important stakeholder partnerships. The achievement of the socio-economic objectives requires strong commitment and resolve from the respective governments to ensure that the vast opportunities and projects are identified, funded and implemented.
African governments need to harmonise strategies for national and regional integration. Sound Policy and Regulatory frameworks are important to enhance and attract local participation and foreign investment.
The challenge lies in fast-tracking the process, especially since the potential for ‘leap-frogging’ is being made increasingly possible by unprecedented technological change and innovation. Advancements are being made in telecommunications, information technology, transportation, energy generation, agriculture, and the list goes on.
Clearly all it will require for Africa to partake in such progress is a common purpose, accompanied by the appropriate level of collaborative effort and dedication.