The future of investment in Africa

The Annual AVCA Conference, held between the 3rd and the 7th of April in Abidjan, provided the private equity and venture capital industry with an important platform to discuss the most pertinent investment opportunities and issues in Africa. For the continents’ biggest investors, investment into infrastructure remained a priority. This makes senses as Africa remains underserved in this area. The UN’s Economic Commission for Africa reports that although governments are keen to build new infrastructure, they still lack the ability to develop proposals needed to attract institutional investors.

The report stipulates that of the total $2 trillion raised globally for infrastructure projects, only $59 billion was received in Africa. This sum represents just 3%. In the promotion of investment into projects and specific sectors, many States still suffer from the poor quality of their ‘signature’ due to the lack of substantial financial resources.

There is some reason to remain positive, investments went well in 2016. Private equity players invested $3.8 billion in 145 deals across Africa last year with a range of businesses from agriculture and energy to healthcare and financial sectors. But over and above gaining support from foreign and multilateral partners, African countries will also need to develop domestic financial capital market instruments for infrastructure. It has become imperative for Africa to bridge the gap between individuals with very high liquidity on one hand, and a private sector and States that struggle to finance themselves, on the other. A doubling of domestic saving available on the continent would bring Africa into line with other emerging regions and would provide at least 250 billion dollars (about 180 billion euros).

Is it not time then to move away from relying on taxes and uneven commodity revenue to look into pension funds to back infrastructure projects? Even in countries where there has been pension reform there is a still a dearth of financial instruments which limits the ability to use pension funds to back infrastructure projects in the first place. The role of the State is fundamental in inventing the necessary instruments to reinject the funds mobilized into the real economy.

Channeling remittances to create diaspora bonds can help play an important role in plugging the development gap. Nigeria is the world’s fifth biggest destination for international remittances with 5 million Nigerians living abroad and sending money back to relatives, according to Western Union. Nigeria plans to raise 300 dollars by selling diaspora bonds, issued in June 2017, targeting Nigerians living abroad.

The challenge is to make each citizen a full-fledged investor contributing to the development of his country. Success stories already thrive in the area of collective management with the recent launch of initiatives promoted by private actors (Amethis West Africa, for example, is the first investment fund registered in Côte d’Ivoire) or public actors (in Rwanda, Agaciro Development Fund aims to capture the saving of migrants).

We must not underestimate the place of innovation in contributing to the prosperity of the financial industry. It is not unusual for state projects to serve as “guinea pigs” before reaching the local private sector. After all, the Renaissance Dam, the most important in Africa, kick-started with the funding provided by the Ethiopians.

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