This could be a game changer for financing Africa’s transformation

PUBLISHED: Fri, 09 Nov 2018 13:15:08 GMT

By: Stella Kilonzo, Senior Director, Africa Investment Forum, African Development Bank

It is estimated that around $170 billion is required per annum to finance the African Development Bank’s High Five Agenda. Moreover, Africa’s annual infrastructure gap is estimated anywhere between $68 – $130 billion a year.

When placed within the context of the continent’s growing population, youth bulge and economic potential, the need for increased private sector involvement is immediate. Decades of public spending, for instance on infrastructure has not been sufficient to adequately address the gap in the quantity or quality of much-needed infrastructure across the continent.

Africa does need a pool of investible funds that are accessible and long-tenured to finance its transformation. There is, therefore, an obvious need for Africa to significantly formalize its economies, create businesses that operate as corporate entities, and separately from their owners, as well as the right policy, regulatory and economic environments that are attractive to long term capital. Together with effective institutions for capital intermediation and appropriate investment market places, connecting providers and users of capital, such as the Africa Investment Forum, Africa can accelerate its economic and social transformation.

Across regions and in specific countries, there are several silver linings in the cloud. Much of it thanks to the active engagement of the private sector, and this is increasingly through financial markets.  This year, we witnessed the Initial Public Offer (IPO) and listing on the Johannesburg Stock Exchange of Vivo Energy’s, that raised over $740 million, which remains the largest listing of an Africa-focused business since 2005. Moreover, one of the most talked about IPOs was the MTN Group’s Ghana offering.

As investors focus greater attention on opportunities, what is coming into sharp focus is the premium that investors and markets are placing on good governance, market depth, the rule of law, policy and regulatory environments.

Aside from South Africa whose Johannesburg Stock Exchange market capitalization is around $1.06 trillion, most African financial markets remain small.

Despite challenges, Africa’s private sector and financial markets present strong possibilities and realistic potential for bridging the financing gap critical for the continent’s economic and social transformation, and the achievement of our priorities in agriculture, regional integration, energy, industrialization, and improvement of the standards of living across the continent as well as the sustainable development goals.

The fact is, the private sector and financial market contribution in helping to close the financing gap is neither a miracle nor a mirage. It is not a miracle as it is based on unleashing the full potential of the real economy and encouraging investment. It is also not a mirage as the public and private sector must continue to work together, and through the markets and other intermediary institutions, to raise capital especially the much needed long term funding.

The Africa Investment Forum, November 7 -9, 2018, will no doubt help raise the bar when it comes to bringing together all stakeholders,  public and private, and matching investment capital with the private sector, bankable projects and the continent’s ambitious goal of reducing its multi-billion dollar financing gap,  including for infrastructure.

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