Op-Ed: Africa is home to 21 of the world’s 39 fragile or conflict-affected countries, this is how private investment can fix this

PUBLISHED: Thu, 31 Jan 2019 15:49:16 GMT

By Sérgio Pimenta

Visitors to Madagascar can’t miss the zebu cattle that dominate the country’s landscape. The long-horned animals plow farmers’ fields, earn right-of-way ahead of cars on city streets, and play a starring role on Madagascar’s coat of arms.

Despite their prominence, Madagascar’s zebu population is in steep decline. Disease, poor nutrition, and substandard care have led zebu herds to dwindle from 23 million in the early 1980s to about 6 million today. That’s hurting farmers’ incomes, cutting jobs in the agriculture sector, and hampering a potentially lucrative export market.

Enter BoViMa, an entrepreneurial Malagasy company that is rebuilding the island’s cattle industry and resurrecting zebu beef exports.

With IFC support, BoViMa—short for Bonne Viande de Madagascar—is building a modern feedlot and slaughterhouse in Madagascar’s impoverished south. The feedlot will source zebu and animal feed from local breeders and farmers and export internationally certified meat to the United Arab Emirates and other Gulf markets. To facilitate exports, the World Bank worked with the authorities to revamp veterinary regulations and services.

Private sector investments like BoViMa do more than create jobs – they can also rehabilitate economies of fragile countries like Madagascar. Still, investors are wary of entering conflict-affected countries for many good reasons – poor infrastructure, lack of market intelligence, and political instability. Bovima’s experience in Madagascar shows how governments and development financiers can take an upstream approach to identify, assess, and prioritize new opportunities—in this case veterinary services and other infrastructure that ultimately led to a project worthy of commercially-based financing.

Africa today is home to 21 of the 39 countries classified by the World Bank Group as fragile or conflict-affected.  They are not, however, destined to remain poor.

Businesses backed by IFC and its partners are rebuilding infrastructure, supporting entrepreneurs, and increasing livelihoods for farmers, women, and youth in markets as challenging as the Democratic Republic of Congo, Liberia, and Madagascar. 

While there is no easy path for investors to enter and thrive in fragile countries, thanks to our experience on the ground, we understand better why many are finding opportunities in Africa’s unlikely markets. IFC has identified the following tips to guide investors, based on our six decades of experience:

  1. Be present on the ground

IFC does 80 percent of its business in places where we have people on the ground working closely with local companies to demystify the market and find investment opportunities. Investors will find it useful to partner with local firms to help them with governance, compliance, and operations.

  • Be sensitive to conflict dynamics

A one-size-fits all approach does not work in fragile countries. Investors must examine the local political, legal, financial, and cultural context. All investments should strive increase stability, and not reinforce—or ignore—old antagonisms.

  • Engage with the private sector early

Governments of countries emerging from conflict often put in place new, investment-friendly regulations to attract capital. As reforms are enacted, early engagement of the private sector is crucial. Sometimes, a viable private sector investment is an effective entry point into fragile countries, even when reforms are not yet in place. Working with local businesses in critical sectors like agriculture can channel resources and expertise to local value chains and identify regulatory bottlenecks that need to be addressed for future investment.

  • De-risk investments

Blending public and private funds can help crowd-in other investors, while local-currency financing can reduce risks for local companies. 

  • Innovate

It is never business as usual in fragile countries. Investors should be flexible, and constantly revise approaches and funding mechanisms. For example, IFC’s SME Ventures program draws private equity to fragile markets by creating funds that invest in smaller businesses. There were doubts about whether the model would work, but since 2008, SME Ventures has invested $88 million in close to a hundred small businesses.

  • Broaden the impact of investments

Investors must strive to lift as many as possible out of poverty. Working with SMEs can equip local entrepreneurs with skills and financing to participate in the value chains of large projects. Likewise, development finance institutions can work in partnership to reach a wider range of people. 

While these guidelines won’t guarantee success, they are a good starting point for investors willing to take a risk in Africa’s most challenging markets. It’s not easy, but when investments pay off, first movers will be rewarded. Many times, investment breeds investment.

Consider IFC’s track record in fragile countries. Since 2009, we have invested over $3 billion in Africa’s fragile countries. The impressive economic growth seen in countries like Rwanda and Côte d’Ivoire is proving that fragile states are not prisoners of their histories.  With responsible investment, they will become tomorrow’s dynamic, high growth economies.

Sérgio Pimenta is Vice President for Middle East and Africa at IFC. This week IFC is marking 10 years of its Conflict Affected States in Africa initiative, which has developed advisory programs to support investment in fragile and conflict situations with donor support from Ireland, the Netherlands, and Norway.

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