Reviving DFI funding in Africa

by Trust Matsilele 0

Development finance institutions (DFIs) play a middleman role between public aid and private investment, assisting international capital flows as well as ensuring that funding is directed to underfunded sectors.

(READ MORE :DFIs indispensable for African economic growth)

Recent trends indicate that companies seeking to increase their portfolios would benefit from working with African DFIs due to the investment gap.

“If you are comparing African and International DFIs one sees that it advantageous working with African DFIs because they have an increasing focus on under banked sectors,” Sarah Warren, structured trade transactor at Rand Merchant Bank told CNBC Africa.

“This is beneficial especially factoring that traditional lenders would not invest in certain jurisdictions due to political risk factors,” she added.

Warren noted that, looking into the African context over the last decade one sees that the much required additionality through DFIs have been absent indicating that, the trends were changing in a positive way.

A leading expert in the DFI sector, Thomas Dickinson, noted in his report – Development Finance Institutions: Profitability Promoting Development, that the importance of DFIs in Africa’s private sector.

“Development finance still plays a critical role in financing private enterprise in Africa and should be further promoted as an important complement to overseas aid.”

(WATCH VIDEO: Role of Development Financial Institutions in Africa)

Warren posited that between 2002 and 2011, half of the transactions on DFIs were investing in Egypt, South Africa and Nigeria which are the top jurisdictions in private investments.

She added that, the DFIs investment was more visible in finance, telecommunications, oil and gas sectors, and regarded as well banked sectors.

“There are various benefits for partnering with DFIs like political risk mitigation and also increased credibility on transactions,” Warren said.

Over 50 per cent of private equity in Africa have DFI acting as catalyst for enticing investors into those facilities.