Courting the Gulf fund
AFRICA FINANCE CORP: R2.4 TRILLION GAP
➜ Lender is in talks with sovereign funds from Gulf states and Europe.
Africa’s spiralling infrastructure needs are prompting one of the continent’s key development finance institutions to seek out backing from beyond the region. Africa Finance Corporation (AFC), which already counts 31 nations as members, is looking to bring new shareholders on board as part of a strategy to deliver fast-track growth.
In a joint interview, AFC chief investment officer Sameh Shenouda and Sanjeev Gupta, its executive director for financial services, said the bank was courting sovereign entities in the Gulf and Europe to widen the scope for funding an infrastructure shortfall that it estimates at as much as $170 billion (about R2.4 trillion) across Africa each year.
“We are in discussion with a large European sovereign fund, and we are in discussion with one of the largest Gulfbased sovereign funds,” Gupta said. “Both are at an advanced stage.”
Established by the Nigerian central bank in 2007, investment-grade AFC is on a mission to serve as an alternative to African Development Bank for finding solutions to the continent’s infrastructure gap. Its current shareholders also include African member countries and some of the continent’s lenders.
The urgency to widen the pool of investors is growing after Africa in 2020 suffered a 16% decline in foreign direct investment to $40 billion, a level last seen 15 years ago, according to the United Nations Conference on Trade and Development.
$550 billion
But while the global pandemic and lower commodity prices have put public finances under pressure, a report last year by consultant McKinsey & Co estimated that international investors interested in African infrastructure projects could have as much as $550 billion in assets under management.
Investors from the US account for 38% of such potential funding, followed by the United Arab Emirates and China.
Abu Dhabi’s biggest sovereign wealth fund already said last year that Africa was among areas where it’s looking to generate greater returns. Saudi Arabia’s Public Investment Fund has, meanwhile, invested around $4 billion in industries ranging from energy to telecoms in Africa, with the kingdom looking to channel another $1 billion this year through another of its sovereign entities, according to Crown Prince Mohammed bin Salman.
By comparison, the AFC has invested more than $8.7 billion in 35 African countries since its founding.
It’s planning to increase its balance sheet to $10 billion in the next three to five years.
For the AFC, the fundraising pivot beyond Africa represents “a shift in strategy”, said Shenouda.
As part of the effort, it’s also moving away from concentrating on projects in West Africa and toward a footprint that covers the entire continent.
Fundraising pivot beyond Africa represents strategy shift
New funding
A wider net is already reeling in investments. At the end of last year, the US International Development Finance Corporation, America’s development bank, provided $250 million.
The African bank also sold a $750 million Eurobond in April. The bank expects at least seven new African nations to come on board this year as shareholders, Gupta said. –