Banji Fehintola, executive director, financial services at Africa Finance Corporation, discusses the institution’s role in closing Africa’s infrastructure gap and boosting trade finance, driving the continent’s economic transformation and sustainable development.

 

Africa Finance Corporation (AFC) is a leading infrastructure investor on the African continent, created with the objective and purpose of closing Africa’s infrastructure gap. Over its 17-year history, AFC has distinguished itself as an important catalyst of private investment capital into African infrastructure projects. As at the end of 2023, AFC had invested upwards of US$13bn in 36 countries across Africa. AFC has achieved this through a combination of innovation, agility, robust risk management, as well as a strong passion for and commitment to our raison d’etre.

 

Addressing infrastructure needs

Africa, with one-fifth of the earth’s land area, 1.5 billion mostly young people, and vast untapped natural resources, holds immense economic potential. However, realising this potential requires urgent infrastructure development. The criticality of infrastructure to the economic development and transformation of the

African continent cannot be overstated. Infrastructure investment and development is a key cornerstone of Agenda 2063, the 50-year development plan developed by the African Union. Infrastructure will drive the achievement of Agenda 2063’s aspirations, including improving the prosperity and living standards of Africans, sustainably transforming African economies, and integrating the continent.

Africa needs infrastructure to solve its most pressing and economically hindering problems, including the generation, transmission and distribution of affordable and clean energy to power the continent’s social and industrial sectors, the exploitation of Africa’s vast natural resources in a climate-friendly and sustainable way, as well as the addition of the highest value possible to its raw materials before taking them to market. We also need infrastructure to transport goods, people, services and capital across the continent and to the rest of the world in an efficient and cost-effective way. In today’s world, Africa also needs investment in technology and technological infrastructure, including high-speed internet, financial technology, telecommunications backbones, and so on, to improve its productive capacity as a continent.

By organising our activities along key sectors including power, transport & logistics, natural resources, heavy industry, and telecoms and technology, AFC has been able to focus its interventions to provide solutions in each of these areas.

 

Boosting trade finance access

It is impossible to discuss the development of Africa without talking about the need to grow trade and commerce within Africa, as well as with the rest of the world. In investing in African infrastructure, AFC sees itself as providing the foundational layer for the continent’s economic development. However, above that foundation is another layer where there is the need to support the growth of actual trade volumes and values through trade financing. There needs to be financing available for importing, exporting, working capital, value addition, import substitution, export promotion and so on. These enable commerce to thrive and businesses to grow, leading to local job creation and economic prosperity.

As an investment-grade-rated entity with the capacity to source and avail financing in hard currency, AFC plays a significant role in boosting the capacity of trade financing available to the continent. AFC issues guarantees that make it possible for African individuals, businesses and governments to purchase critical goods and services from other African countries, and the rest of the world. Guarantees are also issued to third-party finance providers – outside the continent – providing foreign currency funding into Africa (to African banks or even governments). Because AFC has a higher credit rating than most African sovereigns, the beneficiaries of this third-party financing are assured of sufficient investor interest and uptake for their debt issuances, and they also enjoy an optimised cost of borrowing.

In addition to guarantees, AFC also deploys its own balance sheet to provide foreign currency trade financing in Africa. This trade financing is deployed through African-domiciled commercial banks, which then channel and on-lend the funds to their clients (individuals, small and medium-sized businesses, and corporations) as needed. AFC also finances trade through loans to African sovereign states to support critical country-level importation requirements like refined petroleum, capital equipment for key transformational projects, and medicines.

An area of increasing importance to AFC is the mobilisation of African financial resources to fund African infrastructure and trade financing requirements. Until now, African governments, African commercial banks and even African multilaterals have relied on capital sourced mainly from outside the African continent. This is despite having foreign currency liquidity pools generated in and owned by African entities and governments, not kept and invested onshore in Africa. AFC aims to tap into these liquidity pools, such as a part of the foreign currency reserves of African central banks, as sources of additional funding to support the infrastructure and trade finance needs of the continent. This will help to create new and cheaper sources of funding and also empower more Africans to own the transformation of their countries.

In conclusion, AFC’s multifaceted endeavours in infrastructure investment and trade finance are instrumental to driving Africa’s economic resurgence.

By addressing critical infrastructure gaps and bolstering trade finance mechanisms, AFC paves the way for sustainable development, economic empowerment and prosperity across the continent. As Africa navigates its journey towards socio-economic transformation, AFC stands as a steadfast partner, committed to catalysing Africa’s rise on the global stage.