• Friday, July 19, 2024
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BusinessDay

AFC: Plugging the gaps to drive lucrative trade in Africa

Construction of tall concrete pylon of bridge using tower crane

Africa’s infrastructural needs are just as many as its untapped potentials for growth. Fixing these infrastructural deficits cutting across several spheres to unlock growth on the continent, is an area the Africa Finance Corporation (AFC) has carved a niche for itself over the years. Unarguably one of Africa’s leading infrastructure solution providers, it foresaw the future of trade in Africa and had positioned itself strategically in initiating a well-established structure towards facilitating seamless and hitch-free trade within the continent.

Instituted as a financier of infrastructural development for Africa, The Corporation has made series of efforts to bridge Africa’s infrastructure gap by funding and developing infrastructure projects, with a focus on power, transportation, logistics, heavy industries, natural resources, and telecommunications sectors.

13 years down the line, the existence and pan-African activities of AFC have proved to be influential in propelling the African continent for an all-inclusive trade relationship such as the African Continental Free Trade Area (AfCFTA), which aims to boost intra-African trade with as high as $70bn, while providing an additional market of 1.2 billion people.

Prior to the development of Pan-African trade, despite the abundance of natural resources, inaccessibility, scarcity, and low demand of commodities was the hallmark of Africa’s trade activities due to the lack of proper transport infrastructure as trade routes were constrained and limited to towns within close proximity. This also resulted to the absence of regional integration.

Furthermore, the continent served as an entrepot for Asia and other contemporary continents with no economic benefits. Today, Africa has a thriving export platform within and outside the continent with a fast-growing supply and demand chain induced by the availability of enabling infrastructure.

The impact of the corporation’s activities in Africa, which has a large geographical territory with 54 countries, has been visible especially in the sale and distribution of key commodities like Gold, Spices, and leather.

Trade in gold mining, for example, was transformed under an investment of $78 million in the Segilola gold project in Nigeria, a shovel-ready 4.2 grams per tonne open pit mine projected to produce an average of 81,000 ounces annually over an initial five-year duration.

The African Development Bank affirms that Africa’s infrastructure needs are between $130 and $170 billion annually, however, financing for African infrastructure currently falls short by between $68 billion and $108 billion per year, nevertheless, AFC has reviewed over 600 infrastructure projects in approximately 35 countries and has successfully invested $8.4 billion in infrastructure development in 32 African countries. Other than capital structures, AFC’s other investment instruments include advisory services, credit enhancements, debt, equity and treasury review.

Samaila Zubairu, president & chief executive officer of AFC, Africa’s infrastructure investment requirement will continue to grow due to increasing population with projections stating that by 2050, 50 percent of the global population increase will take place in Africa, by then 75 percent of Africans will possibly live in urban areas.

As such, other than just funding infrastructure projects, AFC is also moving to make value chain investments by financing ecosystems, according to Zubairu, this will increase a project’s competitiveness, alleviate key social, economic, and environmental risks as well.

Since its establishment in 2007, with an equity capital base of $1.1 billion, the corporation has gone on to grow its financial capability significantly, including a strict adherence to a conservative capital policy, with a Capital Adequacy ratio (CAR) floor of 30 percent that has never been breached since the Corporation’s inception, according to its 2019 annual report.

In 2019, AFC raised its total income to $165 million and made a profit of $183 million with $1.7 billion retained earnings, while its total assets increased to $6.11 billion. AFC continues to raise funds, all channelled towards the improvement of infrastructure in Africa through loan facilities and the issuance of Samurai bonds, Sukuk instruments, and Eurobonds, which were oversubscribed.

According to the company website, “In 2020, AFC successfully raised $700 million, $1,150 million ($650 million and $500 million) in 2019, $500 million in 2017 and $750 million in 2015 through Eurobond issuances; out of its Board-approved $5 Billion Global Medium-Term Note (MTN) Programme. All Eurobond issues were oversubscribed and attracted investors from Asia, Europe, and the USA.”

While making plans to expand its footprints to other countries within Africa, The Corporation has a number of members comprised of African states, major financial institutions, and development financial institutions in its profile including Ghana, Kenya, Liberia, Chad, Ivory Coast, and many others with Nigeria as the host country.

Speaking on AFC’s activities, Fola Fagbule, Senior Vice President AFC said the company has over the years made efforts to launch a vibrant private market for infrastructure in African countries for a transformational cause.

“The work we do is critical to achieving improvements in the industrial productivity of African countries. The investments that we have led, developed, supported, or participated in financing have become major contributors to the stock of infrastructure assets in various countries, these critical assets have included electricity suppliers, mines and oilfields, roads, bridges, refineries, heavy industrial plants, telecommunications infrastructure, sea- and air-port terminals, amongst others,” said Fagbule.

Collectively, the AFC’s portfolio of assets across Africa are either responsible for a significant share of public infrastructure delivery in their category within those countries or are major sources of export earnings, government revenues and employment creation, Fagbule explained.

In bridging Africa’s infrastructure deficit, AFC has taken giant strides and embarked on major projects in all of its focus areas. For the transport infrastructure, which plays a critical role in trade affairs, over 70 percent of the world’s biggest consumer goods companies are already operating in Africa and a number of large multinationals are investing in the region, providing a key opportunity for the transport and logistics sector.

According to Reuel Andrews, director, transport infrastructure, “Africa holds great potential for growth in intracontinental and global trade. These expectations require transportation and logistics infrastructure to realize, which is currently grossly inadequate. Efficient transportation infrastructure is critical to trade as it connects physical and human resources to locations where they create the most economic value.”

As a solution provider, the corporation has facilitated a number of investments including the Henri Konan Bedie Bridge in Cote d’Ivoire, the Ethiopian Airline Expansion, Bakwena Toll Road in South Africa, Ghana Airport Company among others.

Similarly, for the electricity infrastructure essential for ample productivity, the corporation affirms that over 645 million Africans currently have no access to electricity, which severely limits Africa’s economic development, adding that current trends project that less than four out of ten African countries will achieve universal access to electricity by 2050.

In proffering solutions, the AFC implemented a number of projects including the provision of Cenpower Kpone IPP in Ghana, Caebolica Wind farm in Cape Verde, 350MW IPP in Ghana, 300MW IPP in Mozambique, 420MW Nachtigal Hydroelectric Project Cameroon among many other projects.

Regarding natural resources and heavy industries for production purposes, AFC notes that despite having between 80 and 90 percent of the world’s chromium and platinum deposits, as well as 12 percent and 40 percent of the world’s oil reserves and gold, among many other natural resources, Africa fails to effectively utilize the opportunity by being unable to process the resources.

Recognizing the abundant opportunities especially in producing and exporting these luxuries as raw material and finished products, the corporation has embarked on various projects including the Bonny Gas Transport, Shalina Resources Limited, New Age (African Global Energy), Jubilee Oil Field, Alufer Mining, etc.

For telecommunications, the corporation asserts that growing connectivity and energy-efficient equipment is projected to grow investments especially in Sub Saharan Africa, however, despite its level of growth, there are issues around low coverage especially in rural areas.

Therefore, AFC has invested and supported players in this sector in gaining better coverage through various projects like the Main One Cable System, SAIF acquisition, MTN Nigeria, etc.

In improving Africa’s business environment and attracting investors, Fagbule said creating an enabling and attractive environment starts with the government. “ The most important factors for governments to create an investment environment supportive of economic growth are leadership and political commitment to change, economic transparency and the rule of law, nimble and efficient organization of state resources, and an openness to new ideas and to learning, most particularly in the area of adopting financial market-oriented approaches to policymaking,” he added.

Beyond the provision of debt and equity finance, AFC is bridging the continent’s infrastructure investment gap through the provision of project development, technical and financial advisory services. The corporation has also partnered with various organizations in actualizing their objectives on the continent including the African Export-Import Bank (Afreximbank) and Africa Development Bank (AfDB).