CDC is the UK’s Development Finance Institution (DFI) and impact investor with a mandate to support the sustainable, long-term growth of businesses in Africa and South Asia. Benson Adenuga, head of office & coverage director, Nigeria, CDC Group, in this interview with Hope Moses-Ashike, shares insights on the Institution’s efforts at closing Africa’s trade finance gap and other issues. Excerpts:
What is CDC’s strategy in Nigeria and which sectors does it seek to invest?
We have a longstanding commitment to Nigeria, which is one of our priority markets in Africa. We made our first investment in the country in 1948 and our growing portfolio now includes 98 businesses, which support over 38,000 direct jobs and many more livelihoods. The country’s development challenges, rapidly growing population and economic potential mean it’s a market where our investments can have a significant impact by creating many much-needed jobs and driving inclusive growth.
We are actively seeking to invest in private sector companies in a wide range of sectors, including manufacturing, food and agriculture, infrastructure, healthcare, financial services, and climate-resilience. Our investment strategy is two-fold and involves making direct investments and investing via partner funds. In the first instance, we make direct equity or direct debt investments in Nigerian companies (with a typical ticket size of US$10 million to US$150 million) and take an active approach in helping them grow sustainably, while creating new economic opportunities and improving their environmental and social performance. By partnering with Nigerian private equity fund managers like Verod and CardinalStone, we are able to invest in smaller companies – particularly SMEs – that are too small to absorb our direct investments. In September 2020, we also formed a strategic partnership with the Nigerian Sovereign Investment Authority to encourage private capital to scale up their participation in high-impact sectors of the Nigerian economy. As part of the agreement, we will share information on prospective projects in Nigeria and across the continent with the ambition to co-invest in the sectors mentioned earlier.
More broadly, the establishment of a permanent CDC presence in Lagos and my appointment as Head of Office & Coverage Director for Nigeria in late 2019 is testament to the institution’s commitment to investing in our country. I’m looking forward to growing our portfolio of top Nigerian companies while working alongside our existing investees and partners.
Nigeria reportedly has one of the highest proportions of female entrepreneurs in the world. What initiatives are being promoted to unlock more opportunities for women and youth populations in Nigeria?
Indeed, across Africa – and Nigeria especially – we have seen high proportions of women entrepreneurs, with one estimate indicating that 40% of Nigerian women are entrepreneurs. But these numbers cannot be evaluated in isolation and must be considered alongside the figures that detail the comparative difficulty women have in accessing opportunities and support compared to men.
Most financial systems have been designed by and for men, resulting in systemic obstacles for women entrepreneurs, who disproportionately face financial access barriers that prevent them from participating in the economy in the same way. This impedes market productivity and hinders economic and human development.
We believe that women are strategic assets for any business – whether they own them or work in them and are committed to improving the status of women in the workforce and developing new products and services that address our female consumers’ needs. A vital element of this work involves our co-founding of the 2X Challenge, an initiative set up with partner DFIs of the G7 countries in 2018, which aims to mobilise US$3 billion to support projects that enhance women’s economic participation. The successful initiative surpassed its 2020 target and has now mobilised US$4.5 billion in investment commitments that seek to empower women as entrepreneurs, business leaders, employees and consumers of products and services.
We are committed to continue to engineer solutions that have a gender-lens applied, and have also implemented gender-sensitive recruitment strategies, mentoring, skills and training programmes designed to increase opportunities for youths and the number of women in senior decision-making positions within our investee companies. Lastly, I’m particularly proud of our partnership with TheBoardroom Africa, which promotes female leaders and voices in businesses in Africa and aims to double female representation in Africa’s boardrooms by 2028.
Given the magnitude of Nigeria’s population and vulnerability to climate change, what is CDC doing to mitigate risk and strengthen Nigeria’s climate-resilience for future generations?
Climate change plays a part in every facet of Nigeria’s economic challenges, affecting everything from food, to opportunity and politics. The shrinking of the Lake Chad Basin has led to a lot of uncertainty in the region, with sharp increases in extreme heat affecting millions without access to steady electricity while change in weather patterns affect an agricultural sector largely dependent on rainfall. But the impact extends beyond agriculture, affecting health as well as the economy at large. Despite its importance, competing societal issues and challenges has meant that climate change hasn’t been given the attention required. Left unaddressed, climate change has major implications for Nigeria’s development trajectory and future generations.
Addressing climate change is a core priority for CDC and we apply a climate lens to all our investments. Our priority markets across Africa and South Asia are typically the most vulnerable to and least prepared for climate change. Our investments in sectors such as infrastructure, clean energy, manufacturing, sustainable agriculture and low-carbon real estate development address these challenges, while creating much-needed jobs and economic transformation. Since 2017, CDC has provided over US$1 billion in climate finance and from this year, 30% of our annual commitments will go to tackling climate change as we transition to net-zero emissions within our portfolio by 2050. Key investments include our joint commitment of US$90 million to Greenlight Planet, the largest provider of solar-powered home energy products in sub-Saharan Africa. The firm provides clean energy to more than two million people in Nigeria and the investment will boost access to affordable clean energy while creating jobs and reducing emissions.
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How critical is digitalisation for Nigeria’s economic transformation and recovery post-COVID 19?
COVID-19 tested our health systems and our economies and has shone a light on the importance of technology and digitalisation as a catalyst for recovery, growth and resilience. There’s been considerable private sector investment in this space in the last few years and policymakers are working together to improve connectivity. The Smart Africa Alliance recently announced plans to halve the cost of accessing the internet by pooling resources and purchasing capacity in bulk.
Connectivity is the precursor to the growth of digital ecosystems and increases in productivity and growth. Technological innovation is disrupting traditional industries and unlocking new business models in sectors such as banking and financial services, as well as fuelling the growth of e-commerce and creating new employment opportunities for the next generation of STEM talent. The recent 2021 budget also reflects the government’s acknowledgment of this necessity, with many Ministries, Departments and Agencies receiving allocations to procure and upgrade existing digital infrastructure.
As part of our ambition to accelerate Africa’s digital transformation, we have made two investments totalling US$220 million in Liquid Telecom – the largest independent fibre and cloud provider in Africa. The first investment boosts connectivity across the continent while our additional US$40 million investment, announced in October last year, will accelerate the growth of Liquid Telecom’s pan-African data centre operation business, including in Nigeria. Lagos is one of Africa’s most exciting tech and innovation hubs in Africa. This investment will help accelerate the growth of the continent’s tech start-up ecosystems whilst also supporting the needs of established enterprises.
What role can development finance institutions play in the post-COVID-19 recovery? What are some of the key issues that need to be addressed to create fairer, more resilient societies, improve livelihoods and accelerate progress towards the Sustainable Development Goals (SDGs)?
COVID-19 has exposed and reinforced social and economic inequalities in Africa and around the globe. A significant part of our COVID-19 response revolves around injecting systemic liquidity into Africa’s financial system through partner intermediaries like Absa, TDB and Standard Chartered. These investments commitments – which amount to over US$475500 million are expected to increase beyond U$500 million -– have protected vital supply chains and sustained importers’ operations, shoring up trade flows and ensuring a swifter post-COVID-19 recovery.
In parallel and amid the pandemic, we’ve continued to invest in leading African companies and funds. These countercyclical commitments are particularly important, given many international financial institutions have reduced their risk appetite for investing in Africa and other emerging or frontier markets over the last ten months. An example of this is our recent US$100 million investment in Helios – a private equity fund with one of Africa’s strongest track records. CDC also anchored the pioneering BlueOrchard Covid-19 Emerging and Frontier Markets MSME Support Fund, which aims to support more than 200 million jobs in emerging and frontier markets.
Nigeria is currently facing foreign exchange pressure, which also affects fund repatriation by foreign investors. How will this impact on your investments in the country and what are your suggestions on how to address this challenge?
Nigeria’s oil-driven foreign exchange pressures have major implications for foreign investors looking to repatriate their funds, with reserves being prioritised for strategic imports or to service debt obligations, leading to delays in sourcing dollars from the Central Bank. As a DFI, CDC invests with a long-term view and our patient capital approach means we often have a greater degree of flexibility – and a higher risk appetite – compared to commercial investors. The diversification of the economy away from oil will reduce Nigeria’s vulnerability to commodity shocks and associated dollar shortages, while creating jobs and increasing government revenue. In this sense, diversification will be the cornerstone of the next phase of Nigeria’s development.
With the African Continental Free Trade Area (AfCFTA) commencing, what role will your institution and the UK government play to enhance trade on the continent?
The launch of the AfCFTA on January 1, 2021 is a significant and much-needed milestone to boost intra-African trade, which remains comparatively low. The UK is committed to enhancing trade on the continent, both by directly investing in stimulating trade flows, and by investing in the underlying building blocks that support commerce. As part of this commitment, CDC plans to invest over US$1 billion in Africa this year with a focus on target markets such as Egypt, Ethiopia, Kenya and Nigeria. At CDC, we are focusing our efforts on closing Africa’s trade finance gap, which has been estimated at US$100 billion to US$120 billion, though COVID-19 is likely to have widened this considerably. Over the last five years, we’ve established strong relationships with global and pan-African financial institutions, which provide trade finance to banks across the continent that support trade and supply chains. Since 2015, CDC has guaranteed US$3.3 billion, resulting in US$12.5 billion of trade across its markets in Africa and South Asia. Nigeria is a key beneficiary of these ongoing investments. Beyond this, the UK’s Foreign Commonwealth and Development Office and the Department for International Trade are supporting African countries to meet their rapidly growing energy needs through green energy, promoting human capital development and building basic infrastructure – all of which are key to stimulating trade across the continent.
