We are providing funding in local currency to reduce FX risk for borrowers – Adenuga

Nigeria faces many challenges including energy blackouts, high import costs, rising commodity prices and lack of capital to support Small and Medium Enterprises (SMEs), Benson Adenuga, Country Director for Nigeria, British International Investment (BII), the UK’s development finance institution and impact investor, in this interview with Hope Moses-Ashike, shares insight on BII efforts towards addressing these challenges and more. Excerpt.

Access to capital is a key hindrance to the development of Nigeria’s private sector. How is BII actively working to overcome the lack of liquidity in the market?

One of the largest barriers to growth for Nigerian business is access to capital, largely due to the risk-adverse nature of commercial banks. BII has played a pivotal role to overcome this bottleneck by providing direct funding to financial institutions including Access Bank, Ecobank, First Bank Nigeria, Absa, Stanbic IBTC Bank, and more to on-lend to SMEs. Increasingly we are providing funding in local currency solutions, which reduces foreign exchange risk for borrowers.

Since 2015, our trade finance facilities have provided direct funding to banks across the continent to increase their lending to SMEs. Our ability to increase access to trade finance boosts the earning potential of businesses trading within and beyond Africa. Our partnerships boost the export potential of SMEs in sectors including agriculture, FMCG and healthcare – encouraging regional integration through cross-border transactions, and stimulating the flow of essential goods and services.

Provide a brief overview of your activities and focus sectors in Nigeria?

Nigeria is a priority market for British International Investment (BII), the UK’s development finance institution (DFI) and impact investor. We have been active in Nigeria for 76 years and our country portfolio is valued at nearly $700 million in assets and growing. We are proud to have invested in more than 120 companies across the country to date.

We are supporting the government’s eight-point development agenda, investing in critical infrastructure and job-creating sectors such as financial services, digital infrastructure, food security, manufacturing, logistics and renewable energy. Our investments boost economic development, and private sector growth which enables businesses to create jobs and improve the quality of life of millions of people across the country.

Nigeria faces frequent blackouts due to energy generation that is unable to match demand. How is BII helping to tackle this problem? What solutions can you provide?

BII is on a mission to transform Africa’s power sector. Over the last two years, we have provided more than £1 billion in climate finance, which helps deliver country-led energy transition plans in the markets where we invest. We are ramping up investment in renewable energy infrastructure and climate-related projects in countries that need it most.

Homes, factories and shops across Nigeria often experience power outages due to the failure of the national grid. As a result of blackouts, business operations in several sectors are limited, and so are the aspirations and earning potential of the country’s entrepreneurial youth. Distributed renewable energy (DRE) systems in the form of solar photovoltaic stations, rooftop solar panels, and mini grids are exciting innovations that enable households and communities in rural areas to access power independently from the precarious supply of a national grid.

In November, we established a $30 million risk-sharing co-financing facility with InfraCredit to develop DRE projects in rural areas of the country. The commitment helps to light up communities and businesses in some of Nigeria’s most underserved and least developed regions.

BII established Gridworks to mobilise equity investment for transmission, distribution, and off-grid electricity – supporting efforts to electrify last-mile communities in Africa. The BII-owned company and New GX invested $40 million in Sustainable Power Solutions (SPS) to develop solar solutions for commercial and industrial use across Africa, including in Nigeria. Many businesses in Nigeria rely on costly and polluting diesel generators to power factories in remote areas. Solar solutions will benefit the environment, reduce costs and enhance efficiency for SMEs, creating a win-win for local economies.

Food security is a major issue in Nigeria. How can targeted investments in the agricultural supply chain help tackle the problem?

Food security remains a critical issue in Nigeria with approximately 26.5 million people projected to face high levels of food insecurity this year, up from 18.6 million in late 2023. Our $65 million investment in Indorama Fertilizer and Chemicals Limited in March this year is a key example of a strategic investment in Nigeria’s agricultural value chain that will have a huge impact on food security.

This is BII’s fourth investment in Indorama since 2013, supporting the fertiliser company to establish three plants that will service domestic and global markets, significantly increasing crop production in Nigeria to elevate the country’s export potential.

Crop production is the largest segment within agriculture, and it accounts for the majority of the Nigerian agriculture sector’s total output. However, food processing and manufacturing remains underdeveloped in the sector. In 2023, BII committed $15 million to Valency International to fund the company’s expansion of processing and warehousing facilities in Nigeria, with an expected impact on 60,000 farmers. We also have the option to invest a further $35m in equity into Valency within two years of completion of this initial investment.

The new Valency facilities, funded by BII are forging partnerships with local farmers and processing centres to maximise their output and provide a more stable supply of premium-quality products from Nigeria to the world.

We are exploring more opportunities where our investments can improve the value of Nigeria’s crops, agricultural inputs, and are invested in enabling infrastructure that is key for the agricultural ecosystem to thrive.

DFIs and private investors usually overlook investment in Nigeria’s north. How can investors drive change in the region?

Nigeria is one of the largest countries in Africa with urban centres extending well beyond commercial capitals such as Abuja and Lagos. As part of our mandate to deliver lasting positive impact, BII is exploring partnerships with businesses in Northern regions of the country, to deepen financial inclusion and deliver critical funding to underserved communities and businesses. According to a Financial Sector Deepening (FSD) report, financial exclusion is most severe in the North West (47% of the population) and in the North East (38%) compared to only 5 percent in the South West and 10 percent in the South South.

Many states in the North also face severe food insecurity, driven by climate change, greater prevalence of semi-arid and arid landscape and instability. We are exploring targeted investments in Northern agriculture projects to strengthen the region’s agricultural capacity and increase food security.

What is next for BII in Nigeria?

We continue to build on our solid footprint in the country, investing in critical sectors that will bring electricity, food security and finance to millions of Nigerians. Looking ahead, we aim to diversify and strengthen our portfolio by targeting critical sectors such as healthcare, education and digital infrastructure. It is our mission to catalyse Nigeria’s tremendous potential, driving innovation and growth for businesses and communities across the country.