Proparco, a subsidiary of Agence Française de Dévelopment (AFD) that focuses on private sector development, has been busy with a flurry of deals in the last one year that are boosting the capital structure of firms operating in Nigeria and bringing much-needed relief to companies grappling with the COVID-19 pandemic.
For a country faced with the double whammy of an economic recession and declining investments, Nigeria is in urgent need of private capital to resuscitate decaying infrastructure and boost economic growth.
Nigeria’s investment climate is in a precarious situation as investment flows dropped 74.03 percent to $1.5 billion in Q3 2020, forcing the government to consider tough choices as it determines how to allocate dwindling resources in a time of increasing need.
Despite the economic uncertainties from the effect of COVID-19, Proparco led by its country director for Nigeria, Jean Guyonnet-Duperat, is advancing private sector investments despite the economic uncertainties of surviving in a pandemic.
This was made possible, thanks to the added value of geographical and multi-sectoral expertise, an international network of clients and partners, a capacity to structure complex projects, risk management and additional support towards environmental and social best practices.
For instance, at the height of coronavirus, Proparco signed a deal of N2 billion risk-sharing facility agreement with First City Monument Bank (FCMB) in the first quarter of 2020, which will form part of loans extended by FCMB to Nigerian micro, small and medium-sized enterprises (MSMEs).
Proparco’s support helped FCMB extend its financing to a greater number of small and medium-sized enterprises (SMEs) in Nigeria. It is estimated that this risk-sharing facility agreement could support close to 245 Micro, Small, and Medium Enterprise (MSMEs) in the country and contribute to create or maintain more than 440 jobs.
MSMEs represent more than 90 percent of all businesses in Nigeria, testifying to their critical role for the Nigerian economy. Despite their importance for the economy, less than 20 percent of them benefit from a loan or credit line from a financial institution.
“Most SMEs still lack access to appropriate sources of financing needed to develop their activity,” a statement by Claude Abily, political/press counsellor of Embassy of France in Nigeria, said.
Proparco alongside France’s private sector development bank, FMO and investment firm, Symbiotics, also agreed to provide a subordinated syndicated loan totalling $93.8 million to Access Bank in August 2020.
The facility will enable Access Bank roll out its strategy of becoming Africa’s gateway to the world even after the COVID-19 and the international oil crisis.
“The need to boost capital is extremely important today in the context of the negative socio-economic impact of COVID-19,” Herbert Wigwe, group managing director/CEO, Access Bank, said about the deal.
“The $93.8 million Tier II capital eligible loan will help us to continue to sustainably support businesses that need finance. These businesses will be able to continually provide essential products and services thereby achieving sustainable and inclusive growth,’’ Wigwe said in a statement.
Proparco also signed a N1.9-billion portfolio guarantee with United Bank for Africa (UBA) to facilitate access to loans for Nigerian SMEs.
The project, which is under ARIZ (which means a final loss guarantee offered to financial institutions by AFD to cover 50 to 75% of an individual loan or a loan portfolio for SMEs and microfinance institutions), will automatically cover 50 percent of future SME loans.
According to Proparco, part of the loans covered (at least 30%) will specifically concern SMEs in the education sector or SMEs owned by women.
In 2021, Proparco is spreading its investment across major developmental sectors with a specific focus on renewable energies, agribusiness, financial institutions, healthcare and education.
“Following Proparco’s desire to diversify, there is a focus on the renewable energy space,” the financial institution said in a statement sent to BusinessDay.
Power inadequacy is a major impediment to growth in Africa’s largest economy, where four in every five people in the over 200 million population lack access to grid electricity and those that have are often at the mercy of perennial blackouts.
That has opened up a gap in supply and created an opportunity for a number of solar power firms, which are launching various renewable energy initiatives to bridge the shortfall and earn huge cash.
With the overall cost of wind and solar installations falling sharply on lower raw material prices, investors are betting big on renewables to increase electricity access.
In less than 15 days into 2021, Proparco alongside other investors helped Nigeria-based Daystar Power raise $38 million in funding to expand its expertise in solar energy businesses and four other African countries
Its $38 million Series B round, which takes Daystar’s total raised funding to $48 million, was led by the Investment Fund for Developing Countries (IFU), the Danish development finance institution (DFI), and also features French impact infrastructure fund STOA, Frenc DFI Proparco, backed by a guarantee from the European Union under the African Renewable Energy Scale-Up facility, and Morgan Stanley Investment Management.
“In line with Proparco’s objectives of improving energy access and reducing greenhouse gas emissions, this funding will enable DSP to expand reliable power supply at competitive cost to West Africa’s Commercial and Industrial sector,” said Damien Braud, head of Private Equity Africa & Middle East division, Proparco.
History has shown direct government funding cannot plug Nigeria’s infrastructure gap, which the African Development Bank says requires about $3 trillion by 2044 or about $100 billion annually to fix, creating the need for mobilisation of private investment.
