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Where the UK is investing in Africa

The United Kingdom has about £34 billion worth of investment stock in Africa according to Emma Wade-Smith, the UK’s Trade Commissioner for Africa.

Wade-Smith gave the opening remarks at the Successfully Investing in Africa: A Global Perspective session where panelists shared insights on the African investment terrain.

Japanese international Cooperation Agency Vice President Mutsuya Mori and Prosper Africa Coordinator Matthew Rees who represented the United States Agency for International Development were also part of the panel.

Wade-Smith said the UK is committed long-term investors in the continent through the Commonwealth Development Corporation or CDC.

“As part of that increased investment profile last year CDC invested £138 million in Liquid Telecom as part of the expansion of broadband connectivity across this continent. Something we all know is absolutely critical to the future success of this continent.”

Liquid Telecoms is on a mission to build Africa’s largest fibre network. So far the network spans nearly 70 000km and already runs around the African coast from Lagos in the west coast to the east of Egypt in the Red Sea.

Liquid Telecoms has reportedly also caught the attention of Africa’s largest fund manager.

South Africa’s Public Investment Corporation with an estimated $150 billion in pension assets agreed to set aside funds to guarantee a $375 million loan, according to Bloomberg.

CDC also invested £52 million towards the construction of a solar energy plan in Malindi Kenya.

According to CDC the 52 MegaWatt peak plant will be the first of four utility scale power plants in Kenya to begin construction.

Is this yet another debt trap?

The CDC investment into the Malindi solar plant requires the use of loans which will be financed over 16 years.

The Corporation is funding development partly through offering loans. A total of 40% of the sort were made by CDC in 2018.

The Corporation invested 29% of its cash in purchasing equity in companies that are in a mature stage. That usually means companies that have been in operation for at least a decade.

The CDC also invested around 18% of its funds in direct equity and 13% in unfunded guarantees.

Source: CDC Group

Wade-Smith said 2019 also saw the UK extend more export credit finance through the UK Export Finance mechanism.

She said the agency increased its risk appetite and presence in Africa as a way to facilitate finance for more commercial deals that include UK content where the entity being funded uses at least 20% of UK content.

“Over the last year we’ve seen UK Finance supporting projects in Angola for the first time ever. Some £400 million to help that country build three new hospitals and upgrade two power plants,” said Wade-Smith.

She said the UK supports responsible investment and inclusive business practices. “This includes making sure that we are actively considering the impact of all of our investments.”

Japan and the US are also stepping up activities

The Japanese international Cooperation Agency (JICA) has also been active in Africa. The agency spent more than 122 million yen in its African projects in 2017.

In Africa the agency’s focus is on infrastructure, healthcare, food security and social stability.

“We have several decades working with African countries through government to government cooperation such as technical assistance, grant aid and concessional loans,” JICA Vice President Mori Mutsuya explained.

Mori said they have granted concessional loans to about 60 ongoing projects in Africa.

Mori said one of the outcomes of the Tokyo International Conference on African Development (TICAD) held in August 2019 was an emphasis on the role of the private sector in development.

“A couple of years ago we started expanding our facility not only to government but we also started cooperating with the private sector. Actually we can provide bank loans, corporate loans, project-to-finance as well as investment to private enterprises,” Mori said.

He said they would like to expand the window of opportunity in the private sector to develop Africa.

One of the outcomes of TICAD was the agreement with the Madagascar government to provide grant aid of up to around 2.6 billion yen.

The grant will fund the Project for the Improvement of Mangoro Bridge and Antsapazana Bridge in the National Road No. 2.

National Road No. 2 is a 355 km stretch connecting the capital Antananarivo with Toamasina in the country’s west coast.

Mori said while JICA is a government agency their mandate is broader than merely to support Japanese enterprises. “I’d like to find out how we can cooperate with the private sector,” he said.

The USAID's Prosper Africa

Prosper Africa is a United States Agency for International Development (USAID) initiative that aims to increase two-way trade and investment between Africa and the US.

According to Prosper Africa Coordinator Matthew Rees two-way trade means mutual economic growth.

He said for decades discussion about the US government’s relationship with Africa has been around humanitarian assistance, technical assistance and the President's Emergency Plan for AIDS Relief.

The new initiative will mark a break from USAID’s focus on the public sector according to Rees.

“This is the new offer of the United States government to fundamentally changing our relationship with Africa from one of aid to one of trade,” Rees explained.

Rees said the 16 US government agencies under the banner of “Prosper Africa” will focus on transactions. He said every embassy on the African continent has established a deal team.

“And that team is to work with you in the field to identify what are those priority transactions. Identify the constraints to those transactions whether it be a policy reform or a finance constraint or a feasibility study constraint or some type of technical constraint,” Reese told the investors attending the session.

Rees said the Power Africa programme is an example of how successful the initiative has been so far.

Power Africa has facilitated the financial close of 124 transactions that are expected to generate more than 10 000 MW according to USAID.

Rees said among the tools used in the initiative is a newly established Development Finance Corporation which has an investment cap of $60 billion.

Prosper Africa also takes advantage of the African Growth and Opportunity Act (AGOA) which offers preferential trade terms to some African countries wishing to enter the U.S. market.

As of January 2019, 39 sub-Saharan African countries were eligible for AGOA. From June 2018 to June 2019 US imports from AGOA countries amounted to just over $13 billion.

Is this good news for FDI flows into Africa?

It remains to be seen if any of these initiatives will increase the flow of foreign direct investment into the continent in keeping with the current upward trend. However, recent trends are positive.

While foreign direct investment declined globally in 2018 flows to the continent rose by from $41 billion in 2017 to US$46 billion in 2018 according to the United Nations Conference on Trade and Development’sWorld Investment Report 2019.

This 11% increase was despite a contraction in FDI reported by the major economies on the continent. Egypt and Ghana reported a decline of 8% while the biggest plunge was in Nigeria where foreign direct investment was slashed by 43%.

Growing demand for some commodities and growth in non-resource-seeking investment in a few economies underpinned the rise in foreign direct investment into Africa in 2018. Source: UNCTAD

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