New York — The African Finance Corporation (AFC), has a mission even more critical today than when it was created in 2007 - mobilizing private sector-led infrastructure investment needed to drive the continent's economic growth. Younger and perhaps lesser-known than its sister development finance institutions – the African Development Bank and the Afreximbank – AFC is attracting attention with a broad portfolio of innovative projects across its 37 member states.The Central Bank of Nigeria is the largest shareholder, with a 42% stake. Most of the other shares are owned by private African banks, as well as government agencies and pension funds.
In April, AFC reported record performance "driven by high impact investments and its strong credit profile". Last year, the rating agency Moody's upgraded AFC to 'stable', based on "demonstrated ability to avoid the erosion of its intrinsic financial strength despite the pandemic, which led to the worst recession on the African continent in decades."
Samaila Zubairu, who became president and CEO in 2018 after nine years heading Africapital Management Limited, calculates that Africa needs to spend $170 billion on infrastructure each year. Africa's growth and development has global importance, he says, because Africa can make such substantial contributions to solving the major problems facing the world today. Zubairu spoke with AllAfrica about AFC's objectives and achievements on the sidelines of the annual United Nations General Assembly in New York:
The Africa Finance Corporation was created 15 years ago by the Central Bank of Nigeria - an initiative that came out of the African Peer Review Mechanism. Infrastructure was identified by President Obasanjo (Nigeria), President Mbeki (South Africa) and a few other leaders as the Achilles heel for Africa's development. The idea was to create an institution with a different approach from existing institutions, with the immunities and privileges of a multilateral institution and the flexibility and pragmatism to get things done on the continent.
AFC doesn't start with an application checklist; it collaborates to reduce risks.
A typical financial institution will give a checklist of what is required to get financing. We take a different approach. We're very focused on risk management, and we think that is something to be done together in the early stages. You need both experience and the regulatory framework to get things done, and sometimes the client is not able to access that. We take the view that we need to engage with both the government and the sponsor to create the environment to invest.
I'll give you an example. We did the first independent power project in Ghana – Cenpower. We had several starts and stops. Part of what we did was to craft the first power purchase agreement in the country - and to get everybody to buy into that. That template was used for several other financings down the line. We worked to de-risk the opportunity. We did the first independent power project in Cape Verde as well. It uses wind turbines to provide 20 percent of energy requirements of the island and replaces more carbon intensive fuels.
We learned a lot from those experiences. So when we got into another project in Cote d'Ivoire - a hydro project - we decided that we needed to eliminate the construction risk, as much as possible. That's the biggest risk for a project and that's what takes the most time. So we came up with a finance product that allowed us to start construction, get to commissioning, and then invite financial institutions to provide the debt.
We invest in the entire spectrum of capital structure.
This is a good segue for me to tell you that we invest in the entire spectrum of capital structure, from the very early-stage risk to working capital finance. We play across the entire spectrum, and we're the only African institution that does that. We have taken the view that whatever is the reason that development in Africa has not happened, whatever the reason is that things have taken long, we will make a difference with our approach. We will understand the risk. We will make sure that there's proper allocation of risk between the sponsor, the government, ourselves and all the parties that we're going to work with. And we'll manage to ensure that those risks are mitigated, to assure the returns that we expect.
The perception of risk in Africa is highly overestimated.
Several rating agencies have done studies showing that Africa is less risky than North America, and Asia. The only region in the world that is less risky than Africa is Western Europe.
We have deployed over $10 billion across 37 African countries. We have demonstrated that it is profitable to invest in Africa, to take the risk once you can manage them. We've paid a dividend every year for the last 12 years. We are a profitable organization. We are an investment-grade institution, we have an investment grade rating that allows us to de-risk projects, and to distribute those projects to other partners.
Working with AFC, the U.S. government can achieve its aspirations for infrastructure development. We get things done!
We believe in partnership and alliances, which is why we are here today. We think that there's a window of opportunity for the U.S. government to engage with AFC, because we are able to help them achieve their aspirations around infrastructure investment for economic development.
We got a $250-million investment from the DFC [Development Finance Corporation] in 2020. Now that the U.S. government is thinking more constructively about engaging with Africa, there are several opportunities for us. We have our capital to deploy, but we want to partner to do more. We think that we are an essential entity for the United States and the G7 to deploy $600 billion for infrastructure in emerging markets. We get things done. We have built infrastructure projects that enable industrialization to take place, which is one of the key ingredients for a sustainable economy.
READ: President Biden and G7 Leaders Launch the Partnership for Global Infrastructure and Investment
I'll give you some examples of how we deliver. We worked with the government of Gabon to diversify income away from hydrocarbons, focusing on forestry. We built the first timber focused industrial park. We built three ports to facilitate export. We invested in rail lines for throughput to the ports. We invested in wire lines, for better access of electricity to the Special Economic Zone. We put in a one-stop regulatory and processing office in the Special Economic Zone.
Since that project was commissioned, exports have grown by over four times and the value of the exports has increased. They used to earn 20 to 50 euros per cubic meter of wood. Now, they earn 150 to180 euros per cubic meter of wood - in some cases up to 40,000 euros.
Gabon, with AFC, built Africa's only carbon-neutral zone.
Gabon is one of the largest exporters of veneer, plywood and sawn wood. We have over 100 companies operating within the zone. They have created – last time I checked - something like 40,000 jobs, and we have been able to replicate this success in other jurisdictions. The power of example is what is working for us. Since the project was built, several African leaders and foreign dignitaries have gone to the site. It is actually the only carbon-neutral industrial zone in Africa as we speak.
And we are replicating that in Togo. We've already built the park and it's sold out. We're expanding the industrial park. We're looking at timber cutting and cashews. We're looking at making generic drugs in the Special Economic Zone. We're having a facility that would assemble electric bikes.
In Benin, we are far advanced in construction of another Special Economic Zone. The whole idea of this industrial park is to transform agricultural products such as cotton to garments. We're looking at providing conscientious consumers traceability of the origins of the cotton so they can know that this is sustainably farmed, processed and utilized. That, again, we're using to demonstrate that we can have value capture on the continent, and we can do it at scale. We're looking at projects like that across African countries. We're looking at Cote d'Ivoire, Republic of the Congo, DR Congo. We're looking at Nigeria.
AFC is capturing value across Africa – at scale – providing jobs and managing migration.
We are doing a lot of things. We recently acquired Lekela, the largest renewable energy company in Africa. We have our own pipeline. We are one of the largest port owners in Africa - we have currently four ports with another one under construction and several others in the pipeline for development. We have invested in precious metals like gold. We're building a royalty and streaming platform. We're also looking at battery, minerals, and metals.
Our thesis is that moving from exporting raw materials to exporting processed goods is the only way to structurally transform the African economy. That is the only way to create the jobs that are required for growing populations. That is the only way that we can also work with the rest of the world to manage immigration, because once Africa works, there'll be less migration out of Africa.
African institutions are the main investors now. The PIC [Public Investment Corporation of South Africa] recently agreed to make an investment. We think the time has come for the world to also join, because what we're doing works for everybody. Development in Africa is important because Africa has significant resources, and Africa is a key part of the solution to most of the challenges facing the world today. Climate - Africa has natural carbon sinks that absorb carbon emissions. We need to consider reforestation as a way of keeping those carbon sinks.
If we're going to move towards a more livable planet, we need to take net zero in Africa seriously.
In our white paper on climate change where we outline Africa's path to net zero, we argue that for real change to happen, we need to focus on three things. First, we need to localize circular economies in Africa that will process the significant amount of minerals and metals required for the energy transition We need to find a way of preserving African carbon sinks . We need to build better infrastructure to withstand the impacts of climate change. Financial innovation and renewable energy sources must be utilized. Africa has 60 percent of the best solar sources globally, but less than one percent has been constructed.
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We need to do more value addition on the continent to reduce the massive emissions from shipping. If shipping was a country, it would be the sixth largest emitter after China, US, India, Russia and Japan. If we do value addition to the vast minerals and metals that are required for the energy transition, we would reduce carbon emissions globally. We can't be shipping all the minerals to Asia for processing, and then on to the rest of the world.
If we provide LPG and other efficient cooking methods to the vast majority of Africans, we will keep trees in the ground and will have trees to absorb a lot more carbon going forward.
Look at all the opportunities for the African Continental Free Trade Area. For that to work efficiently, we need something like two million trucks, and it can't be diesel trucks. It has to be electric trucks – fabricated in Africa. And for that to happen, we need an African market big enough for the likes of Ford and GM. It makes sense to invest alongside us to build trucks and batteries in Africa. Production capacity in Africa creates jobs in Africa and reduces migration out of Africa.
The intersection of climate change, the energy crisis, the food crisis provides our best chance. We need to take seize the moment.
Adaptation is key! Mitigation is not going to be enough. Africa is at the very low end for energy access. African nations on the coast suffer the most severe consequences of climate change, and that needs to change. We have real losses from floods, drought, and farming. We need to financially innovate, look at blended finance, first-loss insurance as a tool for mobilizing the capital required to build industries that will process the minerals and metals for batteries and mobility.
We need financial innovation to attract the pledges that have been made for climate. We need to find a way to manage currency risk.
Africa has the chance to turn things around. If you look at the intersection of climate change, the energy crisis, the food crisis, this is our best chance. We need to seize the moment. Africa has the resources. Africa has significant capital. If we repurpose a lot of the foreign reserves for development in Africa, if we find a way of getting pension funds comfortable enough to invest, Africa will go a long way. But we also need to work with the rest of the world, because it's in our collective interest for Africa to develop.
AllAfrica conversations and interviews are lightly edited for clarity, flow and length.