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African policymakers and bankers are exploring ways to unlock trillions of dollars tied up in the continent’s institutional funds to build infrastructure amid growing uncertainty around international investment caused by erratic US trade policies.
“There is about $4 trillion in Africa, mostly in banks, pension funds and foreign reserves,” Samaila Zubairu, CEO of the Africa Finance Corporation, a Lagos-based multilateral lender, told Semafor during this week’s Africa CEO Forum in Abidjan, citing research by his institution. “The issue is, how we get it to flow into projects.”
The topic was a recurring talking point for business leaders during this week’s conference, with the need to deploy local capital becoming more acute after the White House dismantled its main foreign aid body USAID, piling new pressure on African government finances.
Ethiopis Tafara, vice president of the International Finance Corporation, the World Bank’s private investment arm, told delegates there was a need to mobilize private capital to plug gaps left by the withdrawal of aid. Governments and the private sector need to engage in more dialogue, he said, to help administrations shore up the “bankability” of projects that could not be funded with public money.
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Zubairu said AFC, which specializes in infrastructure development, is in talks with authorities in Angola, Botswana, and Kenya to replicate InfraCredit, a Nigerian credit institution that supports pension fund investments in infrastructure projects, with the west African country’s sovereign wealth fund providing guarantees on local currency debt. AFC is an equity investor, along with the Nigerian Sovereign Investment Authority, which strengthens InfraCredit’s capital base.
African investors have long wanted to unlock private capital from existing institutional funds. The thinking is that if more domestically held capital supports major projects then the continent could draw larger pools of international funds at more favorable interest rates.
In areas such as infrastructure, for example, Africa is estimated to have a $100 billion a year funding gap. One way to bridge that shortfall, analysts say, would be to unlock a larger portion of African funds, which have been concentrated in more conservative assets such as fixed income and treasury bills.
“Raising financing domestically for our critical infrastructure projects is a huge priority for our continent,” said Acha Leke, chairman of McKinsey’s Africa group. “We’ve estimated that if African pension funds doubled their current allocation to back such projects to 4%, this could unlock more than $20 billion of additional financing per year.”