Entrepreneurs operating in Africa have to do a lot to lure foreign investment. There are the factors beyond their control such as the exchange rate of the domestic economy they operate in, the ease of doing business (starting a limited liability company, obtaining a building permit, connecting to electricity, transferring ownership, getting credit, protecting minority investors, payment of taxes, cross-border trading, enforcing contracts, resolving insolvency), the global disposable income of consumers (sometimes roughly indicated by the gross domestic product per capita) and political stability.
Next they have to deal with the negative sentiments of foreign direct investors, many who view Africa as a continent to be avoided or a frontier market, rather than an emerging market.
Development Finance Institutions
Unlike, many foreign direct investors (FDIs), Development Finance Institutions (DFIs) are willing to invest in Africa and other developing countries if the investment case is strong enough. In this article we draw attention to DFIs that venture capitalists and private equity fund managers can approach to raise funds for deployment to Africa. Who are the DFIs? DFIs are investors happy to seek investment returns from the poorest countries. Most DFIs have decades of experience investing in developing countries and know how to find investee companies with good corporate governance systems. They include:
African Development Bank
The African development Bank was founded in 1964, and is a regional multilateral bank, which is engaged in promoting development and social progress in its member countries. It’s objective is growth in member countries, while also ensuring that the growth is sustainable, and to thus, reduce poverty, and spur greater success in the African continent.
CDC Group plc, UK
CDC is an LP, a fund of funds investor, led by Richard Laing, CEO of CDC Group plc. CDC’s capital is invested in 84 countries, more than 300 companies and 70 percent allocated to the poorest countries, those with annual GDP less than $1.75 billion. Its main geography is Africa and South Asia. It has asset under management of $4 billion. CDC has 60 years of experience investing in developing countries. CDC invests in private sector businesses with good corporate governance practices.
The Development Finance Company of Uganda (DFCU) provides commercial banking services (through DFCU Bank), leasing finance, mortgage finance, and term loans to small medium sized businesses. It was founded in 1964 and is led by Moses K. Kibirige, its Executive Director. DFCU is the parent company of DFCU Group. Its main shareholders are the Commonwealth Development Corporation, National Social Security Fund, and Norfund. The DFCU invests in companies that value customer service, corporate social responsibility, excellence, integrity, and sustainable development.
DBSA – Development Bank of Southern Africa
The DBSA is an astute investor in Africa able to tap the link between investing in African infrastructure projects, sharing financial knowledge, sharing its human capital (advisors, partners, implementers, and integrators) and growing shareholder value. By supporting governments, stakeholders engaged in development, promoting diversified economies and promoting regional integration, the DBSA is able to manage and drive increases in the value of its investments by reducing both poverty and dependency in its target geographies.
East African Development Bank
The EADB is a leading financial development institution in Africa. The objective of the EADB is to promote development in East Africa. It does this by playing a three in one role of being the lender, advisor and also the development partner in a range of projects. To do this, the bank provides a range of services, and products, most of which are suited to the region’s development requirements. It also offers financial services to Kenya, Tanzania and Uganda, which helps strengthens the region’s socioeconomic development and helps integrate the region.
EBRD –European Bank for Reconstruction and Development
The EBRD invests in a range of countries with the end goal of helping them transition into full market economies. They encourage any development done through them to be sustainable as they expect transparency and a high standard of governance, while also pushing for environmental protection.
EIB – European Investment Bank
The European Investment Bank is the lending bank of the European Union. It contributes to development and integration outside the EU, while outside it, the bank supports EU development in partner countries, quite a few of which are in Africa. This leads to development and support of a new generation of entrepreneurs, while also helping partner countries to be part of a transparent global community.
IBRD – International Bank for Reconstruction and Development
The IBRD is one of two unique development institutions that are part of the World Bank. The IBRD focuses on middle income and creditworthy poor countries. They support development projects in different parts of Africa to alleviate poverty and improve living standards in the continent
IDC – Industrial Development Corporation of South Africa Ltd
The IDC is a national DFI. The goal of the IDC is to help generate balanced, sustainable economic growth in South Africa, and thus empower the South African population. This will help the economic prosperity of the citizens of South Africa. This is done via the promotion of entrepreneurship and building competitive industries and enterprises based on sound business principles.
IFC – International Finance Corporation, World Bank Group
The International Finance Corporation is a related group company of the World Bank group which encourages an environment of sustainable economic growth in developing countries. It does this by financing the private sector and investing capital in local and international financial markets. It also provides advice and risk mitigation services to governments and businesses in developing countries. IFC hopes to alleviate poverty, and improve the lives of people in 69 developing countries.
Transparency is a key part of the investment criteria of the IFC.
OPIC – Overseas Private Investment Corporation
The Overseas Private Investment operation is an agency of the US government and has been operation since 1971. Its goal is to aid US businesses investing overseas, and through these investments increase economic development in emerging markets. It also helps mitigate the risk involved in directly investing abroad. It helps US businesses invest in over 150 emerging markets, many of which are in Africa, and has supported a total of 164 billion dollars of investment, generating many jobs in developing countries.
PROPARCO – France
PROPARCO is French development finance institution, whose stated goal is to encourage private investment in developing countries. The company invests in manufacturing and financial sectors, while also encouraging infrastructure development. It invests in many African countries, and provides a range of financial services, including loans, investments and financial advice. It has deployed commitments of between $500 m and $ 1 billion.
PTA – Eastern and Southern African Trade and Development
The PTA is a regional development financial institution which aims to foster growth economically in the region, while also promoting integration among member states. The shareholders include Burundi, China, Comoros, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tanzania, Uganda, Zambia, and Zimbabwe. The Bank’s President has said that the organisation wants to embrace good governance and the role it plays in creating strong, sustainable institutions. The bank currently holds around 2 billion in capital to be invested, while it has already invested around 3 billion dollars in member state economies.
Swedfund is a Swedish organisation that offers risk capital, that is investment funds to be used for high risk investment. Along with this, it offers investment advice for African, Asian and Latin American countries, and thus stimulates economic growth and development in these countries, which is also sustainable. It specialises in offering complex investment advice in high risk countries. Its know-how, knowledge and experience gives those who invest through it a chance to make a profit on their investments
Examples of DFIs investment rights
Definition of Corporate Governance
Corporate governance is the system of rules, processes and structures that help a corporation function. This includes governance structures and hierarchies (Such as a board of directors, managers, shareholders, employees), which distributes rights and responsibilities on different members of an organisation, the processes through which a corporation’s goals are set and achieved, and the rules through which actions are monitored and policies decided. It’s a transparent system where decisions are made on the basis of merit, rather than on the basis of nepotism.
Why Corporate Governance matters
Corporate governance is hugely important as it is simply good business practices. It removes the issue of conflict of interests among different stakeholders and ensures that all decisions that are taken are taken for the good of the company. It also gives us the concept of accountability, meaning that people within the organisation are responsible for their actions, and can be held accountable for it. This helps increase the output of any company, and ensures that the services that they provide are the best that can be offered.
Africa’s Start-Up Entrepreneurs
Some very capable entrepreneurs are able to overcome these overwhelming obstacles, and still formulate intelligent strategies which work within their chosen sectors and chosen markets within the continent. In the article titled “Start-ups and Innovative companies in Africa: A to Z”, we highlight some growing companies in Africa looking to scale up.