In a world facing increased geopolitical and economic risks, sub-Saharan African countries need to focus on greater independence, reduce risk, and work together to harness capital flows to avoid being alienated in a rapidly changing world.
This requires focusing on mobilizing domestic resources and creating resilience of policy, institutions and governance at home, increasing the voices in multilateral organizations, and improving key African institutions.
The continent remains extremely vulnerable to geopolitical shocks due to its high exposure to unstable goods, not only the potential impact of trade wars between competing blocs, but also the high exposure to volatile goods, with 23 resource-rich countries, little involvement in global value chains, and high debt levels.
A challenging political environment is the possibility that African governments and businesses can find ways to unite Africa and international capital to address the major shortages of infrastructure development and climate change mitigation and rapid track development on the continent facing new risks from high levels of urbanization and demographics.
Utilizing the power of the private sector, particularly the commercial financial institutions in Africa, is key to success. This was a key theme at the recent African Market Conference in Cape Town, hosted by a Standard Bank Group hosted by the largest African bank on assets.
The event brought together foreign and local investors, policymakers, regulators and institutions to discuss economic priorities and cooperation to harness Africa's rich but largely undeveloped potential capital.
Luvuyo Masinda, CEO of Business and Investment Banks at Standard Bank Group, said the event called for ways to unite global and African capital to portray the next phase of Africa's growth and development.
Risk Management
Managing this means reshaping the global perception of risk, particularly in Africa. Management of risks against the background of the global reset. He criticized international rating agencies for boosting the costs of offshore capital and increasing debt burdens by exaggerating the risk profile in Africa.
“Africa needs to bring about strong growth in an uncertain environment and attract foreign investment. What are some of the challenges that require critical and practical solutions?” he asked. The continent has shown its resilience, with GDP growth forecast of 4% in 2024.
Over 40% of the world's key minerals supporting the energy transition will be found in Africa. Sub-Saharan Africa has $2.5 billion in transactions every day, with 50% of global mobile money accounts. Demographic growth and youth population growth can advance Africa when properly managed, but the widely accepted continental free trade initiative in Africa is a potential game changer.
“However, critical action to address the challenges and more efficient use of borrowed funds are needed. Public-private partnerships, blend finance and innovative risk sharing models are key to filling the gap.”
Jeaneid Kamal Ahmad, vice president of the Multilateral Investment Guarantee Agency (MIGA), the World Bank's political risk arm, said the organization plays a key role in reducing the finances of African projects, using its weight to reduce capital costs.
“It's not intermittent to commercial risks, but it dismantles policy and regulatory uncertainty so that private capital can enter. It's our job to reduce awareness of risks in Africa.”
He added that the nature of capital has changed. “The world of development finance and market finance is no longer. We are currently in the world of global finance. How do you access it for development? It's about risk management,” he said.
He said Miga competed against an institution that was used as a loan institution in one of the major changes in development finance.
The African government is facing funding constraints, and many are already facing debt difficulties or debt pain. For example, in South Africa, public debt has risen over the past few years, reaching over 75% in 2024.
Strategic Partnerships
South Africa's Deputy Finance Minister David Masondo says innovation is important in addressing this challenge. The South African government has a significant demand for capital in a rare resource and high debt environment, and has partnered with the private sector in this regard.
The collaboration is under the umbrella of Operation Vulindlela, a joint presidency and treasury initiative to implement structural reforms in key sectors and reduce control of national entities in strategic areas such as transportation, logistics and energy.
While the government is tackling the deep challenges of traditional coal energy, the country's renewable energy programmes are generally praised.
Vuyo NTOI, co-management director of Africa's infrastructure investment manager, told representatives at the event that South Africa provided an important template for attracting project finance through its renewable energy programme, allowing investors to expand through multiple bids.
“Reproducibility means that entities and international players can set up companies and pursue opportunities because they have multiple opportunities to do so.
Constantin Von Moltke, director of Afreximbank's syndicated loans, says Africa's continental free trade areas are changing the nature of commercial industry involvement. He said it focuses on industrial parks, special economic belts and other initiatives related to value creation and export, creating more commercial dynamics for the market.
Masondo also highlighted the need for industrialization in the region.
“When we talk about the structure of different industries and the involvement of the private sector, we have to think continentally and regionally about how we support industrialization and have different locations for specialization.
“It doesn't help to say we have to industrialize on the continent, and then policies will not be aligned. The synergistic effect and harmony of policy on the continent is important to promote industrialization.
Time to mobilize resources
The Pension Fund has also been in the spotlight as an important source of capital for Africa's development. Recent reforms in some African countries have allowed funds to be invested in other African jurisdictions, opening up opportunities for new sources of funding. In South Africa, funds can allocate up to 45% of their portfolio to offshore assets. This is a significant increase from the previous 30% limit.
Masondo said the intake was slow but he has traction in time as domestic resource mobilization gained traction in Africa.
Attention has been made to specific issues with the project, such as the shortage of bankable projects on the table and the issue of capital costs and the need for scale to reduce infrastructure costs.
The NTOI highlighted the need for government to respect contracts and cited examples of where it resided some of its obligations in the electricity market. “Trust and credibility are key to promoting private sector participation in projects.” Policy consistency is also required.
Jinny Yan, managing director of ICBC Standard Bank, urged representatives to consider China for alternative finance. “When we talk about fundraising, we often talk about the Western market. How can Africa leverage this domestic market? We have the second largest bond market in the world, but we are barely impressed by institutional investors in Africa.”
