Author: Kihingu Inc

COP26 Highlight – Financial sector greening: Building foundations for sustainable finance in developing countries

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By 2025, more than a third of global assets under management could be ESG-aligned. With public budgets constrained in the wake of the Covid-19 pandemic, this mass transition by the financial sector has the capacity to drive green, inclusive, and resilient growth in the real economy. However, with limited skills, data, regulations and policies to support green finance, many of the most climate-exposed developing countries struggle to attract sustainable investment. At the same time, the greening of the global financial system must account for the unique challenges and opportunities in regions outside of Europe and North America or risk entrenching existing barriers to funding.

This event brings together expert voices from developing countries and private finance to show how nations with emerging financial sectors can lay the right foundations to tap into global pools of ESG-aligned capital and use it to accelerate the growth of green businesses. It will provide replicable examples of green financial market building and launch a conversation running through to COP27 on how developing countries can take a more prominent global role in transforming financial systems.

On Finance Day, 03 November, we convened a panel on Financial sector greening: Building foundations for sustainable finance in developing countries where policymakers, donors and the private sector came together to discuss how developed and developing countries can work collaboratively to help the latter develop local markets for green finance, attract a greater share of global sustainable investment, and shape international frameworks, standards and reporting.

Moderator: Dr Nicola Ranger – Deputy Director, UK Centre for Greening Finance and Investment

Panellists:
Ayaan Zeinab Adam – Senior Director and Chief Executive Officer AFC Capital Partners

Zoe Knight – Managing Director and Group Head of the HSBC Centre of Sustainable Finance

Mark Napier – CEO, FSD Africa

Alexia Latortue – Deputy CEO, Millennium Challenge Corporation

Watch recording here>>

Creation of Africa Green Finance Coalition hailed as “ground-breaking” moment for funding of continent’s green transition

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Nairobi: November 2, 2021

FSD Africa welcomes the Africa Green Finance Coalition, launched at the COP26 World Leaders Summit with the aim of closing the continent’s green finance gap through financial sector reforms, technical assistance, and peer learning.

FSD Africa welcomes the announcement at the COP26 World Leaders Summit that African nations will come together to create the Africa Green Finance Coalition (AGFC).

The AGFC brings together all the countries of Africa to pool resources, share learning and create a pathway for increased flows of green investment capital to the continent. It will facilitate learning and technical assistance across countries, while a peer review mechanism will hold members to account on their commitments to the necessary reforms.

The Africa Green Finance Coalition is exciting because it shows African countries working together and with a high level of ambition to put in place the policy and regulatory reforms that will allow them to compete effectively for the billions of dollars that are potentially available for decarbonisation and adaptation.  We warmly welcome this ground-breaking initiative and look forward to supporting its further development.
Mark Napier, CEO

The AGFC was presented to world leaders by Ukur Yatani, Cabinet Secretary for Kenya’s National Treasury, and Seyni Nafo, Spokesperson of the Africa Group of Negotiators, on day two of the COP26 climate summit.

Underwriting facility set to energise geothermal development in Kenya and Ethiopia

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We are pleased to announce that we, together with Parhelion, a UK-based specialist energy and climate risk finance advisory company, are planning to launch a first-of-its-kind underwriting facility, backed by East African insurers, to de-risk early-stage development of geothermal energy projects with the capacity to significantly expand electricity access and energy sector resilience in Kenya and Ethiopia.

The need

The energy sectors in Kenya and Ethiopia face several systemic issues:

• Large numbers of people continue to live without electricity — 12.5 million in Kenya and 42 million in Ethiopia are still unconnected.

• Growth in energy demand is outstripping supply — Kenya’s power demand is growing 20% faster than GDP, while recent annual growth rates of around 10% in Ethiopia imply a similar increase in energy demand.

• Current sources of energy are either carbon-emitting or climate-vulnerable — 35% of Kenyan power comes from thermal sources, while another 35% comes from hydroelectric dams exposed to drought risks. These risks are heightened in Ethiopia, where 89% of power is hydro-generated.

The solution

Geothermal power plants can produce large amounts of power no matter the time or weather, providing a reliable source of clean energy that is resilient to changes in climate.

Kenya and Ethiopia have large geothermal potential; however, growth in the sector is held back by high upfront investment coupled with the risk of drilling wells that are found to be commercially unviable.

Parhelion will work with East African insurers to create an underwriting facility that mitigates the low probability, high-cost risk of unviable wells. This will use insurance capital to de-risk the early-stage development of geothermal projects, making it easier for projects to attract private investment. Parhelion is also planning to launch the GeoFutures Fund, which would invest in nascent geothermal projects.

The opportunity

East Africa has a potential geothermal capacity of 15,000 MWe; however, just 500 MW is operational in Kenya while Ethiopia has installed just 7 MW. With support from the programme,Parhelion and FSD Africa forecast a 20% increase in geothermal output for Kenya and a 500% rise in Ethiopia, preventing more than 515,000 tonnes of CO2 per year. This is expected to create 2,600 jobs in renewable energy and insurance sectors while bringing electricity to 5.25 million people who currently live without power.

By building the capacity of local regulators and insurers to engage in underwriting facilities, the programme will enable these organisations to apply to same principles to other renewable energy projects. This will deepen the capabilities of the East African insurance market to channel private capital into sustainable development. Moreover, it will enable premiums from underwriting clean energy projects to be retained in the region, rather than the current system, under which local insurers simply act as intermediaries for international counterparts.

FSD Africa backs fintech pioneer to build a new platform aimed at increasing access to carbon markets

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London: 12 October 2021

  • Investment in 4R Digital Ltd to build a platform that will use digital technology to help democratise access to climate finance for small, green projects in Africa
  • The Carbon Value Exchange’s (CaVEx) use of remote monitoring technology will create verifiable carbon credits from projects such as solar pumps, electric vehicles, and nature-based solutions, as well as use digital finance to deliver proceeds from credit sales directly to project participants
  • 4R Digital’s co-founder Nick Hughes to reveal details at the AFSIC Investing in Africa Conference in London on 12th

FSD Africa, the UK Government’s flagship financial sector programme in Africa, is making an initial investment (£650,000) in a highly innovative digital solution connecting carbon credits from small-scale green projects across the global south to international buyers. The investment will deliver funding through the test phase of the solution being developed by Nick Hughes, who led the development of Africa’s revolutionary mobile money service M-PESA.

Hughes is co-founder of 4R Digital, a green fintech start-up developing financial solutions for a range of business partners committed to climate positive projects in Africa spanning distributed solar energy, electric mobility and nature-based schemes. 4R Digital is building a solution that connects these projects to investors looking to offset greenhouse gas emissions at the same time as supporting locally-led climate action.

It is illogical that Africans highly exposed to environmental change find themselves barred from carbon markets intended to fund our fight against the climate crisis. 4R Digital is developing a revolutionary solution with the potential to throw open international sources of finance for entrepreneurs, farmers, and small businesses in developing countries.
Juliet Munro, Director, Digital Economy

 

You can also find out more details by visiting the FSD Africa exhibition stand at AFSIC where the 4R Digital team will be giving a presentation on the technology and meeting interested parties.

Building resilience against flooding in urban areas

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Flooding in urban areas across Africa is on the rise. The continent needs to implement risk-management techniques to ensure its cities are resilient to climate change and the devastation it can cause. This article explores possible ways Africa can build resilience against flooding in urban areas.

Across Africa the annual wet season sees our news reports and social media feeds “flooded” with images of commuters wading through rain and sewerage to get home, cars washed off roads and businesses and livelihoods floating on busy streets. Then, the cleanup begins, the news forgets, people rebuild and, before long, the process repeats.

But it shouldn’t be this way and if we don’t act now the situation will only get worse.

Take Lagos in Nigeria as an example: annual flooding in Lagos has risen in severity over recent years, as climate change progresses. In 2018 alone, flooding caused $4 billion worth of damage, costing around 4.1% of Lagos State’s GDP. The city struggles to manage and recover from these floods, which not only causes disruption to business and social activity but also threatens to eventually make the city unlivable.

Lagos is not alone. More than 70 urban areas face significant flood risks, with 171 million people in sub-Saharan Africa exposed to the dangers of flooding.

In 2019, over 1,000 people were displaced, with roads and bridges destroyed after several days of constant rain in Dar es Salaam. The same happened in 2017 and 2018. In August, at least seven people died after floodwater inundated Addis Ababa

While people will routinely think about taking out insurance for their cars and to cover their health needs, too often they don’t insure against risks like floods. In 2019, SwissRe estimated that 91% ($1 billion) of losses from climate risks in Africa were uninsured.

We need to better manage risk to make our cities more resilient to climate change and the devastation it can cause.

But where do we start? Using Lagos as an example, we combined data, interviews, and models to see how flood risk in the city could be better managed and identified five key takeaways for improvement.

Number one, while flooding happens regularly, most public agencies and private businesses can’t quantify the risk. This includes insurance companies who often struggle to determine their own clients’ exposure. Or think of it this way; how do you know how high to build the bridge, when you don’t know how high the river flows when it floods? When we know this, we can build investment cases for resilient infrastructure and bespoke insurance products.

Which links closely to our second finding: the lack of usable consistent data. Too often data is missing or fragmented. When we lack data, we lose the ability to accurately model risks and impacts. And when we do have data, there is a need for more collaboration between stakeholders to ensure it is used meaningfully.

Third, trust is critical. Throughout the world, consumers can be sceptical of insurance companies and the same is true here. Innovative insurers are looking to address this through deliberately seeking out opportunities to offer clients real value. This also means that insurance companies should move beyond just policy sales, and instead become advisers who can better help clients understand and manage the exposure of their business or property.

Fourth, from flood sensors to satellite-based early warning systems, technology can have a profound impact on how we identify and respond to immediate threats. Partnerships are needed to develop and realise these opportunities, and this requires strong leadership from the local business community and public administration. The insurance industry, and indeed the broader financial sector in Nigeria, have a crucial role in developing local innovation and collaboration, and in leveraging the readiness of African and global reinsurers and experts to provide finance and support.

But as always, even the best data and innovations can only go so far. Leadership is critical. Insurers can step up by adjusting their corporate strategies, but they also need partners with whom to act. In Lagos, institutions such as the Lagos Resilience Office, the Financial Centre for Sustainability Lagos and the Lagos Business School could provide tangible solutions as well as practical advice. Alongside this, agencies such as UKAid funded FSD Africa and other global experts can facilitate support and investment for this process.

Lagos is just one example, but many of the findings offer insights for cities across the continent. With flooding likely to get worse, it is critical to act now to help our cities and communities withstand the flood.

Insurers have a big role to play, and many institutions, including FSD Africa, are ready to partner with innovators to develop new solutions. It’s vital this work is prioritised – to safeguard development gains made in recent years, boost sustainability and protect livelihoods.

This opinion piece was originally published in ESI Africa on 03 October 2021.

 

Insurtechs will reshape the insurance sector

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Needed but not prioritised, relied upon but not trusted – these are just some of the perceptions that have characterised interactions with the insurance sector. The sector has been grappling with the challenge of delivering relevant products for a long time, especially to customers at the base of the economic pyramid.

Only 3% of Africa’s GDP is driven by insurance, which is less than half the world average of 7%. Yet, insurance provides a safety net from many external threats like natural disasters, health threats and economic disruptions.

This brings the question: why is there such a discrepancy, especially given Africa is no less exposed to many of the risks that insurance buffers against compared to the rest of the world? Remote locations, lower education levels and a lack of trust or experience with formal institutions have been key contributors to low insurance uptake in Africa.

According to McKinsey, Africa’s insurance industry is valued at about $68 billion in Gross Written Premium (GWP) whichbehind other emerging markets such as Latin America and the Caribbean. Uptake across the continent is also inconsistent with 91% of premiums concentrated in just ten countries; South Africa has the largest and most established insurance market and accounts for 70% of Africa’s premiums.

In Kenya, a 2019 report by the Insurance Regulatory Authority (IRA) showed that insurance penetration dropped from 3.44% to 2.34% over the last 9 years, an indication that the sector has not been successful at capturing the opportunities presented by the expanding economy.

These statistics clearly depict the protection gap that has left households and businesses vulnerable to shocks triggered by various risks.

Covid-19 has and is still placing significant pressure on the way the insurance business is conducted. The pandemic disrupted providers’ engagement with both regulators and consumers. A study by FSD Africa conducted in 2020 that took stock of the effect of COVID-19 across sub-Saharan Africa, showed that the sector ed to enhance digitalisation as the virus reduced mobility and social interaction amidst government-imposed restrictions. Digitising the sector would also improve access and efficiency of insurance products and services. Furthermore, the study showed that regulators also needed to adjust their service delivery processes of licensing, registration, data collection and product approvals by embracing new solutions.

The pandemic has without a doubt amplified the need to adopt regulatory technology (regtech) and supervisory technology (suptech) in enhancing the efficiency of reporting and supervision processes. There have been notable uptake in online distribution of products, customer-centric services such as the use of chatbots, mapping out trends, assessing risks, managing claims and even marketing. Bold start-up companies are behind some of these most ingenious innovations, with support from the sector’s long-standing players. For example, Lami, in partnership with more than 25 Kenyan underwriters, released its flagship mobile application in early 2020, enabling Kenyans to pay for insurance in instalments and pause coverage if they travel abroad. In addition, Bluewave and APA insurance recently launched an affordable digitally distributed health cover for low-income populations, costing less than USD 2 each month for a hospitalisation cash benefit and funeral expenses benefit of up to USD 500.

To leverage such innovations, Kenya’s Insurance Regulatory Authority, together with its partners, launched BimaLab, a pilot accelerator programme in 2020. The move is meant to enhance visibility and push for resources for talented insurtech founders of early to mid-stage start-ups. The programme will harness innovation for inclusion and enhanced access to insurance products and services with an aim of increasing insurance penetration in Kenya. The programme, now in its second phase and with FSD Africa’s involvement, has seen an increasing contribution of technology to insurance inclusivity through companies such as AiC Chamasure and Sprout.

AiCare is enabling motor insurers to conduct accurate motor insurance risk assessments. This is improving underwriting efficiency and reducing costs of insurance premiums. Chamasure has created a peer-to-peer microinsurance and savings platform which enables those who save through informal social groups to purchase insurance through the groups in case of death or accidents. Sprout Insure developed a faster claim processing solution for crop insurance making it easier for farmers to buy policies and receive timely pay-outs.

It is vital for regulators to balance the need to facilitate and promote innovation with the protection of consumers and the adequate management of the risks that may arise. In this regard, there are seven regulators across sub-Saharan Africa that are also shadowing the second phase of BimaLab programme with an aim of building an enabling regulatory environment. The programme will enable insurance regulators from Nigeria, Ghana, Rwanda, Uganda, Malawi, Zimbabwe and Kenya to adapt and evolve their supervisory processes to be more flexible and responsive to new innovations, technologies, and risks as and when they arise.

As technology advances in the insurance sector, it is important that regulators balance the need to promote innovation with the protection of consumers and the adequate management of the risks that may arise. In this regard, there are seven regulators across sub-Saharan Africa that are also shadowing the second phase of the BimaLab programme with the aim of building a regulatory environment that facilitates and welcomes innovation. The programme will enable insurance regulators from Nigeria, Ghana, Rwanda, Uganda, Malawi, Zimbabwe, and Kenya to adapt and evolve their supervisory processes to be more flexible and responsive to new innovations, technologies, and risks.

Insurtech is revolutionising an almost century-old insurance industry in Kenya, leading to its financial system becoming more accessible to low-income populations. With the trend being recorded across the globe, technology is reshaping the competitive landscape, challenging traditional structures to significantly improving access to insurance.

FSD Africa recognises the role Insurtech plays in increasing insurance penetration and coverage. Thus, we are exploring a pipeline of Digital innovation projects to support this Insurtech revolution and the reshaping of the African Insurance Industry.

How to unlock green investment in African cities, accelerate growth and build resilience

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Our new report with the Coalition for Urban Transitions shows that investing in low-carbon cities across Africa offers promising opportunities to accelerate their transition to a green and resilient future.

Cities and governments that focus on key instruments and enabling policies will be well placed to unlock the required investment and stand to profit generously.

Africa is under immense pressure to develop its cities in ways that its people can thrive and their needs are met. Its cities are changing rapidly: urbanisation is happening faster than anywhere else in the world with populations set to double in the next 40 years. Lack of capacity to manage the growing demand for services means that poorly considered urban development is often sprawling, disconnected and polluting, putting considerable strain on already stretched societies.

Added to this, African cities face major threats from the impacts of climate change, with many of the continent’s key hubs and capital cities at extreme risk of flooding, droughts and heatwaves. Both challenges are compounded by the other.

The crises require a rapid and coordinated response to construct new climate-resilient places for city populations to live, work and travel.  They present a major opportunity, described in this report, to rethink urban development by investing in compact cities with well-connecting services, efficient transport systems and protection from the risks posed by climate change.

Cities built this way will be more prosperous: they will be cheaper to run, healthier, less polluting and more inclusive. They will also create hundreds of thousands of jobs and provide attractive returns for investors.

The new report predicts that 35 major cities in Ethiopia, Kenya, and South Africa will benefit by $1.1 trillion by 2050 from investing in compact, connected and clean urban development – as much as 250% of their annual GDPs. The additional measures needed to build the sustainable cities will cost £280billion and generate generous returns with a net present value of $90billion in Ethiopia, $52billion in Kenya and $190billion in South Africa.

But it will require leadership and collective effort to unlock the green investment, with commitment from those in authority to overcome budgetary constraints and weak borrowing power. National policies and regulatory frameworks alongside initiatives to improve creditworthiness and implement land value capture will be required to help secure the funds.

City leaders can build on national policies by strengthening community participation and forging effective partnerships to harness the required expertise and local insight unique to each city.

The report shines a spotlight on the key instruments that urban leaders can pursue to unlock the vital investment. Cities in Africa and elsewhere are already piloting innovative mechanisms — pay-per-use cooling subscriptions and utility leasing contracts for electric buses — alongside established finance tools like green bonds and private sector partnerships, to draw in the capital and expertise needed to shape and finance Africa’s urban development.

“There is no ‘one-size-fits all’ approach to financing sustainable and resilient cities across Africa but this report shows how it is possible for national and city leaders to achieve ambitious goals by deploying scalable instruments to unlock urgently needed investment.  With the right enabling environment, these instruments will help to secure the finance required to build attractive and resilient cities for Africa’s growing urban populations.”
Mark Napier, CEO of FSD Africa

African leaders that unleash their urban potential to support and finance low-carbon inclusive cities, will boost their economies, and build greater resilience to climate change, poverty, unemployment, and inequality. ‘Financing Africa’s Urban Opportunity’ is an enormous challenge but the possibility to accelerate resilience and prosperity is promising.

FSD Africa joins the Extreme Heat Resilience Alliance: Reducing Extreme Heat Risk for Vulnerable People

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We are proud to announce that FSD Africa is now a member of the  Extreme Heat Resilience Alliance (EHRA), joining over 30 global EHRA partners.  

The EHRA was formed in August 2020 by the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center in response to the growing threat from climate-related extreme heat events, particularly in cities. 

With Arsht-Rock’s support, EHRA has assembled a diverse group of experts to increase collective and individual resilience to extreme heat through education, policy, finance, and implementation solutions for one billion people around the globe, aiming to reduce the negative health and economic impact of extreme urban heat on vulnerable people. Africa is particularly vulnerable to extreme heat. It is the hottest continent on earth, holding many heat-related records. The continent has the hottest extended region year-round, the areas with the hottest summer climate, the highest sunshine duration, and more. According to the UN IPCC, mean annual temperature rise over Africa, relative to the late 20th century mean annual temperature, is likely to exceed 2°C by the end of the century, with a likelihood of land temperatures rising faster than the global average with severe consequences for water availability agricultural systems, and health outcomes.  

“FSD Africa is joining the EHRA in recognition of the impact of extreme heat on Africa’s population and its threat to the realisation of a sustainable future.  Our commitment is to contribute to the urgent collective action required to address the short and long-term shocks of extreme heat, with a focus on vulnerable African communities.”
Kelvin Massingham – Director, Risk and Resilience

In the last five years, FSD Africa has implemented several climate-related projects, including the Green Bond Projects, mobilising over £130m for climate mitigation projects. In addition, FSD Africa is currently exploring flood and heat resilience projects in African cities affected by extreme heat weather conditions, and climate-related effects.   

The work of the EHRA is focused on five areas:  

  • Educating decision-makers linked to vulnerable communities about the risks and impacts of extreme heat by making data and risk assessment tools more widely available;  
  • Recommending and working to enact policies that help governments increase heat resilience in their communities;  
  • Providing better access to affordable financing solutions for heat reduction or protection, including extreme heat risk transfer products; 
  • Quantifying the economic impacts of extreme heat to raise awareness and motivate action; 
  • Implementing replicable, effective on-the-ground interventions for extreme heat reduction. 

Developing Nairobi as a financial hub will open the region to climate finance

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When it comes to the big debates about climate change, Africa is the forgotten continent. It receives less than 3% of global climate finance and yet 30 out of the 40 most climate-vulnerable countries in the world are in Africa. It contributes the least to global warming and yet extreme weather events are growing in both frequency and severity with a shocking knock-on impact on biodiversity loss.

However, while we tend to see Africa merely as a victim of climate change, this ignores the fact that could be a large part of the solution as well.

From the forests of Gabon to the Congo Basin in Central Africa, the continent is rich in natural capital while countries like Kenya have been leading on the shift to green energy with 90% of its energy production already in renewables. Although progress has been too slow and fragmentary, African countries have been getting themselves ready to receive a much bigger share of global climate finance. Once this is invested in green projects, it will benefit the whole planet.

Kenyan President Uhuru Kenyatta’s visit to London has highlighted Kenya’s role as a leader in green finance.  The country has already removed tax on interest on green bonds. It has drafted a green fiscal policy incentives framework covering the entire whole economy and is now considering a carbon tax as well. In addition, Kenya’s inaugural sovereign green bond is now imminent.

This is significant in several ways not least that it is about a new type of relationship between sub-Saharan Africa’s 3rd biggest economy and the UK; one based on investment rather than aid, whilst at the same time showing how smart, targeted British support, which has been crucial to the development of the green bond, can help unlock that investment.

There can be no better symbol of that new relationship than the agreement, announced between the City of London and Nairobi’s International Financial Centre (NIFC), backed by one of the UK’s biggest financial institutions. NIFC has been established to make it easier and more attractive for firms to offer financial services and related activities in Kenya and the region, reinforcing Kenya’s position as a hub for investment in the region. The hope is that the NIFC will provide a huge boost to investment in Kenya, and it is expected that an increasing amount of this will be from the UK and green.

For UK investors who may have shied away from what they regarded as risky investments, green bonds offer an attractive route to investing in developing markets because of the greater transparency requirements they need to be verified as genuinely green.

For Kenya and other developing countries, green finance is attractive because of the huge growth in ESG funds chasing investment opportunities. This is particularly important at a time when these countries are having to deal with the financial impact of the Covid pandemic.

If they are to truly capitalise on this opportunity, they will need to provide assurance to investors that they can offer a stable, regulatory environment. Having a clear tax and contract enforcement framework is vital.  But they will also need to demonstrate their commitment to a green economic development pathway.

One of the biggest challenges for Kenya and other African countries is to create investment grade projects that are large enough to absorb the capital that is already available. For instance, a large institutional investor in the UK might look for a minimum investment size of $50-150m but they might only be allowed to take a small proportion of the total capital being raised. These two factors together would imply a total deal size that is huge by African standards.

So more effort needs to go into, first, supporting green project transaction development, and, secondly, creating the guarantee structures that will help to get the project financing over the line.

We also need different conduits to pool institutional capital and give big investors diversified exposure to a basket of green projects, so that Africa can get the capital it needs to build a sustainable future. That is where initiatives like the NIFC can play a big role in ensuring that Africa is no longer the forgotten continent but a leader in the green finance revolution.

This opinion piece was originally published in the print version of the East African on 30 July 2021.

Why long-term finance is vital to Africa – and how data can unlock

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Africa badly needs long-term finance. But to properly develop, long-term finance markets need data and in-depth data analysis. For years, this sort of market intelligence barely existed. But the work of the Africa Long-Term Finance Initiative gives hope that things are changing.

Why is long-term finance important?

The simple answer: sustainable growth. Longer-term investments support growth and development by reducing costs. That increases productivity and competitiveness and creates jobs – particularly for the 12 million young Africans joining the workforce every year.

But there are significant long-term finance gaps across African economies, especially in the infrastructure, housing and enterprise sectors. These industries are crucial to the continent’s economic recovery from Covid, but businesses in these sectors often find they’re asked to repay loans before the investment has had a chance to yield a return.

Long-term finance is also necessary to accelerate Africa’s green transition, asies and governments seek to reconcile economic development with climate change mitigation and adaptation.

How can data help?

One of the main reasons for the dearth of long-term finance in Africa is a lack of investor confidence. Investors feel exposed to liquidity and interest rate risks, and thus lack the appetite to provide anything more than short-term money.

This is largely due to a lack of market intelligence. Historically, there have been few – if any – benchmarks or indicators to go on when it comes to the performance of long-term finance in Africa. Without this knowledge, investors are reluctant to provide the necessary finance, for the necessary length of time for many businesses and projects to grow.

The deepening of domestic financial markets, with increased provision of financial products and services for all levels of society, is crucial to increase the availability of finance and deploy it more efficiently, and also to reduce exposure to foreign exchange risk – and this process es accurate data, too.

What is the Africa Long-Term Finance Initiative?

In 2017, a number of institutions, including FSD Africa, came together to fix this lack of market intelligence by launching the Africa Long-Term Finance Initiative.

The initiative’s objective is to close the financing gaps in the infrastructure, housing and SME sectors. The ways it does this is by improving market intelligence through collecting data, operating a country-comparison LTF Scoreboard, summarizing the data in regular reports on key findings, and providing in-depth country diagnostics

These products enhance transparency and provide benchmarks to assess the comparative levels of long-term finance markets across the continent. The Africa Long-term Finance Initiative Scoreboard presents data using different benchmarking techniques, providing a more detailed picture than a simple comparison of country averages. The country diagnostics provide additional country-specific quantitative and qualitative analysis, complementing the data presented in the Scoreboard.

In turn, these outputs are helpful to inform policymakers, the private sector and donors about the availability of long-term finance, boosting investor knowledge and confidence – and thereby catalysing new partnerships that strengthen focus on what’s needed to increase the availability of long-term finance.

In addition, by enabling comparison between countries, the LTF scoreboard is creating positive competition among national stakeholders, and further driving the availability of long-term finance.

The green finance opportunity

Long-term finance is closely linked to the green transition in Africa. Countries like Kenya, Nigeria and South Africa have taken the leadcreating programmes for green bonds, which tap into domestic and international capital markets to finance green projects.

The success of these initiatives and the increasing global demand for green investments have led other countries – like Ghana – to follow suit in considering green instruments as a way of attracting long-term finance.

Driving recovery through data

The economic impact of Covid-19 means it’s more urgent than ever to respond to the investment needs of African businesses. The progress made on market intelligence by the Africa Long-Term Finance Initiative is therefore particularly timely. By equipping and emboldening investors, it’s hoped that the initiative’s work will be the first building block in the development of a strong long-term finance market to power sustainable growth