Author: 5iveafrica

Pension funds have the potential to ignite Africa’s infrastructure revolution

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Across Africa, economic growth and development have gained significant momentum in recent years. But with growth comes a challenge: building and funding the infrastructure to support it.

Where will the funding for Africa’s new infrastructure come from? This remains a crucial question. One solution that offers great potential is pension funds: a vast pool of long-term capital that could be channelled towards infrastructure, with a focus on climate change adaptation.

The importance of infrastructure

Infrastructure is the backbone of any thriving society, enabling connectivity and access to services. In Africa, better infrastructure is pivotal to progress – building bridges that connect communities, power plants that illuminate cities, schools that nurture young minds and hospitals that save lives. But the scale of infrastructure development required across the continent is substantial. And this means a significant amount of funding is needed.

Harnessing pension funds

African pension funds have grown rapidly in recent years, accumulating substantial capital. Instead of letting this money sit idle, pension funds could invest a portion of it in infrastructure projects.

With their long-term outlook and stable cash flows, pension funds are well suited for investing in projects that require longer periods of time and large amounts of resources – as many infrastructure projects do.

Win-win scenario

When pension funds invest in infrastructure, it creates a win-win situation. Infrastructure investment entails improved transport, better energy access and upgraded healthcare facilities, which all contribute to economic growth and enhanced quality of life for people in the region.

In addition, infrastructure projects generate long-term revenue streams, like toll fees from highways or electricity sales from power plants, providing pension funds with steady cash flows, and supporting future retirement payments.

Nigeria and South Africa

 Several African countries have already begun to recognise the value of investing pension fund assets in infrastructure:

  • Nigeria: The Nigerian Sovereign Investment Authority has used pension assets to finance key infrastructure projects, including roads, power generation and healthcare facilities. These investments have greatly improved connectivity and quality of life for many Nigerians.
  • South Africa: The Public Investment Corporation has been vital in financing infrastructure projects, including renewable energy initiatives. These investments are contributing to South Africa’s sustainability goals and fostering a greener future.

Covid recovery and sustainable investment

 The Covid-19 pandemic has severely impacted Africa’s economy, but the recovery effort has provided an opportunity to prioritise sustainable infrastructure investments. By allocating a portion of their portfolios to infrastructure projects, pension funds can help drive economic recovery while ensuring long-term returns. In Ghana, for example, the Social Security and National Insurance Trust has been actively investing in infrastructure projects to support the country’s recovery efforts.

Climate change resilience

Africa is particularly vulnerable to the effects of climate change. This is an important consideration when financing new infrastructure. Pension funds can help the continent build a climate-resilient future by prioritising investments in renewable energy, climate-smart agriculture and resilient urban planning. In Kenya, for example, the government has invested in a number of renewable energy projects, like geothermal power plants. This not only helps to fight climate change, but also provides sustainable energy solutions for the country.

Building a sustainable future

African governments, supported by international organisations like the World Bank and the African Development Bank (AfDB), have already implemented recovery plans that emphasise infrastructure as a key strategy to stimulate growth and improve the lives of ordinary Africans. Continuing this momentum and recognising the potential of pension funds to finance infrastructure, will be essential for Africa’s financial development.

As African nations continue to grow and evolve, the deployment of pension funds in infrastructure projects stands as a beacon of sustainable development. These investments will do more than build roads, power plants, and hospitals; they will weave a fabric of connectivity, opportunity, and stability that will endure for centuries.

Saudi companies building confidence in African carbon markets – Nairobi’s voluntary carbon market auction

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A rather extraordinary thing happened in Nairobi on Wednesday (14 June) which was that there was a voluntary market auction of carbon credits, the vast majority from Africa, in which the buyers were some 15 Saudi companies, including Aramco, and the national airline Saudia – all looking for offsets as part of their decarbonisation strategies. 2.2m credits were sold at an average price of $6.27 per tonne and, while the full details of this closed auction were not made public, the credits being sold came mostly from quite a large group of African countries (including Kenya, Egypt and Rwanda), with some from the Middle East and elsewhere.

The auction was the brainchild of Saudi company, the Regional Voluntary Carbon Market Company (RVCMC) and its CEO, Riham ElGizy. Having conducted a first, successful auction in Riyadh in 2022, ElGizy was determined to conduct the second in Africa.  Inspired by President William Ruto’s speech at the Africa Carbon Markets Initiative (ACMI) launch at COP27, ElGizy chose Nairobi and persuaded 15 Saudi companies to travel with her to take part in the auction, offsetting the emissions from the journey through the purchase of more credits. The auction was taking place against the backdrop of the Saudi Green Initiative which has set ambitious targets such as increasing energy generation from renewables to 50% of the total by 2030.

RVCMC is majority-owned by the Saudi sovereign wealth fund, the Public Investment Fund (PIF), with a minority of the shares held by the Saudi Stock Exchange.  It exists to facilitate voluntary carbon market trading, including – eventually – by investing in carbon-based businesses and setting up a dedicated exchange.

The auction event was, on one level, entirely practical – a professionally run event in which supply (of high quality, well diligenced credits) met demand.  The buyers knew they were going to get something (there was a guaranteed minimum) and they were also given the opportunity to bid for more credits on top.  There was a straightforwardly commercial aspect to it.

On another level, the event was highly symbolic. Here were high emitting companies from the world’s most prominent petrostate buying offsets from Africa, the continent that contributes the least to global emissions and yet experiences the damaging effects of climate change more than any other. Saudi Arabia’s annual C02 emissions are 19 tonnes per capita while Kenya emits a mere 0.4 tonnes per capita.

RVCMC, it would appear, had brought the Saudi buyers to Kenya to emphasise two things in particular: first, that Africa had an abundant supply of something that was valuable to them (carbon credits) and was therefore a place where business like this could and should be done.

Secondly, that there is a human, or societal, imperative to decarbonisation that underpins why well-functioning carbon markets matter.  We should be concerned, and even offended, not only that African countries bear enormous economic costs as a result of climate change but that it is the poorest or most vulnerable in these countries that suffer the most. And it is an unfortunate fact that Africa is able to illustrate these points more starkly than anywhere else.

For those who were present at this auction, this unusual display of both commercial competence – through the delivery of a marketplace where globally significant companies could safely transact – and organisational purpose, centred on people and planet, was striking and inspiring.

There were a number of other takeaways.  First, the close alignment of this event with the broad objectives of the upcoming Africa Climate Summit to be hosted by Kenya and the African Union on 4-6 September.  These objectives include presenting Africa not as the perpetual planetary victim but as part of the climate change solution – with some of the world’s most significant carbon sinks in its forests and savannahs, and abundant renewable energy capable of driving the green industrialisation strategies that will produce tomorrow’s carbon unicorns. This could have been a Government of Kenya promotional event – only, remarkably, it wasn’t.  This was entirely a RVCMC initiative. So perhaps this auction was more proof that attitudes towards Africa are shifting, both inside and outside Africa, and starting to coalesce around a vision for Africa that celebrates the opportunities the continent offers and doesn’t obsess about its needs.

On pricing, the achieved price of $6.27 per tonne, is consistent with what is available on the market.  It is a reasonable reflection of the challenges that voluntary carbon markets are going through, as a result of regulatory uncertainty, macroeconomic conditions that are unhelpful to carbon markets and shocks that have come out some projects that keep raising concerns about market integrity.

While we are told that the prices achieved were very much in line with the organisers’ expectations, there obviously needs to be a massive increase in both prices and volumes for voluntary carbon markets to contribute meaningfully towards the shortfall in climate finance in Africa which is about $250bn per annum (as calculated by Climate Policy Initiative in last year’s Africa Landscape of Climate Finance).

The price achieved by this auction is an expression of just how nascent this market is and how we still need to go through a lot of hard market building graft (putting place market-leading regulation, building a much bigger pipeline of investible carbon projects etc.) before prices start to rise – as most observers believe they inevitably must.  In that sense the auction was a useful reality check. It is possible to get higher prices through highly bespoke transactions or for specialised sectors such as Direct Air Capture but, generally, prices still have a way to climb.

FSD Africa, with its strategic focus on driving more innovation in African financial markets, is committed to carbon market development not just because carbon markets are good for the planet and good for communities (often rural) who stand to benefit when carbon finance flows – but because they will also make financial markets more innovative through the de-risking and cash flow that carbon finance brings.

In other words, carbon finance is highly leverageable – but, for it to play that role, other investors need to believe that it is real – as real as cash. Blockchain and other technologies may eventually be able to make carbon markets work more efficiently but the core challenge today is to make them believable.

That is why market integrity, underpinned by permissive regulation that is also clear and robust, is so essential and why FSD Africa is lending its support to the Africa Carbon Markets Initiative (ACMI) and others working hard to build the soft infrastructure, and capacity, that these new markets clearly need.

It is also why successfully completed transactions, such as we saw from RVCMC earlier this week, are also so important, a signal of growing confidence and of even bigger and better things to come.

Announcing a Just Transition Finance Challenge

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Financing a fair and inclusive transition to Net Zero

What is the Just Transition Finance Challenge?

The Just Transition Finance Challenge is a flagship initiative to mobilise more public and private capital into investments that support a Just Transition to Net Zero in the UK and other developed and emerging markets.

Launched by the Impact Investing Institute, with the support of the City of London Corporation, it brings together leading global financial institutions with over £3.6tn of assets and assets under management, including public and private asset owners, asset managers, development finance institutions and advisors, who are committed to financing a Just Transition.

This session presented a new coalition of key investors committed to mobilising capital towards impact investing and ensuring that the investment for a transition to Net Zero is inclusive and socially beneficial.

Moderated by Laurie Spengler, CEO of Courageous Capital Advisors and Senior Advisor for G7 Impact Taskforce, the panel consisted of Sharon Johnson, Chief Operating Officer, AgilityEco; Maria Nazarova-Doyle, Head of Pensions Investments and Responsible Investment, Scottish Widows; and Anne-Marie Chidzero, Chief Investment Officer, FSD Africa Investments.

 

Innovative finance is essential to tackle barriers to investment in Africa’s climate finance needs – at an average investment of USD 250 billion annually from 2020 to 2030

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11 August 2022: The African continent presents a massive investment opportunity for investors to advance the deployment of climate solutions in the coming decade according to a new report Climate Finance Innovation for Africa. However, this will require innovation in financing structures and the strategic deployment of public capital to ‘crowd-in’ private investment at levels not yet seen.

Current levels of climate finance in Africa fall far short of needs. Africa’s USD 2.5 trillion of climate finance needed between 2020 and 2030 requires, on average, USD 250 billion each year. Total annual climate finance flows in Africa for 2020, domestic and international, were only USD 30 billion (CPI forthcoming), about 12% of the amount needed.

Barriers related to shallow financial market depth, governance, project-specific characteristics, and enabling skills and infrastructure have stifled private investment in African climate solutions to date.

To overcome these challenges will require innovation in financing structures. But there is no one-size fits all. Public and private investors must tailor their financial instruments and strategies depending on the acute or chronic nature of the barriers identified.

Recommended actions for increasing the deployment of innovative finance include: Identifying and understand barriers constraining finance by sector and geography, matching instruments with barriers, matching instruments with project and technology lifecycles, enhancing engagement and co-financing with local stakeholders, and supporting innovation by establishing conducive policy and regulatory frameworks.

This work provides a framework for how these instruments and strategies can be efficiently deployed to overcome barriers to finance and capitalise climate solutions in Africa.

Read full report here.

Building capacity for a more inclusive digital economy

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The world has come a long way since the invention of computers in the 20th century. Digital triage tools are assisting community health workers in reducing maternal mortality in rural Africa. Bitcoin is now legal tender in the Central African Republic. The hashtag #BringBackOurGirls brought global awareness to the plight of 276 schoolgirls abducted in Northern Nigeria and was even retweeted by the former first lady of the United States of America. And, at the click of a button, lunch is at your doorstep! The fourth industrial revolution, a phrase coined by Klaus Schwab, the founder and CEO of the World Economic Forum, signals just how massive the potential magnitude of the technological changes happening around us is.

Today, the application of digital technologies is having a significant impact on economies and on societies. In Africa, digitalised economies present new livelihood and welfare opportunities for low-income people across the continent. Online e-commerce platforms like Jumia have provided access to new markets for small retailers, while logistics and ride-hailing platforms like Sendy and Little Cab have enabled drivers and boda-boda riders to earn a liveable wage. Successful fintechs like MFS Africa and Chipper Cash are allowing more affordable and reliable access to remittances for low-income people across Africa, and insuretechs like PharmAccess are providing vulnerable people more affordable access to healthcare.

These opportunities, however, do not come without risks and access issues persist. The ‘digital divide’ refers to the gap between those who can access and benefit from the internet – and those who cannot. Despite the rapid expansion of broadband and mobile data coverage across the continent, many Africans remain excluded. Data is still very expensive and unaffordable for millions of low-income people and digital literacy remains low, particularly among women, older people and rural dwellers. The digital divide grows when we take relevance into consideration. Are digital tools accessible in local languages? Are solutions relevant and beneficial for the majority of Africans?  If governments and other market actors do not actively work towards closing digital divides, the inevitable continued growth of digitalised economies risks excluding millions of Africans.

In 2020, FSD Africa and the FSD Network partnered with Digital Frontiers Institute (DFI) to develop a course on inclusive digital economic development (iDED). This 4-week course brings together definitions, tools and terminologies from global thought leaders on the digital economy and provides learners with an inclusive perspective and the digital economy’s effects on low-income and vulnerable people. The offering provides the sector with a solid foundation for professionals working in the digital economy who are passionate about inclusive development.

This collaboration builds on our long-term partnership with DFI to build a new Digital Finance profession for Africa. FSD Africa is providing full scholarships for 40 excellent candidates from Ethiopia, Ghana, Nigeria, Somalia or Sudan who are interested in pursuing the course in October 2022.

There is no doubt that the digital transformation age is an exciting one, with opportunities beyond our imagination and value we are still learning how to measure. It is, however, important to remain grounded in the principles of equity and inclusion that govern how each of us meets our basic needs. We encourage professionals working in governments, development organizations and the private sector who are interested in building an inclusive digital economy to apply for a full iDED scholarship from FSD Africa here.

FSD Africa and CDG Capital support Africa’s first corporate clean mobility green bond worth $95m issued by Morocco’s National Railway Operator

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This is Africa’s first corporate clean mobility bond worth 1 billion dirhams ($95m) launched by the Office National des Chemin de Fer (ONCF) to facilitate the refinancing of the operations of an electrified railway line aiming to achieve low carbon transportation in Morocco.

Casablanca, 28 July 2022: Africa’s first corporate clean mobility bond has today been launched by Morocco’s national railway operator (ONCF). ONCF was supported by CDG Capital in the strategic advice, structuring, placement, centralization, and coordination of the green certification work with its partners FSD Africa and CBI.

With this issuance, ONCF is targeting to raise approximately 1 billion dirhams ($100m) to support the Al Boraq project, which has led to considerable gains for the community in terms of connectivity, travel time and frequency, while reducing greenhouse gas emissions.

This high-speed line (Ligne à Grande Vitesse – LGV) project is part of a master plan to connect Tangier to Marrakech by 2030, advancing economic development by providing faster inter-urban passenger and freight lines with reduced carbon emissions. Through the LGV Journey time between Tangier and Kenitra has been reduced by 2 hours and 25 minutes and will result in a reduction of over 2.9 million tonnes of carbon equivalent over a 30-year timeframe.

Climate Finance is an important focus area for FSD Africa. This project presents an opportunity for FSD Africa to support the issuance of Africa’s first corporate clean mobility bond.
Mark Napier, CEO – FSD Africa

FSD Africa and Rabobank ACORN/Rabo Foundation to fund sustainable farming for African small-scale farmers with loans for carbon credits

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FSD Africa will support Acorn projects in the initial scale phase that aims to benefit around 3,000-5,000 small-scale farmers whilst Acorn has the ambition to reach 1 million farmers all over the globe following the scale-up.

Nairobi – 27 July 2022: FSD Africa and Rabobank ACORN / Rabo Foundation today launched their collaboration in helping small-scale farmers with their transition to Agroforestry, a sustainable and climate resilient farming practice.

Acorn – Agroforestry Carbon removal units for the Organic Restoration of Nature – is a program being developed by Rabobank to unlock the international carbon market for smallholder farmers in the developing world. It aims to help farmers transition to agroforestry at scale and monetize the carbon stored in the trees planted through Acorn’s global transparent and technology-enabled marketplace for carbon sequestration. The collaboration will focus on kick-starting new small-scale farmers’ agroforestry projects in Kenya, Nigeria and Zambia.

FSD Africa together with Rabo Foundation will provide finance to the small-scale farmers to help them transition to sustainable agroforestry. The local implementation partners will collect the farmer data and onboard the farmers onto the Acorn platform. They will then be able to sell carbon removal units (CRU) to corporate off-takers through Acorn’s technology-enabled marketplace. The proceeds of the CRUs will be used to pay back the loan. For FSD Africa as the financier, testing this innovative finance structure will be an important outcome of this first scale phase.

We are proud to acknowledge that this program will contribute to 8 out of 17 UN SDGs, including those related to poverty reduction, food security, reduction of pollution, economic productivity, resilience, sustainability of forests and capital mobilization.
Mark Napier, CEO – FSD Africa

FSD Africa signs agreement with Africa Pensions Supervisors Forum at annual conference

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Partnership to strengthen the continent’s pension sector, benefiting retirees and long-term savers.

Kigali, July 14 2022: The Africa Pensions Supervisors Forum (APSF) held its third annual forum in Kigali from July 14-15, 2022. The forum brought together pension supervisors from different African countries to deliver a harmonized approach for interventions and reforms in the pensions sector across the continent. The theme of the conference was “Resilience and sustainability of the pension sector amid the crisis- The case of covid 19 pandemic”.  Pension supervisors in Africa, relevant stakeholders, experts and partners in the pension industry shared experiences, discussed opportunities, challenges faced by the pension industry and new developments in the industry.

Through the network, countries will be better placed to tackle common problems and find solutions to challenges unique to Africa. The challenges include lower investment returns and Africa’s labour structure that comprises approximately 86% of labourers being in the informal sector and with limited access to the pension services.

By partnering with APSF we are jointly paving the way for a Harmonized approach towards interventions and reforms in the pensions sector. Our collaboration will forge solutions that speak to Africa’s unique pensions landscape.
Dr. Evans Osano, Director, Capital Markets – FSD Africa

FSD Africa invests $3.5M in Catalyst Fund to accelerate and scale pre-seed impact ventures in Africa

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London 14 July 2022: Global inclusive tech accelerator Catalyst Fund, managed by BFA Global, announced today that FSD Africa has invested $3.5M to anchor the Fund’s presence in Africa and scale its work as the leading accelerator and pre-seed impact fund for emerging market entrepreneurs.

With FSD Africa’s backing, Catalyst Fund will invest and offer hands-on venture-building support to high-impact startups that improve the resilience of underserved and climate-vulnerable communities, to support 40 pre-seed impact ventures in Africa. The accelerator will also continue to build strong innovation ecosystems by activating investors, capacity-building networks, and corporate innovators to unlock capital, attract talent and share knowledge about

Our partnership with Catalyst Fund will spur innovation by investing in and supporting entrepreneurs while at the same time helping to influence and expand the pool of investment in this space.
Juliet Munro, Director, Digital Economy – FSD Africa

Pension savings a must for Africa’s retirees

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Who will look after you when you’re retired? Will it be your children, as you did for your parents when they became old? Will they be able to afford to support you, while raising their own family?

A great tragedy we see too often is old-age poverty. Where, after a successful career and life, our elderly fall into poverty. This is mainly due to lack of retirement savings through formal pension schemes or other ways of saving for retirement, for needs such as food, shelter, and medication.

While you would expect that those most affected are in informal sectors, it is disturbing to note that even those in formal sectors where there are no government-driven retirement plans are also affected. Poor plans for old age are a result of retirement illiteracy, closed-mindedness towards retirement contributions and limited access to savings channels.

Between 2014 and 2019, investments in private equity accounted for less than one per cent of total pension assets for most countries in sub-Saharan Africa.

Effecting systemic change has become critical in ensuring that future generations do not suffer due to a lack of enough retirement cashflows to sustain their lives. This has a direct nexus with economic development, poverty reduction, improved livelihood, and increased resilience of individuals.

The pandemic caused a 6% fall in per capita incomes in 2020 – setting living standards back by a decade in a quarter of sub-Saharan Africa, (WB, Jan 2021). Gross Domestic Product (GDP) Losses were estimated at $146bn in 2020-2021, with an estimated 25 to 30 million jobs lost.

With this, the continent faces a financing gap for future development of $290 bn for 2020–2023. Private flows would barely cover half of the financing needs while other flows from various donors are thin. According to the International Labour Organisation, pension coverage remains low in Africa with only 9.6% active contributors from the working-age population (15-65 years).

Domestic resource mobilisation has received greater limelight during the Covid-19 period – in line with the Africa Union Agenda 2063, with pension sector development being recognised as key in filling this funding gap. Furthermore, through its asset allocation, pension funds can direct more resources to the private sector, boosting jobs and growth and finding its way to climate-friendly investments.

In 2019, FSD Africa formed the Africa Pension Supervisor’s Forum (APSF), which has a membership of 10 African regulators – Botswana, Egypt, Mauritius, Ghana, Kenya, Nigeria, Rwanda, South Africa, Uganda and Zambia – who combined are responsible for 86% of pension assets on the continent.

The APSF was formed to pave the way for a harmonised approach and collaboration towards interventions and reforms in the pensions sector across the continent. The first APSF Conference, themed Unlocking Africa’s Pension Potential, covered critical topics including new investment products, asset allocation policies, sustainable/climate investments, automation of pensions contributions, incentives for inclusive pensions and emerging trends in RegTech, fintech and SupTech.

Under the Africa Pensions Supervisor’s Programme, which resulted from the APSF, FSD Africa aims to carry out holistic interventions through the application of innovations and a joint approach to resolving common challenges in the region’s pensions sector. This will ultimately encourage long-term savings to not only meet the pension assets’ growth potential but also create facilitative policy, regulatory and industry environment to support appropriate deployment and investment of the pension assets. The initiative also aims to increase pension literacy and knowledge building on retirement products and investments.

To achieve the above targets, Africa Pensions Supervisor’s Programme is looking at ways to provide technical assistance to develop guidelines and regulations that would allow access to retirement savings for housing and mortgages. This will go a long way toward resolving the ongoing housing affordability crisis.

A revolution in the continent’s pensions sector is beckoning. It is envisaged that through this programme, longer-term financial sector and social and real economy impacts will be realised. By deploying capital resources drawn from the pensions sector, it will be possible to efficiently and effectively finance long-term inclusive economic growth. In addition, the programme will also create a sustainable future for pension contributors and increase access to basic services during retirement through cashflows from pension savings.