Category: Blog

The role of capital in catalysing the development of a more sustainable Africa

Posted on by TIMOTHYRADIER

Coordination problems are hard! Solving them represent potential for massive returns. The paradox of “insufficient demand” for already available capital pools, and the taunted “financing gap” on the other is perhaps a famous coordination problem in development finance circles.

If capital was a person, she would have to be ambitious – while avoiding hubris, readily embrace ambiguity showing a deep interest in, and a belief in a more prosperous future. She would have natural aptitude for building strong relations and for solving hard relational problems – while not being suicidal. She would be agile – showing great ability to renew herself for new emerging risks and opportunities. She would need to have training in management of trauma and disappointment, all while embodying a philosophy of optimism.

She would brush up on her Keynesian economics and contemplate its implications in the context of low productivity in Africa, ongoing debt distress, and weak institutions of political governance.

Africa needs capital that is fearless, brave, and courageous – intrepid. A form of capital that works on two sides of development, it will serve to accelerate capital flows on one hand, and work to unlock demand on the other. Her vision will draw from two themes – first, an ambition to deeply explore and design paths to solving Africa’s intractable development and second, an ambition that anticipates nasty surprises all the while building partnerships, institutions, and incentives to get things going. An ambition that fuses understanding with execution.

At FSDAi, we are working hard to solve these problems and provide risk-bearing, early-stage capital in innovative forms to support venture-building stage capital allocators who combine capital with other critical support to businesses at the start-up and early stages. We are also working to develop new asset classes – across private credit, guarantees, and alternatives among others. To do this well, we work from the ground up to ensure we understand the demand side of capital – interrogating market conditions, through partners, building a pipeline of investable opportunities, and addressing talent gaps. FSDAi works too on the capital formation side, providing catalytic capital that makes it easier to attract new forms of capital.

In markets, tailwinds can quickly become headwinds. As the global inflation has shown, capital flight is all too easy. The inflationary pressures were not always obvious, and most countries in Africa were focused on kickstarting their economies from the ravages of the Covid pandemic when the inflationary headwinds hit. Africa faces weak economies, high unemployment rates and low productivity and debt overhang – local and external. Backing enterprise is not equivalent to putting out your sail; and yet, optimism of the future of Africa should be fused well with certainty of turbulence in markets over time.

Africa will need capital that encourages entrepreneurs to emerge. That will mean finding capital that is patient and that can catalyze other capital to flow onto the continent. Capital that can persuade local pension funds to invest. The current equilibrium is unsatisfactory – there is not enough capital that accepts disproportionate risk, enables third-party investment that otherwise would not be possible, and is long term. Capital at start-up, early, venture-stage and SME growth capital is still severely in short supply.

Local capital is all too often preserved in money markets and government treasuries and only trickles into the real economy. Capital flows to address early-stage ventures is especially limited as most fund managers are too risk-averse and impatient. Even when they take risks, venture funds are pack hunters – signalling each other to back the same ventures.

To truly address the demand side – enterprises that have ambitions to build sustainable infrastructure, innovate to cut pollution, manage just transitions, and spur investment across a wide range of sectors will be essential.

FSDAi and FSD Africa are working on innovations to catalyze capital flows across the continent. These initiatives include supporting structures that facilitate risk transfer mechanisms including credit enhancement and mechanisms to manage foreign currency risks. In addition to backing fund managers to build capacity and accelerate investment in climate. Other initiatives have included investing in themed investment structures that can respond to specific priorities such as affordable housing, agriculture, or even investments towards green transition.

FSDAi has been supporting capital allocators by enabling blended structures. In these structures, FSDAi provides risk-bearing equity that shields private capital that is less courageous. Convertible instruments is another tool in FSDAi’s stable – allowing conversion to equity upon success

Unlocking capital through demonstration is also a tactic that we have deployed. This allows founders with credible business models to access capital early, test and raise further capital on the back of a tested business model.

FSDAi is working to provide mechanisms to test, accelerate and mobilise capital at scale to address these demand and supply side issues to deepen access to inclusive and functional financial markets. In return, ventures will emerge to address the climate challenge. When more appropriate capital is available, more of these ventures will thrive.

Braving the Bonds: Empowering Women Entrepreneurs in Tanzania

Posted on by TIMOTHYRADIER

Women in Tanzania face a range of challenges in their participation in significant economic activities, as well as in their homes and communities. While not all these obstacles directly affect women’s inability to benefit from financial services, they all contribute significantly to the problem of women not making the most of their skills and opportunities. If these barriers are eliminated, more women can engage in economic activities and, consequently, the financial sector.

In January 2023, I had the opportunity to visit Tanzania to observe first-hand the groundbreaking impact of the Jasiri Gender Bond – an initiative by NMB Bank backed by FSD Africa. The purpose of the trip was to document the tangible outcomes of projects we support across sub-Saharan Africa as part of our “Voices from the Field” series. FSD Africa is dedicated to mobilising finance that not only drives economic and social development but also ensures environmental sustainability and resilience across the continent.

The Jasiri Gender Bond – the first gender bond in sub-Saharan Africa – was launched in April 2022 to address the significant financing gap faced by women-owned and led businesses. Named “Jasiri” – Swahili for “brave” – this bond represents the strength and determination of Tanzanian women entrepreneurs and is aimed at supporting their empowerment in line with the SDGs, particularly 1 (No Poverty), 5 (Gender Equality), and 10 (Reduced Inequalities).

Listed on the Dar Es Salaam Stock Exchange and the Luxembourg Green Exchange, the Jasiri Gender Bond raised approximately US$ 32 million, far exceeding expectations with a 197% oversubscription. This overwhelming response emphasises the bond’s significance as an inspiration for gender-focused economic empowerment in Africa.

A gender bond is a financial instrument that channels its proceeds into empowering women-led ventures. The Jasiri Gender Bond targets businesses that are either predominantly owned by women (at least 50%), have a workforce of more women than men, or offer products or services that significantly benefit women. Male-owned enterprises that notably support women’s needs also qualify as target enterprises. This could encompass a range of businesses, from maternity hospitals to companies specialising in feminine products, emphasising their pivotal role in uplifting women’s economic status.

As part of NMB Bank’s retail products, the Jasiri Bond provides women business owners with access to new markets, going beyond only financial assistance. The project does more than just give these women access to loans with rates lower than the industry average; it also gives them experience in foreign markets in countries like Turkey and China, which helps them become more savvy businesswomen. In addition to providing financial support, the bond cultivates a community of strong businesswomen by connecting them with a varied network of entrepreneurs across the continent.

By providing lower interest loans and educational support, this initiative empowers women, fostering significant personal and business growth, and contributing to the local economy’s dynamism. At the Sinza Business Center, one of the bank’s branches, Istoria Senda, the Business Manager spoke of the bond’s role in overcoming economic barriers for women.

Istoria Senga

Gudila Kimati is the owner of a lucrative boutique, Maggy Dress-Up. She leveraged a loan obtained through the Jasiri Bond to expand her business, specialising in plus-size women’s clothing. This expansion not only grew her business but also improved her personal life, embodying the bond’s goal to enhance women’s economic opportunities.

We also met Mrs. Selina Godfrey Letara, a businesswoman with humble beginnings. Her entrepreneurial journey, from selling second-hand clothes to establishing a successful sanitary products business, showcases the broad impact of the Jasiri Bond. Her story highlights the importance of financial discipline and the role of strategic banking partnerships in women’s economic empowerment.

The Jasiri Gender Bond is more than a financial tool, it’s a catalyst for change, driving economic empowerment for women in Tanzania and setting a precedent for the African continent. By providing over 3,000 loans to women-led MSMEs, the bond has not only facilitated access to finance but also encouraged women’s entry into male-dominated industries, enhanced productivity, and catalysed local economic growth.

Long before Jasiri, the bank was already a champion for women, with a portfolio boasting nearly $500 million in loans to female entrepreneurs. The gender bond initiative didn’t just amplify their commitment; it also spotlighted their dedication to this vital market segment.

These stories from our impact series fall in line with our broader mission to tackle financial exclusion and foster sustainable, inclusive economic growth. Looking ahead, the bank is eager to work with governments, channelling sustainable finance into pivotal projects to secure necessary funding. Moreover, they’re setting their sights on greening their portfolio, aiming for at least 5% investments that align with their National Determined Contribution (NDC) goals by 2030, underlining their forward-thinking approach to both gender equality and environmental sustainability.

Watch the feature story below.

Dorothy Maseke: Unlocking Africa’s natural capital

Posted on by TIMOTHYRADIER

For too long, the economic orthodoxy guiding businesses — as well as the central banks and regulators overseeing them — has taken scant interest in the natural capital that underpins so much economic activity. For decades, many have invested their faith in the power of the markets to inexorably protect value and the assets which guarantee it.

However, change is afoot. What’s more, it’s a seismic shift led by Africa.

Natural systems account for 50% of global economic value generation and few can now doubt that natural assets are inextricably linked to economic health. This emerging consensus, that acknowledges nature’s status as an engine of economic growth, could not come sooner.

The world’s stock of natural assets is declining at a disturbing rate. Just one of many depressing examples is the fate of the world’s coral reef habitats, which constitute the biodiversity engine of our oceans and illustrates the scale of the burgeoning crisis: Oceanpanel.org studies indicate that climate change — and the accompanying acidification of the oceans — will destroy 72% of coral reef habitats by the end of this century. That does not account for the toll of overfishing and pollution, which will cause further damage.

Africa’s leadership in integrating nature-related risk frameworks derives from the knowledge that the continent’s share of damage will be disproportionate. Why? The continent claims a quarter of the world’s natural capital, 65% of the world’s arable land, 25% of the world’s global biodiversity and 20% of global tropical rainforest area. Indeed, while the global decline in Biodiversity Intactness Index score amounted to 2.7% between 1970 and 2014, Africa witnessed a decline of 4.2% in its score.

A roadmap for real change

From an environmental standpoint, these statistics suggest a tragedy of unparalleled scale. But economically speaking, the risk is nothing short of existential.

The African Development Bank estimates that natural capital accounts for between 30% and 50% of the total wealth of African countries; and in sub-Saharan Africa, more than 70% of people depend on forests and woodlands for their livelihoods. From agriculture to fishing and tourism, Africa’s economic future is in real, imminent jeopardy.

Establishing nature as a key area of risk management marks a vital first step, from which can follow a roadmap to real, tangible change.

In December, world leaders convened in Dubai for the COP28 climate change conference, which has elevated nature as one of its central themes — an important move since COP15’s adoption of the Kunming-Montreal Global Biodiversity Framework (GBF). The framework contains vital targets for achievement by 2030, including the conservation of at least 30% of land, sea and inland waters, as well as restoration amounting to 30% of degraded ecosystems, and a $500bn annual reduction in subsidies that promote biodiversity loss.

Pre-empting the sceptics, it’s of course true that target-setting and ambitious rhetoric do not themselves address the challenge we face. But establishing nature as a key area of risk management —

requiring sober, active regulatory intervention — marks a vital first step, from which can follow a roadmap to real, tangible change.

Though indispensable, COP is not the only forum for change. The Taskforce on Nature-related Financial Disclosures (TNFD) marks an important shift in how businesses account for their non-financial liabilities, as well as their impact on the surrounding ecology. Its recommendations (already launched in Kenya and South Africa) have convinced much of the private sector that environmental performance is as material as revenues and market share — a shift inconceivable only a decade ago.

In Africa, both the African Natural Capital Alliance (ANCA)-run pilot, as well as the work of TNFD consultation groups in Kenya and South Africa, are revealing significant private sector interest in early adoption of nature-related disclosures. But what about those who supervise the private sector and set the economic ‘mood’?

We’re seeing a real shift in African voices leading the way for change. Many now recognise the need for African private and public sector awareness and capability-building for the successful integration of not only future nature-related risk frameworks and standards, but also broader nature-related capabilities. Without engagement on these topics, there is a danger of creating additional transition risks and barriers to investment in the African continent.

Asserting the centrality of nature

Arising from the 2017 ‘One Planet’ summit in Paris, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) has undertaken impressive work orienting the financial system to manage risks and mobilise capital for green investments. With 129 members hailing from every major region of the world, there is a real appetite among regulators for guidance on natural assets and capital. Crucially, African regulators have led the development and implementation of these recommendations, and from Morocco to Nigeria, Kenya to Ghana and South Africa, financial authorities are asserting the centrality of nature in national economies and economic strategies.

Both the TNFD and the NGFS have established frameworks and regulatory best practices to encourage natural capital’s incorporation into economic thinking and strategy. However, many continue to doubt the real, material economic benefits nature affords.

An economic case for natural conservation and restoration could invoke almost limitless examples, but mangrove restoration represents a particularly striking case in point. As well as being almost peerless havens for biodiversity, mangroves turbo-charge local economies and, indirectly, the broader global economy. For example, a staggering 80% of world fishing catches depend in some way on mangrove forests.

Beyond fishing and carbon sequestration, mangroves also matter to world business because they insulate coastal economies from the ravages of erosion, flooding, storms and tsunamis. They are, in essence, nature’s first line of defence.

Again, the coastal defences provided by mangroves benefit more than those inhabiting coastal regions — indeed, they are of vital importance to any business with direct or indirect connections to suppliers, customers, or services in major world economies such as India, Brazil, the Philippines, Ivory Coast, Mexico, China, Vietnam and Bangladesh. The ability of these economies to withstand the growing threat of rising sea levels will prove vital for the world’s supply chains and those companies hoping to reach consumers in much of the Global South — where a growing proportion of the world’s future customers will live and work.

Channelling capital into projects, such as those undertaken by the Global Mangrove Alliance, and ensuring regulation deters coastal depletion and deforestation, ranks as one of many nature-related challenges financial authorities will face over the coming decade. Failure to do so will unleash human and economic damage to global growth on a scale which will easily outstrip the disruption wreaked by the COVID-19 pandemic.

Few businesses are insulated from these risks

It’s worth restating the global implications of this threat — few, if any, businesses on Earth can reassure themselves that they are insulated from these risks. A survey of these threats makes for depressing reading. However, there’s another story to tell — one in which natural capital underwrites sustainable development and becomes a cornerstone of rapid economic growth.

With 75% of African countries having sea access, a sustainable blue economy promises significant long-term wealth if well-managed. The Green Growth Knowledge Platform, for example, found that every US dollar invested in marine protected areas in Senegal and Tanzania generated more than $5000 in economic value. A carefully managed process of extraction and processing could well endow the continent, which hosts 30% of the world’s mineral reserves, with economic firepower previously unthinkable.

Moreover, if financial regulators are able to construct a credible global market for carbon and biodiversity credits, Africa’s vast natural wealth can be, simultaneously preserved and monetised.

It’s a truth most MBAs cover in their first lesson, but one that we seem to have collectively forgotten: strong risk management is impossible without real transparency and honesty.

It’s time, therefore, to think about nature and its preservation not as a fluffy add-on or stamp of corporate virtue, but as a core business consideration — as material as accountancy rules or corporate governance regulations. The shift in attitude must be stark. Just as regulation protects business, investors and the public from practices such as fraud, which ultimately destroy value, so must financial authorities work to protect that which underpins all human activity: nature.

On December 5, ANCA — whose mission is to catalyse nature- positive African economies — hosted a session at COP28’s Blue Zone to discuss the results of a pioneering, first-of-its-kind stress test of nature risks across five African financial systems. We know the threat to Africa’s natural capital is looming, but it’s key that we establish just how exposed economies are, and in what ways. Only then can central banks and regulators intervene to ensure the strength of African financial systems, and the resilience of the environment and ecology which underpins them. Action is needed — and for this to be effective, clarity on where and how is key.

Africa is sitting on a green gold mine — but its institutions must work to protect the inheritance of Africans, both living and as yet unborn.

Dorothy Maseke is Africa lead, nature finance and Taskforce for Nature–related Financial Disclosures at FSD Africa, and head of the African Natural Capital Alliance.

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

Posted on by Kihingu Inc

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.

Money Does Grow on Trees

Posted on by TIMOTHYRADIER

In September 2023, Kenya held the first Africa Climate Summit, that brought together players from the private and public sectors from various African nations and engaging stakeholders from outside the continent. The Summit provided a platform for discussions around strategies that would mitigating and building resilience against climate change. Among other topics, adoption of innovative solutions such as agroforestry, as a mean to combat climate change and preserve our planet’s ecosystem, was discussed.

Despite being centuries old, agroforestry which aligns with modern sustainability development goal, has been gaining traction in the recent years. The fusion of agriculture and forestry holds the potential to unlock both environmental benefits and economic opportunities. Notably, it enables the trade of carbon credits, offering financial incentives to those who embrace sustainable land management and carbon sequestration through climate-smart agriculture.

Agroforestry presents a powerful solution for carbon sequestration, leveraging the natural capacity of trees as carbon sinks. Smallholder farmers can significantly reduce carbon footprints through offsetting emissions by integrating trees with crop cultivation hence practise smart climate agriculture. This transition offers them the potential for financial gain through participation in carbon trading, ultimately enhancing their livelihoods and benefiting local communities at large.

The adoption of agroforestry not only delivers environmental benefits but also fosters economic empowerment, achieved through incentivising sustainable practices, thus the small-holder farmers can benefit economically by adopting environmentally friendly techniques. Agroforestry empowers the farmers to diversify their income streams and reap the benefits of practising sustainable land management such as improvement of soil quality and curbing climate change while preserving the planet for future generations.

Additionally, local communities can harness the revenue generated from carbon sequestration projects. Community development in healthcare, education and infrastructure can be enhanced by reinvesting the income form the carbon sequestration projects. And so, The advantages of agroforestry extend beyond individual farmers and communities. Entire countries and the African continent as a whole stand to gain from cleaner air, healthier ecosystems, and increased environmental resilience.

To realize this potential, African governments, the private sector and non-governmental organizations should recognize the value of agroforestry and provide support to accelerate its adoption. Actions that encourage agroforestry and facilitate access to carbon markets can advance the growth of this transformative and innovative practice.

Promoting actions that encourage agroforestry and facilitate access to carbon markets can drive the growth of this transformative and innovative practice. Development organizations such as the African Development Bank, International Fund for Agricultural Development and Green Climate Fund are funding programmes that enable carbon sequestration in Africa. Their initiatives have over time supported restoration and conservation of the African biodiversity, soil, and water systems. These mechanisms have aided in powering the transformation of African landscapes into hubs of carbon sequestration.

Evidently, it is the achievement of the Acorn Agroforestry Carbon Programme by the Rabobank through its partnership with project coordinators including FSD Africa and cooperatives working directly with smallholder farmers in Africa, among other partners. Through the programme, the smallholder farmers particularly those in areas impacted by climate change, are enabled to transit to agroforestry.

The smallholder farmers are equipped to earn additional income through sequestering carbon from their carbon-capturing agroforestry; as the continent’s air gets cleaned up.

Therefore, agroforestry with its capacity to offset carbon emissions and improve the well-being of African communities, magnifies the synergy of environmental conservation and economic prosperity. It underscores the promise of sustainability as a pathway to a greener and more resilient future.

Beyond being a financial asset, carbon credits harvested from agroforestry projects serve as a testament to the harmonious coexistence of nature and humanity, representing an investment in a future where our planet becomes healthier from the choices we make today.

Africa, endowed with biodiversity and natural resource that offers an opportunity for environmental and economic transformation. Carbon. Carbon sequestration in Africa is not merely a dream but a tangible and innovative solution demonstrating that indeed that money does indeed grow on trees, which are our partners safeguarding the environment and securing our future. These trees are the lungs of our planet.

Pioneering Fund to help realise Africa’s green infrastructure aspirations

Posted on by TIMOTHYRADIER

By Ralph Gilcrist, FSDAi Advisor and Amos Gachuiri, FSDAi Senior Manager, Investments

Africa has a huge social and green infrastructure deficit. To close this gap, funding shortfalls must be addressed.

FSD Africa Investments (FSDAi), the investment arm of FSD Africa which receives funding from UK’s Foreign, Commonwealth & Development Office (FCDO) , has committed to help establish a pioneering export credit finance fund, Acre Export Finance Fund, specifically for the development of green and social infrastructure in Africa. Acre Impact Capital is a newly established fund manager raising a US$300 million fund to invest in climate-aligned essential infrastructure in Africa alongside various export credit agencies (“ECAs”). In doing so, it aims to prove the case for a new investment asset class on the continent – ECA-backed debt securities as an appropriate high-impact mechanism to deliver financing for the much-needed infrastructure services (e.g. access to water, clean energy, safe and green transportation, etc.). This new asset class will give impetus to Africa’s green aspirations by diversifying financing sources towards Africa’s infrastructure financing demands.

In the world’s more developed economies and increasingly in developing economies, ECAs provide financial support to exporters from their home countries, usually in the form of financial guarantees. These allow sovereign borrowers to raise long-term loans at favourable rates from banking institutions. But ECAs only guarantee a portion of the total funding requirement (typically 85%), leaving an uncovered funding shortfall required to complete the deal. This is the funding gap that Acre aims to fill. In doing so, Acre will be able to take advantage of the sovereign guarantees offered to the main ECA-backed funding tranche, which have historically low rates of default.

Acre has been involved in recent ECA transactions in Africa on an advisory basis, highlighting the kind of deals that it may eventually invest in and in anticipation of the fund’s first closing later this year. One such transaction involved €225m of loans provided to the Ministry of Finance in of a West African country to build three regional hospitals. 85% of the total funding was guaranteed by a European ECA and provided by a European bank to purchase services from an experienced healthcare contractor with long experience of building and running three public hospitals which will add significant capacity to the country’s health infrastructure and provide free health services at the point of use. An African ECA provided guarantees for 85% of the balance, which was funded by local African banks and institutional investors, leaving only €5m as the residual, uncovered portion. This loan was warehoused for Acre by an asset manager and Acre has an option to acquire this portion when the Fund closes later this year.

The Eurobond markets have all but dried up for many emerging market issuers as USD and EUR interest rates have risen which in turn has occasioned a flight to safety. The availability of an ECA-backed funding package means that a creditworthy sovereign borrower (e.g. Cote d’Ivoire, Senegal, Angola) can still fund the purchase of basic infrastructure, underlining a key advantage of ECA financing as counter-cyclical source of financing when capital markets are challenged. In addition, in the example above, the involvement of a locally based ECA and financiers also ensures a substantial level of local procurement and the terms of the funding (15 years for the ECA-backed portion in Euros with solid security) means that this type of funding instrument should appeal to long-term institutional investors, both international and local.

Acre Impact Capital’s Export Finance Fund is anticipated to have substantial developmental impact whilst generating attractive risk adjusted returns to investors. It will enable many worthwhile green and social infrastructure projects to proceed with the availability of financing and go a long way towards demonstrating the attractiveness of ECA-backed debt securities to institutional investors, thereby potentially crowding in private sector investment. FSDAi has invested £10m into the fund thereby encouraging the participation of other strategic and financial investors to reach an anticipated first close of $100m. With enough demonstration effect, Acre’s strategy should spur further interest in ECAs as an attractive source of financing and attract local institutional capital in such future structures and increase the share of infrastructure projects on the continent that tap into ECAs for funding.

Mark Napier: Africa’s leaders seize the climate initiative

Posted on by TIMOTHYRADIER

As international headlines chart the terrible suffering caused by flooding, earthquakes and wildfires, a less headline-grabbing, but nonetheless hugely significant, good news story has emerged from Nairobi, Kenya. The African Climate Summit, which concluded on September 6, was a huge success story for Africa and for Kenyan President William Ruto.

Pledges directed to African climate change adaptation and litigation amounting to $26bn have emerged from the summit. That’s not enough to solve Africa’s climate challenges, but even if only a fraction of this sum materialises, it will have a real impact on the ground.

Even more consequential in the long term is the consensus that emerged from the conference around the need for economic growth that delivers both prosperity and environmental benefits. The fact that a consensus was achieved is significant, because it strengthens Africa’s position for the forthcoming COP28 conference in Dubai in November. Furthermore, the admission of the African Union to the G20 means the African voice is getting louder and clearer on the world stage.

Importantly, the summit’s adoption of the Nairobi Declaration, which commits African countries to develop and implement “policies, regulations and incentives aimed at attracting local, regional and global investment in green growth and inclusive economies”, is also a signal that Africa will look for other strategies to support climate action, alongside the $100bn a year promised by developed nations in 2009.

Indeed, the summit was most of all an assertion of African self-determination and specifically the need to mobilise Africa’s domestic private capital in the continent’s climate efforts. Relying on international finance creates a dependency that Africa does not want. Put simply, Africa has determined that its own resources must be channelled, supported by a financial market architecture which ensures that states can absorb climate finance effectively, distributing it where it is most needed.

But if it is to do this, the current situation – in which less than 0.5% of domestic institutional assets under management are invested in alternative assets – cannot continue. As was argued powerfully at the launch of the Pan-African Fund Managers’ Association at the beginning of the summit, we need to think about how we can put in place not only the policy and regulatory incentives but also the instruments and the financial architecture to drive much more of the$1.4tn of institutional capital in Africa towards climate and nature-positive projects.

Crucially, this will mean more use of de-risking strategies such as credit guarantees to persuade pension funds to de-emphasise the easy but less safe option of government securities and to invest in green assets. It will also require sources of donor and philanthropic capital to step up their support for project development, for example through the use of challenge funds or by investing in intermediaries that are closer to the market as a way of reaching the more innovative start-ups and entrepreneurs who will drive the new green economy.

[Current] global prudential regulations can make it economically impossible for large institutional investors to allocate capital to African projects.

Moreover, the summit underlined an important issue that has seen Africa’s financing needs neglected, namely the need for reform of the global prudential regulations, which can make it economically impossible for large institutional investors to allocate capital to African projects. There should be a global review of these constraints, perhaps led by the G20.

Even with such reforms, African governments, many of which are battling with high levels of debt, will need to be both agile and visionary if they are to compete at a time when the world’s biggest economies are offering big incentives to attract green investment. Though deeply political, carbon taxes could be one way to go, but would need to be sensitively introduced. Other green fiscal incentives, balancing out tax breaks for green investment by removing subsidies for dirty industries, are also essential for governments to be able to direct their economies towards a greener future.

The UN Framework Convention on Climate Change has just released its first global stocktake report, highlighting yet again that, despite a major global effort, progress since the Paris Agreement has been inadequate. The report recommends greater commitment to transformation across all sectors and recognises the need for more access to climate finance for developing countries in line with the key recommendations from the Nairobi Summit.

If we get this right, the prize is very significant and the message from the summit is that Africa will not wait. Instead, it is determined to grab the opportunities of a new green growth pathway now, as are an increasing number of investors, and that has to be good for us all.

Using Direct Air Carbon Capture Technology to Address Emissions

Posted on by TIMOTHYRADIER

The Octavia Carbon Story

To keep global temperatures from rising more than 1.5°C as outlined in the Paris Agreement and prevent the worst impacts of climate change, the world will need to reach net-zero carbon emissions by around mid-century through removal and storage of as much carbon dioxide from the atmosphere as is put. While strategies to reduce emissions — such as increasing renewable energy, improving energy efficiency, and avoiding deforestation — are critically important, they will not be enough on their own. Reaching climate goals requires strategies that actively remove CO2 from the atmosphere.

Direct Air Carbon Capture is a promising carbon sequestration methodology but has yet to scale due to high costs. Kenya-based startup Octavia Carbon, which FSD Africa has invested in, though Cohort 11 of the Catalyst Fund is the only company utilizing DAC technology in the Global South and is uniquely positioned to disrupt the cost structure of current DAC projects.

‍The Octavia Carbon Innovation

Octavia Carbon is one of about twenty companies around the globe that are building DAC technologies. The company has developed a prototype DACC machine and are currently working on a separate Minimum Viable Product (MVP) with a paying customer which will allow for iteration. The machine design will be replicated, with initial machines capturing 5-10 tonnes of CO2 per year and later machines capturing 100 tonnes of CO2 per year. By end of 2024, Octavia Carbon aims to produce at least one of these machines a day, adding some ~40,000 tonnes of CO2 per year in DACC capacity to the global market.

The Octavia Carbon Story
Fig 1: Octavia Carbon’s prototype machine. Source; Octavia Carbon

‍Project Location

Kenya, where Octavia Carbon is based, is uniquely well-suited for DACC thanks to natural endowments such as excellent geology for CO2 storage, geothermal activity, and unique renewables capacity and potential. The Kenyan Rift Valley is home to high-porosity basaltic rock that readily bonds with CO2-enriched water (carbonic acid – H2CO3), the fastest and safest form of permanent CO2 storage. Geothermal energy is also important for Octavia because ~80-90% of the energy required in DACC is low-grade (~80°C) heat energy. In Kenya, that kind of heat comes readily from the ground and is already a ‘waste’ product of geothermal power production.

For the electrical energy that DACC machines do require, it is ideal to have 24/7 green electricity, ideally coming right down the grid, and without too many competing uses for decarbonization (e.g., displacing fossil power plants). Kenya is uniquely well-suited for hydropower and geothermal energy, which today make up >90% of Kenya’s grid, and virtually 100% in Central Kenya. Few places in the world have any significant area covered by a 100% renewable grid. Kenya is also well endowed with solar (great irradiation and no seasonality), which could in the future complement the renewable energy mix even more.

‍Project Impact

Octavia Carbon will removes CO2 from the atmosphere and either stores it in rocks or makes it available to industries like floriculture which require carbon. This will catalyse the emergence of a new circular carbon economy that will use cheap air-captured CO2 to create further products like synthetic fuels/plastics. These direct activities will create innovative and sustainable economic growth, which will dramatically improve millions of livelihoods. Furthermore, there are additional applications for captured CO2, like enriching greenhouses with CO2, increasing plant photosynthesis and thereby leading to a higher yield, and making nutritious horticultural products more affordable and accessible to the populations that need them most. Indirectly, DACC can also eventually change the economics of geothermal energy by using abundant waste heat, co-utilizing injection wells, and providing a reliable offtake for excess energy.

‍Growth potential

The business model involves extracting carbon from the air using DACC technology to either store carbon in deep rock formations or produce and then sell CO2 for industrial use. The growth trajectory depicted in the financial models is promising. By the end of 2024, wirh an annual CO2 production rate of 40,000 tonnes per annum, key customers will include industrial CO2 buyers and carbon credit off-takers. Based on Octavia Carbon’s calculations, the price per tonne of CO2 will range between $300 and $500 depending on customer profile and market fundamentals.

The range of prices for capturing a tonne of CO2 varies between $775 to 1200 today depending on the technology choice, low-carbon energy source, and the scale of their deployment. Hence, Octavia Carbon’s projected price for a tonne of CO2, which requires additional extraction from the sorbent, would make it a global cost leader by mid-decade.

It also has significant growth potential due to the market and natural conditions in Kenya. The cost of production in Kenya is much lower compared to the Global North where graduate engineers cost ten times more than in Kenya. Furthermore, the world’s largest DACC company has also located their largest installations in countries with high geothermal activity such as Iceland. In Kenya, it is estimated that there are about 7,000 to 10,000 megawatts (thermal) of untapped geothermal energy beneath the Rift Valley region. Both the supply of renewable energy and talented engineers at a fraction of the cost provides a significant competitive advantage in Octavia Carbon’s scaling plan.

From Hope to Prosperity: A refugee’s journey of triumph in a settlement in Uganda

Posted on by TIMOTHYRADIER

In the challenging circumstances that refugees face, there are stories of resilience, determination, and success that deserve to be celebrated. Meet Amani, a remarkable young man who has not only found hope but has thrived in a refugee settlement in Uganda. Amani’s journey is a testament to the power of financial inclusion and the opportunities it can bring to refugees.

A New Beginning in Uganda

Amani fled conflict and persecution in his home country in South Sudan, and found solace in Uganda’s Bidi Bidi refugee settlement. Amani’s life took a transformative turn courtesy of the Financial Inclusion for Refugees (FI4R) Project supported by FSD Africa and FSD Uganda in partnership with local financial service providers.

Access to Financial Services

Upon arrival at the settlement, Amani was introduced to Equity Bank Uganda Limited, one of the financial service providers collaborating with FSD Africa and FSD Uganda. The other financial partners were VisionFund Uganda and Rural Finance Initiative (RUFI).

Amani opened a savings account with Equity Bank, which enabled him to save money and start planning for a better future securely. With access to credit and affordable loans, Amani seized the opportunity to start a small business, selling handmade crafts within the settlement.

 

Building Livelihoods and Empowering Others

Through Amani’s dedication and hard work, his business flourished. Amani not only improved his own living conditions but also extended support to other refugees in the settlement with the income generated. Amani became an inspiration, encouraging fellow refugees to explore entrepreneurship as a means to financial independence.

 

Financial Education and Community Support

Recognising the importance of financial literacy, Amani actively participated in financial education programs organised by project partners. Amani learned valuable skills such as budgeting, saving, and managing cash flow. Motivated by his own success, Amani began mentoring other refugees, sharing knowledge and empowering them to take control of their financial lives.

 

Resilience and Overcoming Challenges

Amani’s journey was not without obstacles. Like many other refugees, he faced uncertainties, limited resources, and occasional setbacks especially during the COVID-19 pandemic. However, through perseverance and the support of the refugee community, Amani remained steadfast in his pursuit of a better future. Amani’s resilience and determination served as a beacon of hope for others facing similar challenges.

Amani’s Impact and Dreams for the Future

Today, Amani’s success story continues to inspire many. He has become a respected member of the refugee settlement, actively participating in community development initiatives.

Amani dreams of expanding his business beyond the settlement’s boundaries, creating opportunities for fellow refugees and contributing to the local economy. Amani’s journey exemplifies the transformative power of financial inclusion and the impact it can have on the lives of refugees.

 

Conclusion

Through access to financial services, coupled with resilience and community support, Amani has not only thrived but has become a source of inspiration for others. Amani’s story highlights the importance of creating an inclusive world where refugees are given a chance to rebuild their lives, contribute to their communities, and dreams of a brighter future.

Together, we can work towards realising the vision of hope and inclusion for all refugees.

 

From Hope to Prosperity: A refugee’s journey of triumph in a settlement in Uganda

Posted on by TIMOTHYRADIER

In the challenging circumstances that refugees face, there are stories of resilience, determination, and success that deserve to be celebrated. Meet Amani, a remarkable young man who has not only found hope but has thrived in a refugee settlement in Uganda. Amani’s journey is a testament to the power of financial inclusion and the opportunities it can bring to refugees.

A New Beginning in Uganda

Amani fled conflict and persecution in his home country in South Sudan, and found solace in Uganda’s Bidi Bidi refugee settlement. Amani’s life took a transformative turn courtesy of the Financial Inclusion for Refugees (FI4R) Project supported by FSD Africa and FSD Uganda in partnership with local financial service providers.

Access to Financial Services

Upon arrival at the settlement, Amani was introduced to Equity Bank Uganda Limited, one of the financial service providers collaborating with FSD Africa and FSD Uganda. The other financial partners were VisionFund Uganda and Rural Finance Initiative (RUFI).

Amani opened a savings account with Equity Bank, which enabled him to save money and start planning for a better future securely. With access to credit and affordable loans, Amani seized the opportunity to start a small business, selling handmade crafts within the settlement.

 

Building Livelihoods and Empowering Others

Through Amani’s dedication and hard work, his business flourished. Amani not only improved his own living conditions but also extended support to other refugees in the settlement with the income generated. Amani became an inspiration, encouraging fellow refugees to explore entrepreneurship as a means to financial independence.

 

Financial Education and Community Support

Recognising the importance of financial literacy, Amani actively participated in financial education programs organised by project partners. Amani learned valuable skills such as budgeting, saving, and managing cash flow. Motivated by his own success, Amani began mentoring other refugees, sharing knowledge and empowering them to take control of their financial lives.

 

Resilience and Overcoming Challenges

Amani’s journey was not without obstacles. Like many other refugees, he faced uncertainties, limited resources, and occasional setbacks especially during the COVID-19 pandemic. However, through perseverance and the support of the refugee community, Amani remained steadfast in his pursuit of a better future. Amani’s resilience and determination served as a beacon of hope for others facing similar challenges.

Amani’s Impact and Dreams for the Future

Today, Amani’s success story continues to inspire many. He has become a respected member of the refugee settlement, actively participating in community development initiatives.

Amani dreams of expanding his business beyond the settlement’s boundaries, creating opportunities for fellow refugees and contributing to the local economy. Amani’s journey exemplifies the transformative power of financial inclusion and the impact it can have on the lives of refugees.

 

Conclusion

Through access to financial services, coupled with resilience and community support, Amani has not only thrived but has become a source of inspiration for others. Amani’s story highlights the importance of creating an inclusive world where refugees are given a chance to rebuild their lives, contribute to their communities, and dreams of a brighter future.

Together, we can work towards realising the vision of hope and inclusion for all refugees.