Category: News

FSD Africa Announces Arunma Oteh as Board Member

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FSD Africa has announced that the former Director General of the Securities and Exchange Commission (SEC) Nigeria Arunma Oteh, has joined its Board of Directors to support the organisation as it works to strengthen and deepen Africa’s financial markets, particularly in the area of green finance.

FSD in a statement noted that Arunma is passionate about the role of financial markets in catalysing Africa’s success.

Commenting on the announcement, FSD Africa Chairperson, Dr. Frannie Léautier, said: “I am thrilled to have such a highly experienced and qualified person join our Board of Directors. Arunma’s detailed knowledge of global economics and the African financial sector will be invaluable to our organisation as we continue our efforts to improve access to capital and climate financing across the continent. I would like to extend a very warm welcome to Arunma and look forward to working with her.”

On her part, Arunma Oteh said: “FSD Africa is doing incredibly important work across the African continent. Ensuring reliable and self-sufficient financial markets is essential to ensuring sustainable growth and FSD Africa’s programmes and research are at the forefront of addressing this gap. As someone who has worked in this sector my entire career, I understand the immense value of financial markets. I am also delighted to contribute my expertise to guiding FSD Africa in its unique contribution to Africa’s economic development.”

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Ethiopian Securities Exchange set to launch in two years

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At least 50 companies are expected to list on the Ethiopian Stock Exchange (ESX), which will provide a platform for the privatisation of the country’s state-owned enterprises.

Ethiopia’s giant new sovereign wealth fund, Ethiopia Investment Holdings (EIH) is working with the country’s Ministry of Finance and Nairobi-based Financial Sector Deepening Africa (FSDA) to set up the Ethiopian Securities Exchange (ESX).

EIH has set up a Project Team with FSDA (which is backed by British government development aid), and has invited consultants to bid for a fundraising drive to raise capital for the new bourse.

A Capital Markets Proclamation (No. 1248/2021) says the exchange will be established as a Share Company (public company in Ethiopian law) by government in partnership with the private sector, including foreign investors.

Between 25% and 55% of the ownership of the ESX will be for corporations, capital market intermediaries and operators of international securities exchanges, while government will not own more than 25%. It will be a for-profit entity.

The Project Team is to develop the ESX business plan and its structures, as well as outlining the market segments. It will also lead development of the ESX trading rules, policies and procedures, the trading and operating systems, and other ICT infrastructure. It will establish ESX operations and launch it.

Fifty companies expected to list on ESX

According to FSDA, “At least 50 companies, including banks and insurance companies, are expected to list at the launch of the exchange. The exchange is designed to provide a fundraising platform for small and medium-size enterprises, which are the backbone of the Ethiopian economy. The exchange will also offer a platform for the privatisation of Ethiopia’s state-owned enterprises.

“In the past few years, the Government has implemented several reforms to open the economy and the launch of a securities exchange will be a catalyst for attracting new investment from the private sector.”

The ministry, EIH and FSDA signed a cooperation agreement to launch the bourse in May. Ethipia’s finance minister, Ahmed Shide, said the cooperation agreement “is a first concrete step towards realising our vision.”

Mark Napier, CEO of FSDA, added: “Our assistance will leverage FSD Africa’s vast expertise and experience in developing capital markets infrastructure across Africa. This support signals our long-term commitment to a thriving capital market that is deep, liquid, and efficient.”

The next day a local agency, FSD Ethiopia, was launched to maintain the momentum.

Ethiopian capital market authority to be established

Meanwhile, work continues to build a capital market authority regulator. In November 2021, Meles Minale, a senior macroeconomic advisor at the National Bank of Ethiopia (central bank) was appointed to chair a team of 14 experts to explore the establishment of the authority. They report to Yinager Dessie, governor of the central bank.

Ethiopia’s prime minister, Abiy Ahmed, will appoint a director and a deputy director for the authority, which will be a federal agency accountable to parliament. Its role includes safeguarding investors and overseeing the integrity of the capital market and supervising securities brokers, investment advisers, collective investment scheme operators, investment bankers and securities dealers.

EIH is a key shareholder in the ESX and is also likely to boost the exchange with a pipeline of listings, at least of minority stakes, from its $38bn business portfolio (see below).

Observers believe it could still be two years before the ESX opens its doors for trading. It is expected to trade equities, derivatives, financial and debt securities, and FX (currency exchange) contracts. The country lacks stockbrokers, investment advisors, fund managers, custodians and many others.

A team from Ethiopia, including Ethiopia Investment Holdings CEO Mamo Esmelealem Mihretu and FSD Ethiopia CEO Ermias Eshetu, attended the Alternative Farming Systems Information Center (AFSIC) 2022 conference in London in October to meet potential investors and discuss progress on the stock exchange.

Setting up of Ethiopia Investment Holdings could be turning point for Ethiopia

The establishment of EIH, one of Africa’s biggest sovereign wealth funds, could be the start of a massive turnaround in Ethiopia’s long-established economic heterodoxy. It was set up in late 2021 and will control assets worth some Birr2trn ($38bn), or 34% of Ethiopia’s GDP, generating annual revenues of $6.2bn.

It has some of Ethiopia’s largest and most productive state-owned enterprises in its portfolio and with its active participation in the establishment of the country’s first securities exchange, is likely to pave the way for the liberalisation of the economy and increase the pace of privatisation.

EIH was set up in December 2021 by an Act of Parliament to act both as a sovereign wealth fund for Ethiopia and to improve the running of the portfolio of state-owned enterprises from the point of view of the shareholder, including the way capital is deployed and the decision-making, accountability and performance of management systems.

Government has transferred ownership of 27 firms, including some of Africa’s biggest and most successful companies, such as Ethiopian Airlines and the Commercial Bank of Ethiopia, to the new entity. It will also act as co-investor to foreign investors coming into Ethiopia.

EIH is in addition a key shareholder in the new ESX and likely to float minority stakes in many of the companies it owns over the coming years.

Wide portfolio

EIH’s portfolio includes:

  • Ethiopian Airlines, formed in 1945, generating $2.3bn in annual revenues and 11% return on invested capital. It flies to 127 international and 22 domestic destinations.
  • Commercial Bank of Ethiopia, with revenues of $1.6bn and a return on assets of about 1%. Over 80 years it has grown to have more than 35m customers.
  • Ethio Telecom, which first introduced telephone services in the 1900s and was monopoly provider until 2020, before a licence was awarded to Safaricom Telecommunications Ethiopia in 2021. Ethio Telecom has 44m mobile customers and over 23m internet subscribers, with revenues of $1.05bn a year.
  • Ethiopian Shipping and Logistics Services Enterprise, formed in 2016 out the merger of four companies. It has nine cargo ships and two oil tankers, as well as heavy trucks, seaports and dry ports. Revenues are $490m and return on invested capital is put provisionally at 24%.
  • Ethiopian Electric Utility, which carries out power distribution, sales and service for a country where only 44% of Ethiopians have access to electricity. Revenues are $332m and return on assets only 0.2%.
  • Ethiopian Sugar Industry Group, a grower of sugar cane, which refines it into sugar and byproducts such as ethanol, molasses and power. Revenues are some $178m across 13 plants.
  • Ethiopian Insurance Corporation, in the sector for 45 years, which is the dominant force. Revenues are $98.7m and return on assets is some 7% over 30 types of non-life policies and 15 kinds of life insurance.

Other businesses include Ethiopian Construction Works Corporation, which builds infrastructure including for transport and for water, irrigation and dams as well as buildings; Ethiopian Trading and Business Corporation, which controls businesses in areas such as coffee, grain, consumer products, fruit and vegetables; and Federal Housing Corporation, which administers over 18,000 properties.

EIH companies also dominate tourism, petroleum imports and supply, printing, the production and distribution of education materials, and the toll roads built in recent years.

CEO Mamo Esmelealem Mihretu, appointed in February, said the firm is a milestone toward a vision of “modern and dynamic institutions to cultivate a marketplace that meets needs and rewards ingenuity and effort”.

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Why governments should deepen domestic financial markets

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To understand the challenges to debt sustainability and financial market development posed by Covid-19 and the war in Ukraine, FSDA recently completed a study of the experience of five case-study countries: Ethiopia, Ghana, Kenya, Nigeria, and South Africa.

Chronic fiscal and current account imbalances had arisen well before the Covid-19 pandemic, already severely hampering the ability of country authorities to respond to unexpected shocks.

Counter-cyclical fiscal measures in response to Covid-19 then led to the accumulation of even higher levels of public debt. Even though all countries are exposed to liquidity and solvency risks, debt simulations show that the most important risk to be monitored is the risk of external debt distress.

The availability of foreign exchange required to fund current account deficits and the servicing of external debt is constrained by low public sector revenues and large trade deficits. Prospects for alleviating such liquidity pressures in the short to medium term are limited, as they depend on structural changes aimed at reducing current account deficits.

Indeed, it is anticipated that these pressures will become even more acute in 2022/2023 due to rising interest rates on external borrowing. With the tightening of credit markets worldwide and yields at historically high levels, Ghana, Kenya and Ethiopia are particularly exposed, as they face sizable refinancing risks on their Euro-borrowing.

Nigeria and South Africa are in a less precarious situation than the other three countries. Nigeria entered the Covid-19 crisis with a lower level of public debt while South Africa’s deep domestic financial market makes it possible to absorb higher levels of public debt. However, even with its more developed taxation system, South Africa is also exposed to liquidity risk, as reliance on foreign portfolio investment in domestic government debt exposes South Africa to risk, due to the ‘vagaries’ of foreign portfolio investors.

Table 1 below gives an overview of the gravity of the liquidity and solvency risks facing the five-country case studies explored in this paper:

Colours: Red-very urgent Yellow-urgent Green-relatively urgent.

In responding to the Covid-19 pandemic, governments adopted a combination of policy responses to mitigate the negative impact of increased government borrowing: (a) reducing policy interest rates, (b) central bank purchases of long-term government bonds and sale of short-term securities (quantitative easing) in Ghana and South Africa, (c) drawing on central bank overdraft facilities or financing government expenses by issuing securities directly to the central bank (debt monetisation) in Ethiopia, Nigeria and Ghana; and (d) relying on financial repression measures, such as foreign exchange controls, payment of negative real interest rates on government securities, and the imposition of investment requirements on banks and institutional investors in Ethiopia and Nigeria.

Increased domestic borrowing

Since it is very unlikely that governments will implement required fiscal consolidation measures in the near term, it is expected they will need to resort to increased domestic borrowing, and under current macroeconomic circumstances, increased reliance on government debt issuance is likely to put upward pressure on the yield of government securities, thereby crowding out the supply of credit to the private sector.

Under these circumstances policies designed to increase the absorptive capacity of domestic securities, and markets have an important role to play. Debt managers can contribute to this process by ensuring that debt instruments are best tailored to the needs of the domestic and external investor base.

It is in this context that it is important that countries, such as Nigeria and Ethiopia, cease central bank financing of government deficits

Equally important is that domestic money and primary markets have sufficient depth to absorb liquidity shocks as well as the issuance of large volumes of government securities on the primary market.

The more debt issuance by the government is tailored to meeting the needs of a diversified institutional investor base – both the needs of domestic investors and foreign portfolio investors buying domestic securities the needs of foreign investors buying securities issued by the government externally (on the Euro-market) – the more government debt financing costs will be shielded from sudden changes in market sentiment.

Risks and challenges

Nonetheless, the deepening of domestic financial markets presents risks and challenges. Not only will the authorities need to demonstrate their commitment to market-conform policies – aborting policies such as financial repression and excessive monetary financing – but they will also need to prioritise the management of public debt with a view to fostering market development and minimising crowding out that reduces the availability and raises the cost of private sector credit.

There is evidence that, in the short term, increasing the supply of government securities tends to put upward pressure on the sovereign yield curve, thereby raising the cost of borrowing both to the government and the private sector. Increases in the sovereign credit risk premium will also tend to raise the cost of capital for private issuers.

It is in this context that it is important that countries, such as Nigeria and Ethiopia, cease central bank financing of government deficits both to lessen inflationary pressures and to re-confirm commitment to the primary mandate of central banks in controlling inflation.

Even though financial repressive policies, such as requiring investors (banks and institutional investors) to purchase government securities used in Ethiopia and exchange controls as relied upon by Nigeria and Ethiopia may curb the growth of public debt in the short term, they discourage the formation of savings and encourage financial disintermediation in the medium term.

By lessening market responses or introducing market distortions, repressive financial policies reduce immediate responses to shocks in terms of market signals, but at the cost of reducing confidence in market-based finance. Over time, such distortions undermine the role of financial markets in allocating scarce resources to their optimal uses and may be difficult to unravel, as they are associated with opportunities for rent-seeking

Short-term tension

Nonetheless, in making these recommendations, it is important to recognise that adoption of policies designed to support market development will give rise to tradeoffs. In the short term, there are tensions between the gains associated with market development and fiscal costs and risks.

Policies like discontinuing financial repression and refraining from monetary financing while supportive of the financial market development will oblige the governments to find alternative funding sources. Such short-term costs may hamper the authorities’ willingness to implement policy reforms, even when the benefits associated with fostering financial market development, particularly in terms of enhancing the sustainability of the government’s debt, substantially outweigh the costs in the medium to longer term.

Implementing the conditionalities associated with debt relief negotiations more effectively than in the past will be important

In addition, authorities may be hesitant to undertake the transition towards more market-conform financing of their fiscal deficits, as the transition will inevitably raise awareness, transparency, and accountability regarding their funding.

Going forward, implementing the conditionalities associated with debt relief negotiations more effectively than in the past will be important in avoiding a situation where the benefits of debt relief once again only remain temporary. Anticipated external debt levels pose a threat to debt sustainability in four case-study countries, and in the case of South Africa, foreign portfolio investment poses a risk to macroeconomic stability.

Short-lived efforts

Previous attempts to ease the adjustment process and at the same time provide the opportunity for market development have involved debt relief and increased access to external concessional financing. Such debt relief efforts have been accompanied by conditionalities designed to put countries on a path of fiscal consolidation and stabilisation of their external debt positions aimed at ensuring debt sustainability in the future.

However, as documented in this paper, the outcomes of efforts to avoid future debt accumulation and the dangers to debt sustainability were short-lived. Although well-intentioned, these efforts failed to resolve macroeconomic imbalances, and countries were ill-prepared to meet recent shocks.

Table 2 provides an assessment of the severity of the policy challenges faced by the five case-study countries in addressing fiscal imbalances and supporting market development.

Colours refer to the degree of urgency in implementing the reforms: relatively urgent, urgent, and very urgent.

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United Kingdom Steps Up Climate Adaptation Finance Support for Africa

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The United Kingdom has announced a significant increase in its financial support to the poorest African countries that bear the brunt of climate change.

Speaking alongside African leaders at COP27 in the Egyptian city of Sharm El Sheikh, British Foreign Secretary James Cleverly confirmed the UK will provide £200 million to the African Development Bank Group’s Climate Action Window, a new mechanism set up to channel climate finance to help vulnerable countries adapt to the impacts of climate change.

A number of countries on the continent have experienced extreme weather conditions from severe drought in Somalia to floods in South Sudan.

Foreign Secretary James Cleverly said: “Climate change is having a devastating impact on some of the poorest countries in Sub-Saharan Africa but historically they have received a tiny proportion of climate finance,” said Cleverly adding, “This new mechanism from the African Development Bank will see vital funds delivered to those most affected by the impacts of climate change, much more quickly.”

The UK Foreign Secretary noted, “Access to climate finance for emerging economies was a central focus at COP26 in Glasgow and I’m pleased to see tangible progress being made, supported today by £200 million of UK funding.”

Climate change has a disproportionate impact on the 37 poorest and least creditworthy countries in Africa. Nine out of ten most vulnerable countries to climate change are in Africa.

The Glasgow Climate Pact included a commitment from donors to double adaptation finance between 2019 and 2025.

Prime Minister Rishi Sunak announced at the weekend that the UK will surpass that target and triple adaptation funding from £500 million in 2019 to £1.5 billion by 2025. This funding package provided to the African Development Bank will be 100% earmarked for adaptation.

The Prime Minister also confirmed yesterday that the UK is delivering on the target of spending £11.6 bn on International Climate Finance (ICF) between 2021/22 and 2025/26.

“I applaud the UK government for this major contribution towards the capitalization of the Climate Action Window of the African Development Fund, as it seeks to raise more financing to support vulnerable low-income African countries that are most affected by climate change. This bold move and support of the UK will strengthen our collective efforts to build climate resilience for African countries. With increasing frequencies of droughts, floods and cyclones that are devastating economies, the UK support for climate adaptation is timely, needed, and inspiring in closing the climate adaptation financing gap for Africa.”

“I came to COP 27 in Egypt with challenges of climate adaptation for Africa topmost on my mind. The support of the UK has given hope. I encourage others to follow this leadership on climate adaptation shown by the UK”, said Adesina.

Distributed by APO Group on behalf of African Development Bank Group (AfDB).

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New company to invest in sustainable infrastructure

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On the sidelines of the 27th United Nations Climate Change Conference (COP27), which has been taking place since 6 November 2022 in Egypt, the Dutch investment company Cardano Development has signed a partnership with the British InfraCo Africa. The collaboration involves a joint investment of USD 20 million in a new company dedicated to the development of sustainable infrastructure in Kenya.

A new company will be created to support sustainable development in Kenya. This is the aim of a project led by InfraCo Africa and Cardano Development. The two investment companies have announced that they are raising $20 million to set up the new company, which will be modelled on InfraCredit Nigeria, which supports infrastructure development in Nigeria from its headquarters in Lagos. To set up the Kenya company, InfraCo Africa, which is part of the Private Infrastructure Development Group’s (PIDG) portfolio of companies, is contributing $15 million.

Amsterdam, Netherlands-based investment company Cardano Development is contributing $5 million. The deal is supported by PIDG and FSD Africa, a financial services company based in Nairobi, Kenya, that focuses on financial sector development in sub-Saharan Africa. The UK Department for International Development-funded company is supporting the establishment of the new entity with a $297,000 grant to Cardano Development.

“In addition to bridging the infrastructure access gap in Kenya and East Africa, the new company will issue guarantees for projects aligned with the Paris Agreement, helping to link financial flows to global efforts to mitigate and adapt to the climate crisis,” explains Philippe Valahu, PIDG’s managing director. According to Valahu, the model of local currency guarantees that the future company will provide has been proven in Nigeria, where InfraCredit has issued about 114 billion naira (more than $259 million) in local currency guarantees in its first five years of operation.

In its first few years, the future company will focus on Kenya before expanding its activities in the rest of East Africa. As part of this expansion strategy, the new company is looking to issue up to $100 million in local currency (Kenyan shilling) guarantees in its first years of operation. The company is also expected to be supported by GuarantCo, a PIDG guarantee company that plans to provide a contingent capital facility. The company is being created with the support of the UK government and a clear agenda. It is to implement sustainable projects that improve climate change mitigation and adaptation while contributing to the achievement of the UN Sustainable Development Goals (SDGs).

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InfraCredit Secures UK-Funded Debt Issuance Guarantee For Nigeria’s Solar Rural Electrification

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InfraCredit, yesterday announced the credit enhancement of Darway Coast Nigeria Limited’s green debt issue, under a co-financing arrangement with the £10 million Climate Finance Blending Facility funded by the United Kingdom Foreign, Commonwealth and Development Office (FCDO), an initial transaction under InfraCredit’s Clean Energy Funding Programme.

The Programme seeks to aggregate, de-risk and unlock domestic institutional investments to support eligible clean energy projects in Nigeria to contribute towards meeting the country’s universal electrification goal by 2030 and the SDG 7 target of ensuring access to affordable, reliable, sustainable, and modern energy for all, whilst putting the country on a path to achieve net zero emissions by 2060.

In February 2022, the UK announced a £10 million local currency blended co-financing facility with InfraCredit to help de-risk, reduce the capital cost and catalyse at least an equivalent amount in private investment from domestic institutional investors to support off-grid clean energy companies to increase energy access for unserved and underserved people and small businesses in Nigeria.

It is expected that the Facility will be increased through funding by other development partners to co-finance a pre-assessed initial pipeline of over $128 million (NGN equivalent) that will mobilize at least N26.8 billion or $64 million of domestic institutional capital to construct 22.7 MW of isolated off-grid renewable energy projects in 580 unserved communities across 32 states in Nigeria, that will connect 172,535 unserved households and small businesses, create 6,977 jobs and reduce 394,403 tonnes of GHG emissions.

This initial transaction under the Programme, was financed with the UK-funded Facility through a blended instrument enabling domestic institutional investors to directly invest in a 7-year fixed rate local currency debt financing for the project, making it the first-ever certified blended local currency green debt issue for a solar mini-grid project in Nigeria.

Speaking on the transaction, the Managing Director of Darway Coast Nigeria Limited, Mr. Henry Ureh in a statement said, “For mini-grid developers, access to long term affordable local currency finance is critical for sustainability and scale, which is why we are extremely excited about the possibility of participating in such a milestone transaction.

“That mini-grid developers like us can now access patient green capital in naira from domestic institutional investors, to construct off-grid infrastructure for renewable energy access to unelectrified rural communities in Nigeria for productive use, is unprecedented.

“We sincerely appreciate the team at InfraCredit and the FCDO for this novel structure which will reduce the financial burden of clean energy developers like Darway Coast, and help the off-grid renewable energy market to scale sustainably.”

Also, the CEO of InfraCredit, Chinua Azubike, in a statement said, “According to Nigeria’s Integrated Energy Planning Tool, it is estimated that up to $16.4 billion of funding will be required to finance off-grid infrastructure for solar mini-grids and stand-alone solar systems that will electrify 621,000 unserved communities not connected to the grid, which represents 98% of the identified settlements without energy access.

“However, Nigerian domestic institutional investors assets under management in local currency, is estimated at over $35 billion, but less than one per cent is currently invested as domestic credit to the private sector due to perceived risks and limited quality projects.

“We are very excited by the success and scalability of this innovative blended finance transaction anchored by UK FCDO and InfraCredit, because it demonstrates a strong case for donors and concessional financiers, to make smart use of impact-seeking capital to de-risk, reduce the capital cost and mobilise private sector financing towards green life-saving investments that can unlock domestic pools of resources that will promote green growth and climate resilient development by accelerating Nigeria’s universal energy access, whilst transitioning the country to a low-carbon economy that will create jobs, reduce poverty, promote gender inclusion and stimulate local economic growth.”

The UK Deputy High Commissioner in Lagos, Ben Llewellyn-Jones said, “We are very pleased that this innovative UK-funded blended finance facility, managed by InfraCredit, has supported the first green-certified local currency debt issue for off-grid solar in Nigeria.

“Using a scalable approach, this UK-funded Facility is mobilising domestic institutional investment into much needed clean energy projects. By providing green and affordable financing for local developers, the Facility is creating access to clean energy in unserved and underserved communities in Nigeria, for both households and businesses. The UK remains committed to increasing access to clean energy in Nigeria, to drive sustainable and resilient growth, and support Nigeria in meeting its climate goals.”

The Facility’s subordinated first-loss capital helped de-risk and reduce the capital cost of the project by unlocking InfraCredit’s “AAA”-rated guaranteed senior green debt that crowded in first-time matching investments from six domestic institutional investors in a solar mini-grid project for unserved markets, resulting in a blended affordable interest rate. The financing will be utilised to construct isolated solar mini-grids with total capacity of 526.1 kW in six communities without grid access within Rivers State and Abia State in Southern Nigeria.

The project on completion will electrify up to 7,711 unserved households and small businesses, create up to 497 temporary and permanent jobs and avoid 4,856 tonnes of GHG emissions whilst enhancing access to renewable energy for productive uses. The nominated projects & assets conform to the Climate Bonds Standard Solar Sector Criteria and the financing has been labelled and certified green by the Climate Bonds Initiative.

The six hybrid-solar mini-grids will have environmental benefits of climate change mitigation, energy savings and greenhouse gas reduction and simultaneously have a positive direct contribution to the United Nations Sustainable Development Goals (SDGs) 7, 8, 9, 11, 13 and 17 as identified in the Green Bond Framework

The green debt was verified by Agusto & Co as green verifier, and the guaranteed senior debt was rated “AAA” by Global Credit Ratings.

The green verification of the debt instrument was supported by funding provided by FSD Africa under a Technical Assistance Agreement with InfraCredit, to support first time issuer costs for eligible projects that can issue climate-aligned local currency infrastructure bonds. FSD Africa (https://fsdafrica.org/) was established in 2012 through funding by UK aid from the UK government as a specialist development agency to build and strengthen financial markets across sub-Saharan Africa, and to address systemic challenges within Africa’s financial markets, with the aim of sparking large-scale and long-term change.

KfW Development Bank (https://www.kfw-entwicklungsbank.de)) provided technical assistance support for the technical, legal and environmental and social due diligence costs.

The project is registered under the World Bank Nigeria Electrification Project Performance Based Grant Programme administered by the Rural Electrification Agency (REA). The REA is a rural electrification government agency established to implement, provide, and support decentralized electrification in Nigeria.

InfraCredit signed a Memorandum of Understanding (MoU) in August 2022 with the REA to help eliminate long-term financing bottlenecks for off-grid operators in the energy sector by enabling credit enhancement and financing to private sector mini-grid developers to enable adequate power generation and supply to underserved and unserved areas.

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NAICOM promises to strengthen insurance services in Nigeria

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The National Insurance Commission (NAICOM) has promised to raise the level of the insurance services in Nigeria to match global standards.

Sunday Thomas, the commissioner for Insurance/CEO National Insurance Commission (NAICOM) said this during a seminar organised by the Commission for insurance journalists in Lagos with the theme “The Future of the Nigerian Insurance Sector in a Shifting Landscape.”

Thomas said they will do this through continued mutual collaboration with the media and other relevant stakeholders.

According to Thomas: “As regulators, we would continue to consolidate on the administration’s cardinal agenda of developing the market and fostering insurance inclusion along with mutual collaboration of the press and other relevant stakeholders.”

Thomas said the Commission will continue its execution of various regulatory and market development initiatives to uplift the insurance sector to global standard.

“This will be achieved through a 12-point laid down initiative that will focus on engaging stakeholders including state governments towards ensuring domestication of the laws to ensure compliance with compulsory insurances and improve the business of insurance in their respective states; driving the Market Development and Restructuring Initiative (MDRI) to promote compulsory insurance products; feasibility Assessment for Index Based Risk Transfer Solution in the agricultural sector; financial Inclusion Drive via focused Insurance awareness campaign for the financially excluded.”

“Other areas are, launch of the Insurtech Accelerator Platforms under the Insurance Market Development programme i.e Bimalab Programme in conjunction with FSD Africa; ongoing synergy with FSD Africa on developing a Risk Based Capital Model for the Nigerian Insurance Industry; promoting the development of products and business models that meet the needs of the financially excluded group; automation of the Commission’s processes; actuarial capacity development programme; risk based supervision regime; regional Integration and setting up of the insurance sector committee on African Continental Free Trade Area (AfCFTA) amongst others.”

“Stemming from the theme for this seminar, it is worth noting that insurance over the ages has always been seen as a business that exists for the survival of other businesses.”

“At this period of rejuvenation, it calls for the Nigerian insurance sector to develop innovative products and distribution channels, embark upon massive infrastructural development, improvement in social safety nets scheme, rejig business continuity plans and general deployment of technology to meet the expectation of today’s consumers and create new experiences that add value,” Thomas said.

Read also: Insurance industry’s gross premium income grows 65.6% in 5years

On importance of insurance, NAICOM boss said, “The insurance sector plays a vital role in financial inclusion because it reduces the poverty line, assist people to manage their risk and protect them from negative adverse effect of any unforeseeable circumstances as well as increases access to other financial services

“In today’s modern business environment, disruption plays an integral part of any business, hence innovation being implemented by the Commission is geared towards gaining control of a specific segment of the market that has been left untapped by encouraging the introduction of products tailored to the consumers in order to grow insurance businesses.”

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African insurers pledge $14bn of cover to take up climate change fight

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This commitment comes as Africa continues to face irreversible loss and damage associated with global climate change impacts such as drought, flood and tropical cyclones.

With African nations being among the most exposed globally to the impacts of climate change and nature loss, Africa cannot continue to rely on international aid and developed world climate finance commitments to respond to climate catastrophes.

The ACRF will provide protection for the continent’s most vulnerable communities by providing $14 billion of climate risk insurance by 2030 to African sovereigns, cities, humanitarian organizations and NGOs.

At the same time, the Facility will include a donor-funded Trust Fund that provides premium subsidies, product development technical assistance and policyholder capacity building. The governance of the Trust Fund will be designed to allow swift response to opportunities.

Kelvin Massingham, Director Risk and Resilience, FSD Africa, said: “Mainstreaming resilience into Africa’s economic development is essential to secure future prosperity and sustainable growth. Now is the time for the African insurance sector to play the significant role it should in creating this resilience. The Nairobi Declaration on Sustainable Insurance’s proactive and market-based approach is exactly what we need, and the commitment today is a strong statement to work together to provide an African-led solution to loss and damage.”

Patty Karuihe-Martin, CEO Namib Re, commented: “Irreversible Loss or Damage refers to the calamitous impacts of climate change that cannot be circumvented by mitigation and adaptation alone. So apart from managing risk, crafting affordable risk transfer and risk sharing solutions through compliant, trusted and responsive Insurance and Reinsurance for such loss or damage for the developing countries is a crucial discussion; if not for unfailing and guaranteed resilience then at least to allow for decent work and dignified life to continue.”

Phillip Lopokoiyit, Group CEO, ICEA LION Group, added: “As private sector insurers, we have a key role to play in ensuring a sustainable future. Our priority lies in providing solutions that will support the resilience of our clients in light of the greatest challenge facing humanity. Coming together as signatories to support the set-up of the Africa Climate Risk Facility, will provide the necessary capacity needed by insurers to the solutions that will respond to climate risk.

“The commitment that we have made, as signatories, to underwrite $14 billion of cover for climate risks by 2030, will protect 1.4 billion people against floods, droughts, and tropical cyclones.This is indeed a testament of our quest to ensure that we contribute to the long term sustainability and economic resilience of our countries.“

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Ghana Stock Exchange launches Green Bond Rules at its 32nd anniversary celebration

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As part of programs to mark its 32nd anniversary, the Ghana Stock Exchange (GSE) in collaboration with its regulator, the Securities and Exchange, launched the new Green and Sustainable Bond Rules to guide the listing and trading of green and sustainable bonds on the Ghanaian market.

This year’s anniversary was under the theme “Investing into a Green and Sustainable Future’.

Green Bonds are bonds that support new or existing projects that generate climate or other environmental benefits that conform to Green Guidelines and Standards while Sustainable bonds support new or existing projects that generate both environmental and social benefits that conform to the Sustainability Guidelines.

The first Green Bond was issued in 2007 by the European Investment Bank under the label Climate Awareness Bond. Due to the role the finance sector plays in allocating capital efficiently, it remains a key channel for economies all over the world to make a real impact. As such, the best way to combat climate change while still making a profit is through the financial market.

In his remarks, the keynote speaker for the event, Mr. Aliou Maiga, IFC’s Regional Industry Director for the Financial Institutions Group in Africa said, “I commend Ghana and the Ghana Stock Exchange for showing leadership in green and sustainability finance. Climate financing is not only a development imperative but also a significant market opportunity.

IFC is committed to working with Ghana’s stakeholders to facilitate investments that reduce greenhouse gas emissions and support climate change adaptation.”
Speaking at the event, the Director General of the Securities and Exchange Commission stated that “Investing in green and sustainable future is both well timed and opportune.

Sustainability is a broader topic that stands on social human, economic and environmental pillars, none of which can be ignored. It is the most pressing challenge of our time for many business leaders. However, there is evidence of a correlation between the long-term success of a business and sustainability. Investors across the world are demanding opportunities to invest in companies or investments with strong ESG markets.”

Delivering his goodwill message at the event, the Senior Financial Markets Specialist at FSD Africa, Victor Nkiiri hinted that “At Financial Sector Deepening Africa (FSD Africa), we see the development of capital markets to an end, to increase income and job creation, access to basic services and building of sustainable futures. Deep liquid markets are fundamental to economic growth because they help channel longer-term domestic savings of an economy to the most productive use.”

In his remarks, the Managing Director of GSE, Ekow Afedzie said, “Green and Sustainable bonds have gained traction globally due to the enormous benefits it brings to the environment and society at large.” GSE has been very committed to sustainability initiatives over the past years culminating in our recent admission to the UN Sustainable Exchanges in July.

The launch of ESG Disclosure Manual Guidelines in November this year is another testament to our commitment to this sustainability journey. The launching of Green and Sustainable bond rules today is another milestone on our sustainability journey. Listed companies in Ghana now can tap into these fast-growing bond investment products to raise capital that can be used in supporting ESG initiatives.

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African insurers take up climate change fight with $14 bln pledge

Posted on by TIMOTHYRADIER

Summary

  • 85 insurers make pledge to extend climate cover
  • Comes as COP27 talks focus on issue of loss & damage
  • African Climate Risk Facility to cover 1.4 bln people

SHARM EL-SHEIKH, Nov 9 (Reuters) – A group of over 85 insurers in Africa has pledged to create a financing facility to provide $14 billion of cover to help the continent’s most vulnerable communities deal with climate disaster risks such as floods and droughts.

The commitment to create the African Climate Risk Facility (ACRF) was made on Wednesday during the COP27 climate talks comes as developing countries push their richer peers to do more to help them pay for the costs of responding to such events.

Demand for compensation for the “loss and damage” caused by global warming has long been rejected by wealthy countries, whose leaders are wary of accepting liability for the emissions driving climate change.

Africa, which accounts for less than 4% of greenhouse gas emissions, has long been expected to be severely impacted by climate change.

Against that backdrop, the African insurance plan is based around creating a scalable, local market-based funding tool to help countries better manage the financial risk of climate shocks and increase the resilience of its more vulnerable communities, the group said in a statement.

“This is the African insurance industry saying let’s come together and try and solve this ourselves,” said Kelvin Massingham, director risk and resilience at FSD Africa, one of the partners behind the launch.

“We have a massive risk gap in Africa and existing solutions aren’t working,” Massingham said. FSD Africa is a UK government-backed development group.

The ACRF will provide protection for 1.4 billion people against floods, droughts and tropical cyclones by providing $14 billion of climate risk insurance by 2030 to African sovereigns, cities, humanitarian organisations and NGOs, the insurers said.

The group is calling for $900 million in funding from development partners and philanthropies to support the project, much of which will go towards providing a subsidy on the cost of the premium to help governments and cities with limited fiscal resources buy the cover.

These donor funds will be held in a trust and managed by the African Development Bank.

“The facility will enable us to cover certain risks like floods, cyclones and droughts…and to help us mitigate the risks we face as underwriters dealing with these climate risks,” said Philip Lopokoiyit, chief executive at Nairobi-based insurer ICEA LION Group.

The insurance commitment is the first from the 85 signatories of the Nairobi Declaration on Sustainable Insurance, signed in April 2021 by the industry to support the U.N. Sustainable Development Goals.

The ACRF will provide a domestically funded alternative to global initiatives like the World Bank’s Global Risk Financing Facility and the Global Shield Financing Facility, a new funding facility that will help countries that suffer heavy economic loss due to climate change-driven disasters, announced by World Bank president David Malpass on Tuesday.

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