Long-term Finance in Africa: The Next Frontier David Ashiagbor Making Finance Work for Africa (MFW4A)

Long-term Finance in Africa: The Next Frontier

David AshiagborMaking Finance Work for Africa (MFW4A)

Contents

1. About MFW4A

2. Africa’s Financing Needs

3. Who is Financing Africa?

4. Financing Trends in Africa

5. Looking Forward

2

1. About MFW4A

3

The Making Finance Work for Africa (MFW4A) Partnership is a G8 initiative launched in October 2007. Its mission is the establishment of a common platform for the harmonization and facilitation of financial sector development and knowledge sharing in Africa.

The Partnership brings together donor partners, African governments, the private sector, and other financial sector stakeholders with the aim of unleashing the full potential of Africa's financial sector in order to drive private investments, economic growth, employment creation.

Development Partners

Strategic Priorities

Long Term Finance Financial Inclusion Financial Stability and Governance Knowledge Management & Advocacy

2. Africa’s Financing Needs

4

Sub-Saharan Africa (all income levels excluding South Africa)

Middle East & North Africa (all inclome levels)

Latin America & Caribbean (all income levels)

South Asia

Europe and Central Asia (all income levels)

Sub-Saharan Africa (all income levels)

East Asia and Pacific (all income levels)

World

OECD members

North America

0 20 40 60 80 100 120 140

Market Capitalization as % of GDP 2012 (in percentage)

Source: World Bank, WDI Database

2. Africa’s Financing Needs - Infrastructure

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Key facts

Africa’s infrastructure financing needs estimated at $US95 billion

More than 30 African countries are now experiencing power shortages

Africa invests only 4% of its collective GDP in infrastructure, compared with China’s 14%

Transportation costs increase the prices of African goods by 75%

2. Africa’s Financing Needs - Infrastructure

6

Financing Gap_x000d_$50 bil-

lionPublic Sector

_x000d_$30 billion

Private Sector_x0

00d_$9 billion

DFIs_x000d_$6 billion

Infrastructure and Investment Gap

Bridging Infrastructure Investment Gaps

Power

Transport

ICT

Water & Sanitation

Boost Africa’s Growth Rates by 2%

2. Africa’s Financing Needs - Housing

Source: UN Habitat – The State of African Cities 2014

Projected Population by Major Region 2010-2100 (In Millions)

Housing Deficit

Nigeria: Current housing shortage estimated at 17 million Ghana: 170,000 housing units are required every year for the next 10 years Kenya: 2 million housing units are required every year for the next 10 years

2. Africa’s Financing Needs - MSMEs

East Asia and the PacificEurope and Central Asia

Latin America and the CaribbeanSouth Asia

Middle East and North AfricaSub-Saharan AfricaHigh-Income OECD

150-180

150-190

210-250

10-20

260-320

70-90

600-700

Formal SME Credit GapUS$ in Billions

East Asia and the Pacific

Europe and Central Asia

Latin America and the Caribbean

South Asia

Middle East and North Africa

Sub-Saharan Africa

High-Income OECD

7-8

25-30

100-125

13-16

300-360

270-320

5-6

Implied Increase in Outstanding SME CreditPercent (%)

Source: IFC, 2013, Closing the Credit Gap for Formal and Informal Micro, Small and Medium Enterprises

3. Who is Financing Africa?

9Source: ICA 2013 Report on Infrastructure Trends in Africa

Euro

pe

The A

merica

sAsia

Multila

teral

Dev

elopm

ent B

anks

Region

al Dev

elopm

ent B

anks

Arab Co

-ordin

ation

Gro

up0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

7,008,000,000.00

13,443,000,000.00

Financing Flows from External Sources into African in-frastructure, 2013

UKFranceECEIBAfDBWBGUSChinaSeries1

4. Financing Trends in Africa – Sovereign Bonds

10

Seychelles RwandaNamibia

TanzaniaIvory Coast

AngolaSenegalNigeriaZambia

KenyaGabonGhana

0.2

0.4

0.5

0.6

0.7

1

1.2

1.5

1.7

2

2.6

2.6

Sub-Saharan Africa (ex. South Africa): Cumu-lative Sovereign Bond Issuance, 2006 – 2014

In $US Billions

Source: Dealogic

4. Financing Trends in Africa – Sovereign Bonds

11

Sovereign Spreads and Credit Ratings (In Basis Points as of October 2014)

Source: Bloomberg L.P. and Barclays Research

4. Financing Trends in Africa – Domestic Sources

12

Banking Assets65.9%

SACCO Assets8.2%

Insur-ance

Assets8.9%

Pen-sion

Funds Assets 17.0%

Financial Sector Composition in Kenya, 2013Percent

Banking AssetsSACCO AssetsInsurance AssetsPension Funds Assets

Source: Kenya Financial Stability Report, 2013

4. Financing Trends in Africa – Pension Funds

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Nigeria South Africa Kenya Botswana Ghana Namibia Uganda 0

50

100

150

200

250

300

0%

10%

20%

30%

40%

50%

60%

70%

80%

30

270

8 6 3 10 3

Africa’s Pension Industry – Comparative Figures

Pension Assets (US$bn) % of GDP

4. Financing Trends in Africa – Pension Funds

14

2008 2009 2010 2011 2012 2013 20140

5

10

15

20

25

30

35

0%

10%

20%

30%

40%

50%

60%

7

9.6

1315

16.62

24.9

30

Nigeria – High Growth Market: 8 year CAGR @33%

AUM $USbn

4. Financing Trends in Africa – Private Equity

15

Africa PE fundraising reached $4.1bn in 2014

Total Value of Africa Private Equity Funds by Year of Final Close, in US$bn

Source: AVCA

4. Financing Trends in Africa – Private Equity

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Total Value of Private Equity Deals in Africa, by year US$bn

Africa PE deal value reached a 7-year high in 2014

Source: AVCA

Key Messages

Improved financial inclusion in Africa has been critical for financial sector development, and provides the basis for addressing the continents challenges in providing adequate long term finance;

Africa’s development agenda is crowded with opportunities waiting for appropriate financing and risk management strategies. Addressing these needs requires innovative financing solutions and appropriate regulation

There is a need for financial sector development policies at the national level, encompassing all areas of finance, including inclusion, financial literacy and capital markets development in order to support long-term finance in Africa.

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Thank you !

www.mfw4a.org

David [email protected]

Making Finance Work for Africa (MFW4A)