The importance of SMEs in growing inclusive growth in Africa

Inclusive economic growth is growth that leads to job creation, causing a ripple effect on the purchasing power of the majority of the populace. The private sector, and in particular small and medium enterprises (SMEs), are the drivers of an economy. SMEs are also the largest providers of direct employment and inclusive growth can be achieved through promotion of policies that would drive their development.

According to the Central Bank of Nigeria, 96% of Nigerian businesses are SMEs (US = 53%, EU = 65%). Inclusive growth can be achieved by positioning these SMEs to take advantage of the opportunities in the economy.

Financial services is crucial to SMEs

According to the Small Business Administration of the USA, two of the top 10 reasons why SMEs fail are lack of capital, and poor credit management. It is no different in Nigeria and the rest of Africa. While there are several aggregators/sources of capital including Private Equity (PE) funds, development finance institutions (DFIs) and insurance companies in Africa, the key players in the financial services industry that are optimally positioned to serve SMEs and therefore drive inclusive growth are banks and micro-lenders.

Government macro-economic policies impact SME financing

Lenders operate within the wider macro-economic environment, and government policies regarding inflation and infrastructure are crucial to keeping the cost of funding down. When inflation drives up the cost of funding and ultimately lending costs, it in turn drives up the cost of production, making SMEs less competitive.

Standardisation of physical address systems is another area where African governments can make a meaningful contribution to SME growth. Inconsistent address systems make it difficult for SMEs to establish formal relationships and credit histories with suppliers, customers and transient clients.

What can banks do?

At the credit application and processing stage, banks need to invest in systems that allow more efficient and tailored risk profiling. Such a system rewards diligent entrepreneurs with lower lending rates and greater access to capital.

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New Report On Southern Africa Highlights Hotbed of Impact Investing Activity, With Over USD 5.7 Billion From Non-DFI Impact Investors

The Global Impact Investing Network (GIIN), in partnership with Open Capital Advisors, published The Landscape for Impact Investing in Southern Africa, a state-of-the-market analysis of the impact investing industry in the active region. The report includes findings from 12 countries, as well as a dedicated chapter exploring the role of development finance institutions (DFIs) across Southern Africa.

The report analyzes a market comprising countries that vary substantially in their level of development but that present common challenges and opportunities for investments to have social and environmental impact. Progress has been made on key development indicators in South Africa, the region’s anchor, but there remain significant gaps in the provision of vital goods and services across the region. Despite recent economic growth, half the region’s population (double the global average) lives on less than USD 1.25 per day. Looking forward, Southern Africa’s GDP is projected to continue to grow by five percent per annum.

International DFIs are significant players in the market, having deployed nearly USD 16.8 billion in impact capital across the region through over 650 deals. South Africa-based DFIs also play a pivotal role and have deployed USD 17.1 billion regionally through over 7,500 deals. Additionally, several other types of investors—including VC/PE funds, foundations, commercial banks, and pension funds—actively invest in the region, with such non-DFI impact investors having deployed nearly USD 5.7 billion in the region through more than 500 deals.

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Press Release: Africa Finance Corporation increases stake in Cabeólica Wind Farm

Africa Finance Corporation (AFC) has completed the purchase of InfraCo Africa’s stake in the Cabeólica Wind Farm. The deal follows the share purchase agreement signed on 6 May 2015 in which AFC agreed to purchase InfraCo Africa’s remaining stake in the project.

Cabeólica is the first privately-financed sustainable wind farm on a commercial scale in sub-Saharan Africa. Operating across four of Cape Verde’s islands (Boa Vista, Sao Vincente, Sal and Santiago) and consisting of over 30 wind turbines, it has a total installed capacity of 25.5MW, equivalent to around 20% of Cape Verde’s energy needs. To date, Cabeólica has generated over 300,000 MWh of clean wind power.

The project has transformed Cape Verde’s access to electricity. Prior to becoming operational, the islands suffered from chronic power shortages and were heavily dependent on imported oil, with only 2% of the country’s energy needs being sourced from wind power. Today, Cape Verde benefits from a reliable and extended electricity grid.

Andrew Alli, President & CEO of Africa Finance Corporation said:

“We are very excited to take a larger part in this ground-breaking project. Cabeólica provides access to electricity for 360,000 people, which is about 72% of the Cape Verde population. The project is staffed entirely by skilled Cape Verdean employees and with sustainability at its core; it has avoided an estimated 55,000 tonnes of carbon emissions a year and averted the need to import 15 million litres of diesel a year. The additional share purchase will allow further expansion and other uses of wind energy in Cape Verde. We are very proud of our growing work in addressing Cape Verde’s energy needs though sustainable measures, all the while seeking a competitive return on investment for our shareholders.”

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Investment Opportunities Flow from Water Initiatives

Large parts of the world are running short on water — even experiencing “desertification” — at an alarming rate. Innovative solutions being implemented by the public and the private sectors may offer interesting opportunities for investors.

Several factors are driving water shortages. Climate change could have the greatest global impact. Some projections have temperatures around the globe warming by three to four degrees (Fahrenheit) over the next century, which would affect water in many ways. Some areas would stay the same, but many others would be either flooded or stricken with drought.

Population growth is also putting pressure on clean surface freshwater resources in lakes and rivers. Brackish water must be treated before it is used for human consumption, and groundwater is harder to use because it must be pumped.

According to Julie Gorte, senior vice president for sustainable investing at PAX World Management, 96.5% of all the water on Earth is brackish and 1% is saline. Only the remaining 2.5% is fresh, and of that, 1.2% (0.03% of all water) is surface fresh water. Of the surface fresh water, 30% is groundwater, and 69% is currently locked up in glaciers and icecaps.

The more fresh surface water is used, the more it becomes contaminated. Industrial use is a major issue. For example, hydraulic fracturing, or “fracking,” takes about 5 million gallons of water to frack a well once. The water becomes highly contaminated, and treating it is extremely expensive.

Some countries with large populations are experiencing drought conditions, yet much of their water is contaminated. About 60% of China’s groundwater — which makes up about one-third of the country’s water resources — was rated unfit for human consumption by China’s Ministry of Land and Resources. In India, 80% of sewage flows into rivers without being treated, according to a 2013 study by the Centre for Science and Environment.

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World’s largest concentrated solar power plant in Morocco showcases AfDB’s New Deal on Energy for Africa

On Thursday, February 4, 2016, King Mohammed VI of Morocco inaugurated the first phase of the country’s Noor Ouarzazate Concentrated Solar Power (CSP) plant, ushering in a new era for Africa’s sustainable energy future.

The Noor Ouarzazate plant (NOORo), supported by the African Development Bank (AfDB) among other donors, is a keystone of Morocco’s solar Program (named Program Noor) to develop 2 GW by 2020 and create transformational impact on Morocco and the region. As such, it stands as a showcase example of the ambitious New Deal on Energy initiated by the Bank’s new President, Akinwumi Adesina, to provide universal access to energy for all Africans by 2025. The New Deal is poised to transform Africa’s energy by exponentially increasing on-grid generation and transmission, off-grid connections, and access to clean cooking energy throughout Africa.

Noor Ouarzazate provides an important early example of the type of project, which can trigger the transformation of Africa’s energy sector required to achieve the New Deal’s ambitious vision. The New Deal will operate through five principles: raising aspirations to solve Africa’s energy challenges; establishing a Transformative Partnership on Energy for Africa; mobilizing domestic and international capital for innovative financing in Africa’s energy sector; supporting African governments in strengthening energy policy, regulation and sector governance; and increasing the Bank’s investments in energy and climate financing. Noor addresses those principles in four ways:

• The plant exponentially harnesses the country’s solar power, achieving over 500 megawatts (MW) installed capacity and increasing on-grid access to more than a million households by 2018;

• The plant in Ouarzazate will also help reduce greenhouse gas emissions in the region by 19 million tons over 25 years, keeping the region in line with its nations’ Nationally Determined Contributions (NDC) commitments under the Paris Agreement on climate change;

• Built on a partnership between the public and private sectors, the project will exponentially increase market access to solar energy by reducing market risk and creating attractive investment potential;

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