15 Jul 2019 / Article

Private sector financing: it’s time to build trust


“While financial flows have grown by up to 1% since 2007, the contribution of DFIs (development finance institutions) has exploded: capital has doubled and investment in this area has increased by 7%.” For Yana Kakar, managing partner of Dalberg Advisors, DFIs are on a roll. “They’re investing in startups, in new sectors such as solar energy and in digital banking, to respond proactively to each country’s specific development challenges,” adds Ambroise Fayolle, vice-president of the European Investment Bank, during a panel debate at the AFRICA CEO FORUM 2019.

Investment should always involve a transfer of technology.

Sidi Ould Tah, CEO of the Arab Bank for Economic Development in Africa (BADEA), explains that DFIs can develop specific products for the type of small businesses that are not yet sufficiently established to use a classic commercial bank, but that have outgrown microfinance. Such businesses are numerous in regions of fast economic growth, especially in Africa. Peter Van Mierlo, who heads up the Dutch development bank FMO, adds: “The DFI sector must not only understand the enormous opportunities offered by continent, but also that the investment must start now. Investment must always involve a transfer of technology which should improve the efficiency of the sector targeted by the investment.”


According to Dalberg Advisors’ Kakar, there is still much work to be done, both by the financial institutions and the private sector, for the investments made to be more efficient. Among the criticisms often levelled at DFIs are lengthy processing times, ranging from six months to over a year, which discourage the private sector. Addressing this issue , Sérgio Pimenta, IFC’s vice-president for the Middle East and Africa, asserts that his institution has decentralized decision-making in order to improve the process. In addition, as soon as a contract is signed, both parties agree in advance on the deadlines in order to avoid extensions. The FMO, meanwhile, is working on operational transparency.

Development banks all share the same constraints, not only with regards to social and environmental issues but also in the way projects are selected, which hinders the decision process.

Pierre Guislain, vice-president for the private sector at the African Development Bank (AfDB), says slow decision-making at DFIs is a significant problem. According to him, it is caused by the long list of criteria a project must fulfil before institutional financing can be agreed: “Development banks all share the same constraints, not only with regards to social and environmental issues but also in the way projects are selected, and these slow them down compared to other investment funds, which are not similarly constrained and can process a request in six weeks.” He adds that this more exacting process ensures that the projects undertaken have a “significant impact on people and the environment”.

While the DFI sector is willing to invest ever greater sums in the private sector, the main challenge is to build or rebuild trust between the parties. This trust depends on transparency and good communication, but, above all, practice makes perfect.

 

Click here to revisit Yana Kakar’s presentation

 

Read more

26 Mar 2019 / Article

#ACF2019: two days of debates, deals and meetings

09 Apr 2019 / Report

Expert presentation : New horizons in healthtech

26 Mar 2019 / Article

#ACF2019: Raising domestic resources to finance Africa’s infrastructure gap