Partnerships to turn billions into trillions

Strong partnerships are crucial for the success and impact of development finance institutions (DFIs), especially in the context of polycrises and ongoing global finance architecture reforms. Historically, collaboration between DFIs has involved a vertical approach, where larger DFIs lend to smaller ones, which then on-lend to beneficiaries. Recently, DFIs and other financial institutions have significantly increased horizontal collaboration, enhancing their ability to address sustainable development goals. However, the scarcity of bankable deals, stringent investment standards, and high capital costs pose challenges, necessitating streamlined and innovative approaches as well as new vehicles for scaling up development financing, particularly in Africa.

Panellists in a discussion on the margins of the 2024 Annual General Meetings of the Trade and Development Bank Group in Maputo, Mozambique, during a gala dinner hosted by Mozambique’s Ministry of Economy and Finance, considered how DFIs can collaborate to deliver sustainable development in this current environment. They included Bajabulile Swazi Tshabalala, senior vice president of the African Development Bank Group (AfDB); Dr. Tshepelayi Kabata, senior technical advisor at the Arab Bank for Economic Development in Africa (BADEA); Morten Elkjær, senior vice president and head of financial services at Denmark’s Investment Fund for Developing Countries (IFU); and Said Taufik Ridha, director of the portfolio management unit at the OPEC Fund for International Development. The session also featured reactions from Abdul Jivane, president and CEO of BNI, and Admassu Tadesse, TDB Group president and managing director.

Ahead of the panel, Omar Ben Yedder, group publisher and managing director of IC publications, who moderated the discussion, engaged Ambassador Albert M. Muchanga, the African Union’s commissioner for trade, tourism, industry and minerals in a fireside chat. Muchanga explains that his department focuses on developing programs and policies, such as the African Continental Free Trade Area, the African Mining Vision, the Commodity Strategy, and the Action Plan on Industrial Development in Africa.

Currently, he said, it is working on promoting inclusive growth and sustainable development across Africa and developing a strategy framework with the African Development Bank and other partners. This framework aims to position African countries for 10-17% yield growth rates over 30 to 50 years and to increase GDP investment from 10% to 40%. He noted the importance of building on the African Continental Free Trade Area and cautioned of the risks posed by external parties who might take wrongful advantage of the trade agreement. “That can de-industrialise Africa and the best way to address that is to have a common external tariff and a customs union,” he warned, adding that a working document on the policy is ready and will be presented to ministers in November.

On the commission’s work with financial institutions, Muchanga said the establishment of African credit rating agencies is a key priority and the commission is working with African central banks and the African Export-Import Bank, which is ready to provide technical and financial assistance. He pointed to the African Linkages Exchange Project as a precursor to an African stock exchange, noting that “we have 7 stock exchanges in 14 countries who are participating in this project. Eventually, when we have universal participation, we will have a better pan-African stock exchange.” Ultimately, he said, the goal is to harmonise macro-economic criteria and to pave the way for an African Central Bank and a single African currency.

Using the AfDB as an example, Tshabalala highlighted the importance of partnerships to achieve ambitious development goals. Specifically, she referred to Mission 300, the bank’s project to provide power to 300 million people, half of the number currently without access on the continent. “It is extremely ambitious but it is also fundamental. Development is not possible without power. You cannot have a continent that has ambitions for rapid development, that has ambitions for industrialization and be without power,” she stressed. This requires partnerships and the AfDB is working with World Bank as well as regional development institutions such as TDB Group. “This is an all-hands-on-deck effort,” she added.

Starting in January 2025, Tshabalala said, countries will be encouraged to enter into long-term energy compacts to increase access and develop infrastructure for renewable and clean energy. Tsabalala highlighted Mozambique’s proactive participation and noted the significant financial resources required, as well as the need for regional optimization and private sector involvement. She underscored the importance of mobilising the expertise, networks, and relationships of regional development banks to achieve the project’s ambitious goals. “We are leading this effort but we expect them to bring their expertise, their talents and their networks so we can mobilise as a whole so we can deliver on this ambition,” she said.

On his part, Ridha also emphasised the importance of collaboration not only within the private sector but also between public and private sectors and among different public financial institutions (PFIs). The OPEC Fund, he said, has both public and private sector arms that work together and have done so in Pakistan. In Uganda, the World Bank and other DFIs provided necessary funding to complete a hydropower project’s transmission line during a period where the government had to choose between funding the line or spending money on vaccines during the Covid-19 pandemic. Ridha also highlighted a successful collaboration in Mozambique, where both public and private sectors co-financed the 450 MW Temane combined cycle gas-fired power plant and its transmission line. “So definitely, collaboration within the private sector and with other agencies is very important,” he stressed.

Elkjær agreed that partnerships between public and private sectors, DFIs, and private investors are critical in providing access to electricity in Africa. He argued that more concessional finance must be made available to support off-grid investments that do not attract commercial investors due to their lack of subsidies. Elkjær also stressed the importance of mobilising finance to support startups and early-stage businesses, citing IFU’s investment in Africa Green Home as an example. “It would also be good if we could all do what we can to encourage start-ups, early stage businesses and entrepreneurs who have good ideas and also team up with people who have good technical solutions,” he noted. Elkjær also underscored the need for DFIs to engage more with public institutions to ensure mutual understanding and to support long-term regulatory and legislative changes.

Tshabalala emphasised the role of the AfDB as a crucial partner in regulatory and policy dialogue to enhance access to energy. She highlighted the importance of the upcoming Commission 300 summit, which will focus on policy discussions with heads of state to address necessary reforms and engage the private sector. The summit aims to outline steps and commitments for energy rollout and private sector involvement. “There are certain things that we can do, such as providing risk-mitigation instruments, but in terms of policy, those commitments have to come from governments and that is the reason why we are proposing this summit to engage on those policy issues, on the SOP and utility reforms that are necessary and to ensure that we have clearly outlined the steps and commitments to facilitate this.” Tshabalala noted that similar successful initiatives have been undertaken in agriculture, where transparent, long-term commitments from countries were secured to boost agricultural production and industrialization.

Commenting on regulatory environments, Ridha emphasised the importance of a comprehensive approach when evaluating projects involving government concessions. He noted that while MDBs and DFIs typically focus on ensuring that projects are financially viable for both the institution and the borrower, it is crucial to also consider the broader value chain. He explained that this includes evaluating the role of utility companies. “We need to consider whether the deals that they sign actually work for them and that they can deliver on them in the long run. He pointed out that in the context of power projects, which often involve substantial capital investments and long-term commitments (sometimes spanning 20 years or more), the regulatory environment and support infrastructure must be robust and continuously developed throughout the project lifecycle.

Reflecting on BADEA’s role and strategy, Dr. Kabata explained that its goal has been to support DFIs and the countries committed to recapitalizing them. He noted that before a recent board decision, BADEA had been actively involved in acquiring equities in several DFIs, demonstrating that this direct participation approach had been effective. In the last few years, the bank has adopted a strategy where it extends affordable loans to member states, which, in turn, use the loans to recapitalize the DFIs where they are shareholders. “That makes a huge difference, compared to the initial approach that we had been using,” he said.

Kabata added that BADEA also has the less-well-known mission of fostering cooperation between the Arab world and Africa through investment and trade. In partnership with other Arab-focused financial institutions, BADEA has mobilised about $60m for projects in Africa, employing a strategy where each dollar is used to leverage about $4 to $5 more. “Just last Friday, the president of Mozambique actually laid the first stone for the construction of a fishing port, a project that has been co-financed by the OPEC fund and the government of Mozambique. So that’s one example,” he pointed out. Kabata also noted that as part of its 50th anniversary, BADEA has launched the Arab-Africa Financial Alliance, aimed at attracting Arab investors to African opportunities. “When we talk about synergy,” he observed, “one plus one should provide a sum greater than the composite so in that respect, when we join forces, that sum impact is much higher than we can make in isolation from each other.”

Cooperation between DFIs is key and Tshabalala recalled that the AfDB has been involved in the creation of several of the continent’s DFIs, including Africa50 and Afreximbank. The bank also uses its AAA credit rating to offer risk-mitigation instruments such as partial risk and credit guarantees. This helps regional DFIs to access cheaper financing. “We provide risk mitigation instruments, partial risk guarantees, partial credit guarantees, for instance, that we can make available to them.” The bank, she said, has also been a vigorous advocate for the reallocation of Special Drawing Rights that it hopes can also be used to capacitate regional DFIs to invest in projects across the continent. The Africa Investment Forum, an initiative of the AfDB has also presented an opportunity for cooperation between African DFIs, with several of the latter as founding partners including TDB Group, raising billions of dollars for investment in Africa.

In his reaction to the discussions, Jivane emphasised the importance of collaboration and funding in key sectors such as agriculture, infrastructure, and power. He pointed out the necessity of concession funding for regional banks and noted that, despite several innovative approaches like hybrid financing, export guarantees, and insurance, the cost remains high. “We need to change the narrative and correct the negative perception that the market has about Africa,” he stressed. The narrative must shift to present Africa as a continent offering opportunities and jobs, he proposed. 

Jivane also noted that the way African sovereigns and DFIs are rated adversely impacts borrowing costs. Recalling the African Union’s initiative to establish African rating agencies, he underscored the importance of reviewing rating agencies’ methodologies, saying, “we have to use the leverage of the AU to ensure we are being rated fairly.” Jivane also encouraged the TDB and other DFIs to invest more in Mozambique, particularly to finance the private sector. He also stressed that African governments must maintain peace, as conflict affects DFIs’ ratings, destroys infrastructure, and wastes resources.

Also commenting on the discussions, Tadesse emphasized TDB’s commitment to combating climate change and expressed gratitude to the African Development Bank (AfDB) for supporting TDB’s Green+ equity shares. This first and anchor investment in the novel instrument has since then catalysed further commitments and interest from other investors and is supporting TDB Group to continue expanding and accelerating its contribution to sustainability issues, and embracing the green energy transition. He acknowledged the World Bank Group’s robust partnership with TDB, which is facilitating further access to energy, infrastructure, clean cooking and trade. “There’s still room to optimise development impact in a way that combines protecting the environment and advancing the growth agenda,” he noted.

Tadesse also acknowledged other partners including the OPEC Fund, IFU of Denmark, the European Investment Bank, AFD, and BADEA, three of which have made equity capital injections in TDB Group. He observed that pension and sovereign wealth funds have become an important feature of the African capital landscape, helping DFIs like TDB to boost and enhance of their capital base. “Their participation is an indication that Africa is evolving and reforming. A decade back, we didn’t have as many pension funds and sovereign wealth funds. Today we have over twenty institutional investors with the TDB Group.” These initiatives all show, he said, synergy, creativity and agility in action as DFIs work to develop the continent.

This panel discussion took place during the TDB Group Annual General Meetings in Maputo on 29 July. The sister arm of African Business, IC Events, oversaw the production of the AGM and the panel was moderated by the Group Publisher, Omar Ben Yedder