Debate: How we will facilitate investments in Africa
On Wednesday, Sida and its US counterpart USAID will present a strategy for investments in Africa. Our solutions, which include guarantees as component, may convince investors take the step from being passive stakeholders to active participants, writes Sida's Director-General Charlotte Petri Gornitzka.
Published in Dagens Industri, 2014-10-20
The sub-Saharan economies in Africa are continuing to grow and even though forecasts indicate a marginal tail-off in a small number of those countries, the IMF's latest forecast suggests a 5 percent growth for the region. This is around 2 percentage points above the forecast figure for global growth and far higher than the growth figure for Europe.
In the prevailing low-interest environment, it is therefore advisable for pension funds to find ways to achieve greater returns in parts of their portfolios. Africa is a continent with huge potential but lack of energy and a weak infrastructure is restricting its growth. Increased investments in sustainable infrastructure and energy production therefore have a good chance of creating the conditions for continued growth and thereby, in the long run, also reduce poverty.
"It's time to increase our investments – where the interests of development aid and investors coincide."
Interest among international investors to invest in sub-Saharan Africa has risen significantly in the last few years, but many Swedes are still hesitating because they assess the risks as being too great. These misgivings are linked primarily to issues related to environment, social issues and corruption. The Swedish AP Funds, for instance, have increased their portfolio investments in assets in Africa by only 0.2-0.6 percent.
Sida and the US development aid agency USAID, have jointly taken the initiative to increase the proportion of sustainable investments in Africa, particularly in the energy and infrastructure sectors. Together we are finding new solutions to help people living in conditions of poverty look forward to an increase in the availability of energy, water and food.
This will improve the conditions for them to tend their farms, get better exchange for their education and run their businesses more efficiently.
This collaboration has also led to the launch of Power Africa, a major initiative whose goal is to double available electricity within ten years and provide a further 300 million people with electricity for their daily lives, an initiative that is also part of the UN's Sustainable Energy for All initiative. Sweden's undertaking is mainly geared towards sustainable energy solutions. A number of new players are involved in these initiatives, but few institutions have come on-board so far.
This is why Sida, USAID and a large number of Swedish and international and public investors are meeting in Stockholm on Wednesday. At the meeting Third AP Fund, SPP/Storebrand and Sida will be presenting an investment model which is adapted for Nordic pension capital.
As its departure point, the investment model is designed to be flexible enough to create a capital base as broad as possible for allocating capital for investments in Africa. Meanwhile the motivating force for investing is wise: it will help guarantee economically, socially and environmentally sustainable growth.
In the model, development aid organisations extend guarantees which could facilitate long-term and sustainable commitments from investors. The guarantees could thereby lead to new projects starting up which will generate significant positive growth effects for millions of people who are living in poverty.
Those who manage part of Sweden's pension funds can contribute knowledge about investing in infrastructure and poverty, and stimulate an increase in investments in Africa. Development aid can effectively reduce the risks and contribute knowledge about the new markets based on long-term relationships and presence in the countries.
This could lower the threshold for institutional capital investments in Africa and generate a leveraging effect which will help ensure that every invested Swedish krona will yield a good return in the future, measured both in financial terms and in social and environmentally sustainable development and reduced poverty.
Sustainability and green solutions are a key part in these joint investments. It's time to increase our investments – where the interests of development aid and the investors coincide.
It is time that more people saw the potential in sub-Saharan Africa, With this model we hope that pension funds in Sweden and abroad will have the chance to take the step into these growth markets.
Charlotte Petri Gornitzka, Director-General of Sida