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The investment arm of the UK’s international development policy plans to increase spending in Africa as it bets the continent’s renewable energy sector will generate strong commercial returns.
Nick O’Donohoe, chief executive of British International Investment, told the Financial Times that the development finance institution’s spending in Africa this year was likely to exceed the total of £1 billion in 2023.
“It has been a particularly difficult few years for Africa due to the war in Ukraine, higher energy and food prices and higher interest rates. But we have to take a step forward while others step back,” he said in an interview.
Founded in 1948, BII has an $8.2 billion (£6.5 billion) portfolio and is one of the largest single investors in African private equity. The company is wholly owned by the UK Foreign, Commonwealth and Development Office and has supported major infrastructure projects in developing countries, including ports and renewable energy facilities, as well as businesses such as medical companies.
The past year has been dismal for investment in Africa as currencies slumped in countries such as Nigeria and Kenya, while average consumer price inflation across the continent reached 17.8 percent, the highest in more than a decade, according to the African Development Bank.
Research released this month by the African Private Capital Association (Avca), an industry body, showed there were 450 private capital transactions in Africa last year with a total value of $5.9 billion – the biggest drop in volume since 11 years and corresponds to a decrease of 22 percent loss in value from 2022.
Despite the decline, O’Donohoe said the long-term investment outlook remains solid.
“The story is still good. “There is a young, growing population on a continent with significant natural resources and opportunities to build infrastructure that will increase access to renewable energy,” he said, adding that BII is primarily targeting clean energy projects want.
Chris Chijiutomi, BII head of Africa, said the institution expected to generate a commercial return on the £1bn it deployed in Africa last year, as well as creating social impact. BII’s most recent financial statements show the company returned 4.8 percent globally in 2022.
“We manage taxpayers’ capital and are therefore very conscious of the need to generate a return. But we also want to make a difference and drive growth,” he said on the sidelines of the Avca annual conference in Johannesburg.
Last week, U.S. bank Citigroup committed a new $100 million risk-sharing facility to BII intended for trade financing of “high potential” companies in African border countries such as Benin, Rwanda and Tanzania.
The mechanism aims to close Africa’s trade finance gap – the difference between the funds needed to finance trade with other countries and what the country receives – which has grown to $120 billion from $81 billion in 2019, according to Citi .
Andrew Mitchell, Britain’s development secretary, said the facility was crucial to “support vulnerable economies across Africa to access essential supplies to support food production, including fertilizer and agricultural machinery.”
Stephanie von Friedeburg, Citi’s managing director of banking and capital markets advisory, said this will help Managing Director Jane Fraser’s goal of reaching $1 trillion in funding for sustainability efforts by 2030.
“If you look at the desire to reach net zero. . . All banks need to focus on emerging markets as 65 to 70 percent of clean energy will be in emerging markets,” she said, adding that the participation of institutions such as BII and the World Bank has reduced investment risk in infrastructure projects.
Last year, the BII said it would ensure that half of its annual budget would go to the poorest and most vulnerable countries by the end of the decade, under a new target at the heart of a revised government strategy.
Asked whether a Labor election victory this year would impact the BII’s spending plans in Africa, O’Donohoe said: “If we have a change of government, I’m sure there will be different priorities and views on the sidelines will give. But there is general bipartisan support for an organization that seeks to close the private capital gap for Africa.”