The Scoop
The World Bank’s private investment arm plans to “significantly” increase its equity stakes in Africa over the next five years to drive businesses’ growth, its top official told Semafor, part of a strategic shift as the continent’s economies and firms grapple with often crippling levels of debt.
Makhtar Diop, a former Senegalese finance minister who became the International Finance Corporation’s first African managing director in 2021, said the strategy was part of the institution’s global commitment to grow its equity portfolio in order to “support transformative development.”
Africa received the largest share of the IFC’s investments in 2024 — a record $14.2 billion in commitments, up 23% from the previous year. The increase was part of a trend of rising investment across the continent over the past four years, a period in which supply chain disruptions caused by the COVID-19 pandemic and Russia’s war in Ukraine battered African economies, pushing up borrowing costs for governments and businesses.
“Equity is a very scarce resource and very much in need for companies in Africa to grow,” Diop said. “Often they are over-leveraged because they don’t have enough equity and they’re borrowing a lot, which affects their bottom line. So we are doing more and more equity and supporting companies to access capital markets.”
Know More
The IFC’s investments in Africa last year were spread across clean energy, digital infrastructure, agriculture, manufacturing, and business development.
Speaking to Semafor days ahead of this week’s spring meetings of the World Bank and International Monetary Fund in Washington, DC, Diop said the IFC had adopted a “new approach” that involves partnering with Africa’s largest banks to screen companies that are well placed to grow quickly with equity investment, Diop told Semafor. He said the advantage of equity investment was that it “catalyzes growth by giving companies the financial flexibility to scale, experiment, and innovate, without the burden of immediate repayments.”
He added that the institution was developing initiatives to support African-led private equity funds by taking the first losses that are attached to certain investments to “de-risk the investment that they are making in equity so that they can reach a deeper pool of companies.” Diop said the IFC would also increasingly look to mobilize funds from African pension funds and institutional investors.
Alexis’s view
The IFC’s increased focus on equity investments is a critical strategic shift. Diop told me he sees this approach as a way to create “African champions” — multimillion-dollar businesses that can operate at scale across the continent and in other parts of the world.
The focus on equity investments offers a potential source of capital for African companies that are looking to expand their operations but worried about the risk premium attached to securing loans and maintaining repayments. The economic shocks over the last five years have shown that the rising cost of servicing debts can hurt businesses, and that danger now looms larger due to the global disruption caused by shifting US trade policies.
Private equity investment in Africa is among the lowest in emerging markets due to challenges that include perceptions of high risk, foreign exchange volatility, high inflation, and economic uncertainty. These factors will only be exacerbated by the current uncertainty around international trade, the slashing of USAID, and potential cuts to Washington’s development finance institution.
US policies threaten to push up borrowing costs for some African governments and businesses. The IFC’s approach should prove to be less vulnerable to short-term trade disruptions than focusing on debt and, in some countries, could help to build long-term economic resilience.
Step Back
In a wide-ranging interview, Diop also said the IFC was committed to developing Africa’s digital infrastructure. Last month it announced a $100 million investment in data center developer and operator Raxio Group.
He also said the institution’s involvement in the mining sector had “increased significantly in the last couple of years,” focusing on infrastructure for the transportation of critical minerals, such as ports and railways.
The View From Lagos
The Africa Finance Corporation, an infrastructure-focused development finance institution headquartered in Nigeria’s commercial capital, is accelerating attempts to mobilize more domestic capital for investment to make up for cuts to US aid money that could drain billions of dollars from projects on the continent, its chief executive has said.
Samaila Zubairu told Reuters the approach could, in the long term, yield some $15-$20 billion from African pension funds. He also said investors from the Gulf and Europe are looking to place money in other AFC projects.
Notable
- Many African businesses are too large for micro or SME finance but too small or unproven for traditional private equity, forcing them to rely on expensive debt solutions, reported African Business.