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Monica_55905 Jul 15

What Strategies are DFIs Putting in Place to Protect and Rebuild African Economies?

What Strategies are DFIs Putting in Place to Protect and Rebuild African Economies? image
Partnership and collaboration were the key themes running through this lively discussion where panellists from three DFIs – EIB, DFC and IFC – plus J.P. Morgan, representing the private sector, dissected the strategies they are taking to protect and rebuild African economies in the wake of COVID-19.
In the short-term DFIs are trying to preserve what they have already built– they have come a long way in growing the private sector in some of their client countries and want to make sure that the companies that are already there are able to continue, protecting certain industries so that they weather the COVID-19 storm. Many DFIs have put together ‘fast-track facilities’ – funding for financial services to reach out to SMEs to help prop up the small businesses and help retain employment, recognising the fact that a lot of the African economy is informal. With the crisis, banking sectors and local financial sectors are coming under strain with central banks providing payment holidays, reducing reserve requirements and other options. DFC has provided financing for the production and distribution of ventilators and therapeutics, and also tackled emergency liquidity issues. A key issue and driver that DFIs are focussing on is jobs and livelihoods. EIB has been working alongside the European Commission in their engagement on health preparedness, building economic resilience, boosting access to funding and also supporting big corporates to ensure that infrastructure and renewable energy projects remain on track.

In the longer-term it is about reconstruction and rebuilding for DFIs– helping the governments get over the hurdle created by COVID-19. They are providing advisory services, affordable financing, and the IFC has launched an upstream initiative working on projects before they come to bankability and to market.  They have also been knowledge sharing on management during this crisis and connecting clients to each other for problem-solving.  It was discussed how there is a funding gap to shore up the private sector in many African countries and a lot of the economies are commodity-based or dependent on one specific sector so as we emerge out of the COVID-19 crisis the question is whether DFIs can help these economies through diversification. Key to success for DFIs and other development agencies is local capacity building. Identifying local partners and building enterprises on the continent and not just funding entities from Europe, Asia and the USA. 

The private sector is less involved in the short-term liquidity relief needs caused by COVID-19 and is more focused on the medium to long-term in providing sustainable solutions to African economies. J.P.Morgan launched a DFI this year which has a framework to assess the development impact of transactions, using the UN’s SDGs and hopes to work in partnership with DFIs on creative financial solutions to bring down the cost of borrowing for African countries.

Poll: The audience was asked whether DFIs are doing enough in Africa in response to COVID -19. 44% felt that they were, while 56% thought they were not. 

Takeaways
  • DFIs are taking a two-pronged approach to support Africa as it emerges from COVID-19. In the short-term, they are supporting with health preparedness and providing financial support to assist with SME liquidity and protecting the most vulnerable right now. The longer-term view is building local capacity including health infrastructure.
  • The private sector is taking a medium to long-term approach and is focused on providing sustainable solutions to African economies – using frameworks to assess the development impact of investments. A key objective is to bring development finance to capital markets and make it a tradeable asset class.
  • The crisis has accelerated a process that was already beginning to happen with DFIs working together to make an impact quicker. The crisis has created an opportunity and a passion for DFIs to start sharing deal flow, trust each other’s due diligence processes, financial resources, expertise, diversity of views and work better in partnership. They are thinking outside of the box and changing what ‘business as usual’ looks like – it’s time to do things differently. This is the chance to rebuild in a completely different way.