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TICAD7: African Development Bank discusses relief for fragile states through innovative private sector financing solutions
Access to concessional resources and insurance cover for pioneering investments, offer fragile nations the best tools to jump-start their economies, the African Development Bank said.
“It is important that the state provides risk-mitigating insurance for companies to promote investments in these frontier markets,” Vice President, Regional Development, Integration and Business Delivery Khaled Sherif said during a seminar, organized Tuesday by Waseda University and ICRC on the sidelines of the 7th Tokyo International Conference on African Development, TICAD7.
The seminar, on post-conflict humanitarian needs and challenges, was titled: “Building a Better World through Business - Challenges in Humanitarian Assistance in Africa and the Role of Private Sector. Sherif, joined Peter Maurer, President of the International Committee of the Red Cross (ICRC), Aiji Tanaka, President of Waseda University and Izumi Kobayashi, former Vice Chair, Japan Association of Corporate Executives on the high-level panel.
Political, socio-economic and climate change has slowed growth in countries across the continent and statistics show that two out of every three countries in fragile situations around the world are found in Africa. Yet paradoxically, Africa has six of the world’s fastest growing economies and the continent’s GDP is predicted to rise to 4.1 percent in 2020.
The panelists examined the challenges of weak economies, limited capacity of project promoters and undeveloped capital markets. These obstacles translate into a low rate of private sector financing and foreign direct investment flows.
The African Development Bank has stepped into the gap to provide a perspective to states relying on emergency assistance and humanitarian aid, Sherif said. The Bank is actively seeking to boost private sector development in low-income countries as well as private investment in Africa’s worst hit states.
“The private sector plays a particularly important role in maintaining post-conflict stability, structural transformation and economic growth in fragile states,” he noted.
Touching on how business leaders in Japan think about engaging in humanitarian assistance and investment, Kobayashi said the risk of doing business in frontier markets is high and the expected size of the returns may not always incentivize companies sufficiently to venture into these unknown markets. “Many Japanese companies don’t have the knowledge and experience to assess and mitigate these risks appropriately and being a first-mover is a risk, but it can also present an advantage,” she said.
The Bank’s innovative approach of combining private financing with concessional loans to support projects in fragile states with high social benefits is promising. Examples of blended financing instruments are its Partial Risk Guarantee (GPR), the Partial Credit Guarantee (PCG) and the Private Sector Credit Enhancement Facility (PSF). The PSF has proven to be a particularly effective tool enabling new financing opportunities for countries in transition and riskier sectors, Sherif noted.
According to Maurer, promoting income-generating activities for fragile states and creating markets, requires a “developmental approach,” and partnerships with the private sector and academia.
Waseda university’s academic courses and volunteer program in Africa, are anchored on academic excellence and “applying knowledge to reality,” Tanaka said in a response. Waseda, a private research university in Shinjuku, Tokyo, has been a pivotal source of innovative ideas and imagination in Japan.
African heads of states and key business leaders from around the world are attending TICAD7 which provides an opportunity to explore investment opportunities and learn from Japan’s experience. The event, held every 3 years, has been convened alternately in Japan and Africa since 2016. The last TICAD was held in Nairobi, Kenya.