Funding Africa’s Future Businesses

In the midst of the disruptive global economy caused by COVID-19 pandemic and economic downturn, the prospects of funding future businesses in the African continent hang in the balance, Kassim Sumaina writes on initiatives by stakeholders to chart a new course for future funding

With increasing economic challenges brought about by COVID-19, funding businesses within the African continent has taken a negative turn. And at a time, innovation and creativity ought to be a driving force in Africa’s economic growth, funding businesses becomes a key component of achieving that objective. But in the ensuing economic crisis, COVID-19 pandemic, recession in Nigeria, South Africa and other African economies, lack of funding for businesses has rather compounded the crisis. The question, therefore remains, what are the best mechanisms in funding Africa’s future businesses?

It is in the attempt to unravel the above challenge and provide critical answers to the question of future funding that stakeholders under the auspices of Africa Policy Conversations (AFPC) recently brainstormed on the best approaches towards funding future businesses in the continent. To that end, stakeholders and experts gathered early in the month under the theme “Funding the Future” to appraise critical means upon which Africa’s businesses could be redeemed from the challenge of lack of funding. It was a hybrid event held simultaneously in Nigeria and South Africa virtually to highlight the essence of future funding for Africa’s economic projects in the coming years. The event featured top finance experts and stakeholders in both private and public sectors across Africa, with an audience of entrepreneurs, business people, investors and young professionals in Nigeria, South Africa, Eswatini, Mauritius, Zambia, Kenya, and the Diaspora.

According to the organisers, the objective of the event was to bring together the best minds both within and outside Africa to stimulate discussions and sharing of ideas focused on funding businesses in the African continent, including discussions on the policies that may facilitate the increased funding of businesses. It also aims to foster learning, provoke conversations that matter and ignite policy changes and development in various sectors.

Speaking on the imperative of the event, Co-Founder/Programme Director for the African Policy Conversation and organiser of the Future Funding event, Chinenye Uwanaka, explained that “financing continues to be one of the key development constraints cited by the majority of entrepreneurs and business enterprises in Africa. The ‘Funding the Future’ conference is a much-needed dialogue geared towards stimulating discussions around funding on the African continent.”

Uwanaka further explained that “the aim is to find local solutions to local problems. For instance, we have about $25 billion in Nigeria’s pension funds that can be unlocked and channeled into sustainable development projects. No one is coming to save us, so we must stop relying on foreign investments from other parts of the world.

\Our governments and private sector have to collaborate to find creative solutions to curb abject poverty and bridge the huge infrastructure gap in Nigeria and the rest of the continent,” she added.

Also speaking, Managing Director and Chief Executive Officer, Nigerian Sovereign Investment Authority, Uche Orji, harped on the need for investment blocks that will create the synergy for strategic funding of Africa’s businesses and economic growths.

Orji contended that “essential building blocks to creating a viable financial services sector include four layers of financing needed to create a viable sector – active venture capital sector – something that takes risks and invests in new ventures, banking sector with an improved credit stack, private equity and institutional investors.”

He submitted that “we need to have these essential blocks working collaboratively to create a deeper market and provide more opportunities.”

Similarly, Vice President of Africa Capital Alliance, Chinaza Onuzo, called for “more local currency financing in infrastructure to match the revenue streams, to mitigate the currency risks.” He observed that “one step towards achieving this is by creating an entity that can act as a catalyst, using its guarantees to build the confidence of pension funds and insurance companies and help correct the capital structure deficiency in the infrastructure space.”

Beyond these projections, stakeholders also observed that the growing deficit in local currency and funding has a ripple effect on funding the continent’s businesses. Exposure to market failures is another challenge that very often poses threat to both investment and the prospects of funding businesses.

Drawing from that line of thought, Chief Executive Officer of InfraCredit, Chinua Azubike, stressed that, “There is a deficit in venture capital and private equity in local currency in Nigeria and that class of the capital structure needs to be filled up in a very deliberate way.” According to him, “the more we get patient local financing in VC and PE, the more we build stable and well-structured institutions be it infrastructure projects or industries that can now absorb, in a sustainable way.”

Azubike maintained that “having institutions working together across the ecosystem to help solve market failures across the value chain, then, we can see inclusive growth and impact.” He stated that “the last decade has seen some innovation, in terms of institutional models that can mobilise capital, moving into the decade, creative instruments need to be developed, more equity like structures can help mobilise funding to help develop bankable assets that can now be able to absorb long term debt.”

Challenge of VC and PE

One other challenge with funding businesses in the continent and Nigeria in particular is the problem of venture capital and private equity. How they are structured and regulated for optimum and positive outcomes? According to some experts at the event, many private equities have failed to live up their billing due to the structure of their equities. And their inability to rise to occasion, with regards to funding projects and businesses in Africa.

Looking at the challenge of private equity, Managing Director of Aruwa Capital, Adesuwa Okunbo-Rhodes, held that, “The reason we haven’t had a lot of success stories in Africa, is because we are trying to import a private equity model that may not necessarily work for Africa.