Small business finance agreement aims to bridge Africa’s 'infrastructure gap'

Out-Law News | 08 Mar 2018 | 10:41 am | 1 min. read

Small and medium-sized enterprises in Africa's infrastructure sector are set to benefit from an increased guaranteed financing facility worth $74 million.

The move follows an agreement between the African Guarantee Fund for Small and Medium-Sized Enterprises (AGF) and GuarantCo – part of the Private Infrastructure Development Group and sponsored by five of the G12 group of industrialised nations.

The AGF said: “With this increased capacity, (we) will be able to support larger local currency transactions for SMEs involved in infrastructure. Strengthening Africa’s infrastructure is critical for development as it is through this that African countries become more competitive at a global level.”

AGF chief executive officer Felix Bikpo said the partnership with GuarantCo would help to “bridge the infrastructure gap” and aims to “put in place an even stronger collaboration that will work on the entire value chain of infrastructure projects in Africa”.

GuarantCo’s chief executive officer Lasitha Perera said the agreement, “between two local currency focused guarantors, offers the potential for us to engage local financial institutions and investors in financing the entire value chain in an African infrastructure project”.

AGF is a pan-African non-bank financial institution founded in 2012 by the government of Denmark through the Danish International Development Agency, the Spanish government through the Spanish Agency for International Cooperation and Development and the African Development Bank. The French development agency (AFD) joined AGF in 2015 followed by the Nordic Development Fund a year later.

The AGF said the fund had “led the guarantee market” in Africa over the past six years by issuing financial guarantees amounting to $690m. AGF said this had enabled its partner financial institutions to issue loans estimated at $729m to about 7,600 African SMEs. GuarantCo, which said it has a mandate to enable local currency finance for infrastructure, has issued more than $900m of guarantees since its inception in 2005.

According to the Infrastructure Consortium for Africa (ICA), the continent must double its spending on infrastructure over the coming years.

The ICA’s report ‘Infrastructure Financing Trends in Africa 2016’ (100-page / 16.5 MB PDF), published last year, said disbursements by the organisation’s members amounted to $13.4 billion in 2016 – the “highest yet reported and up by 6% from $12.6bn in 2015”.

Last month, the World Bank Group’s International Finance Corporation (IFC) announced new financing of $100m to support South Africa’s First National Bank’s lending to SMEs, with a focus on women-owned businesses.