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Building partnerships to develop local capital markets and support infrastructure financing in Africa and Asia
Infrastructure development is a crucial driver of economic growth, job creation, and poverty alleviation across Africa and Asia. However, infrastructure projects in lower income countries are experiencing a growing funding gap from both public and private sources, estimated to be USD 1.3 trillion1 per year, according to the World Bank. Limited risk appetite for local currency financing and long tenors, high interest rates, and tighter regulations are some of the common market barriers encountered.
Blended finance2 has an increasingly important role in tackling these challenges, mobilising private investments into pioneering infrastructure projects, and bridging the financing gap. Through the partnership between public and private sectors, blended finance not only offers a balance of financial versus social returns but also ensures that risks are appropriately allocated and shared amongst parties.
Understanding the importance of public-private partnership, GuarantCo, part of the Private Infrastructure Development Group, through its 15-year experience of delivering pathfinding local currency credit solutions in lower income countries across Africa and Asia, has built and nurtured key strategic partnerships with blended finance actors including government development agencies, development finance institutions (DFIs), stock exchanges, multilateral agencies, institutional investors, local banks and governments, finance institutions and investees (clients):
- Government development agencies – In addition to being funded by the governments of the United Kingdom, Switzerland, Australia and Sweden through the PIDG Trust, the Netherlands through FMO and the PIDG Trust, GuarantCo successfully secured a EUR 100 million callable funding facility from Agence Française de Développement (AFD) in December 2020 to support climate change mitigation and adaptation projects.
- Development finance institutions/multilateral agencies – GuarantCo, alongside the African Development Bank Group (AfDB), launched the first of its kind Co-Guarantee Platform for Africa, an innovative and collective de-risking instrument to increase the volume of insurance and guarantee solutions.
- Stock exchanges – GuarantCo has partnered with the London Stock Exchange (LSE) since March 2017 to help global investors gain access to local currency debt opportunities and has subsequently listed a number of bonds on which the company transacted including Quantum Terminals Group (November 2018), Sindicatum Renewable Energy (November 2018) and Acorn Holdings (January 2020).
- Commercial banks – GuarantCo has a long-standing relationship with Standard Chartered Bank (SCB). Together, SCB and GuarantCo have supported multiple transactions across Africa and Asia such as a USD 50 million dual currency guarantee backed loan for K-Electric Pakistan (September 2019) and a USD 42.5 million guarantee for Classic Fashion, Jordan (December 2019).
- Institutional investors – GuarantCo, together with ING, has been at the forefront of helping our clients gain access to the global Green/Social bond market. The growth of the Green/Social bond market provides a new opportunity to mobilise more capital into GuarantCo targeted markets by using Green and Social bonds as an alternative form of investment to those that GuarantCo has historically focussed on.
- Investees (clients) – GuarantCo provided a USD 23.8 million in XOF equivalent Liquidity Extension Guarantee (LEG) to enable local commercial banks to finance the 65MW Kekeli Efficient Power Project in Togo in support of the sponsor Eranove. This transaction is GuarantCo’s first guarantee in the country and the first LEG to extend the maturity of a transaction with a 7-year tenor for local commercial banks to 14 years. It is also the first infrastructure transaction to be financed mainly in local currency in the region, which in combination with the extended tenor enabled by the LEG, helps to provide a competitive electricity tariff for the local population.
These networks and partnerships serve as platforms for gaining an in-depth understanding of local needs and conditions, promoting international standards through capacity building initiatives, which in turn translates into higher development impact and long-term sustainability. In the next section of this article, we will continue to explore the importance of a good partnerships through the lens of our partners and how this has contributed to a common goal.
Ibukun Adebayo, Co-head Emerging Markets, London Stock Exchange Group
“Our partnership with GuarantCo was signed in March 2017 at the London Stock Exchange as part of a series of events on Africa and emerging markets and was witnessed by the then Secretary of State for International Development. This is a very important partnership between our two organisations which essentially helps to deliver some challenges across the key regions of Asia and Africa of debt financing. The principle was to make life a lot easier for issuers and investors to come together using local currency products. It’s been a very strong effort so far but I think the best is still to come.”
Sujithav Sarangi, Executive Director, Structured Export Finance, Standard Chartered Bank
“In my mind, a good partnership stems from a set of common objectives or a shared vision so it is important that the organisations have a common set of goals to be able to form a successful partnership because they are working towards achieving that.”
Neema Siwingwa, Chief Co-Financing and Syndications Officer, African Development Bank Group
“The African Development Bank Group and GuarantCo have had a long-standing partnership and relationship in terms of providing risk mitigation solutions into projects on the African continent, namely within the infrastructure sectors. More recently, the two institutions came together, partnered with three other international organisations to create the Co-Guarantee Platform for Africa, launched at the 2018 African Investment Forum by the President of the International Development Bank.”
Helge Muenkel, Managing Director, Head of Asia Pacific, Sustainable Finance & Global Capital Markets, ING
“What we could always rely on with GuarantCo was that in times of stress we stick together, we get through this together, everyone had grit and I really appreciated that. These are the shared values we have on sustainability and helping clients in local Asia foreign exchange markets as well as the way we execute and cooperate that has made this so successful.”
Evans Osano, Director, Capital Markets, FSD Africa
“We have a mandate to deepen the financial sector in Africa. As part of that mandate, our role is to also develop local currency bond markets across the continent and we have active programmes in a number of countries in the region. We see our partnership as very complimentary.”
Lade Araba, Marketing Director, Convergence Blended Finance Africa
“Partnerships are critical for driving economic transformation and for achieving the sustainable development goals. The shared success that has been achieved by Convergence Blended Finance and GuarantCo is mobilising private capital at scale to close the wide funding gap that is required to achieve the sustainable development goals.”
For more information, please listen to GuarantCo’s Blended Knowledge podcast on Building partnerships to develop local capital markets and support infrastructure financing in Africa and Asia.
1 The World Bank Infrastructure Finance brief, September 2019.
2 Blended finance is the use of catalytic capital from public or philanthropic sources to increase private sector investment in sustainable development, Convergence Finance.