Africa stands at a pivotal era in its development trajectory. With a rapidly growing population, an increasingly youthful demographic, and vast untapped resources, the continent is poised for transformative growth.
However, realising this potential hinges on one crucial factor: access to finance. This is where blended finance comes in, offering a pragmatic solution to bridge the funding gap that has long hindered Africa’s progress.
Blended finance combines concessional funding from public or philanthropic sources with commercial financing to support development projects. By blending these two types of capital, projects that might otherwise be deemed too risky for commercial investors become viable. This approach not only mobilises additional funding but also mitigates risk, making it an attractive proposition for investors and project developers alike.
During the Africa Debate conference held in London, UK, which brought together the world’s most influential leaders to discuss and debate the continent’s trade, I engaged with the pertinent question of the imperative of blended finance in Africa’s sustainable development.
Africa’s infrastructure deficit is staggering, with an estimated $US130 billion needed annually to meet the continent’s infrastructure needs, according to the African Development Bank [AfDB] Group. Traditional funding sources, such as official development assistance (ODA) and government budgets, are insufficient to bridge this gap. Blended finance offers a way to leverage additional capital from the private sector, thereby amplifying the impact of limited public resources.
Several projects across Africa have successfully utilised blended finance to achieve impactful outcomes, thanks in part to blended finance structures that de-risk investments for commercial financiers. Similarly, infrastructure projects in countries like Kenya and South Africa have benefited from blended finance models, attracting private sector investment in roads, ports, and energy generation.
Case in point, Standard Chartered financed $US 4billion worth of infrastructure projects in Africa last year. Part of the blended financing solutions arranged by Standard Chartered in Africa include the $US455 million [EUR533 million] of financing, backed by the African Development Bank (AfDB), for the Ministry of Finance and Budget of the Republic of Côte d’Ivoire for its key projects under the country’s five-year national development plan.
In Angola, the Bank helped facilitate a $US1.47 billion solar-powered electricity distribution programme to improve rural access to clean energy for roughly 230,000 people. In Tanzania, a US$1.46bn term loan for a 550km Standard Gauge Railway underscores how infrastructure can foster regional integration and reduce freight service costs by up to 40 per cent.
Over the years, Standard Chartered, in partnership with British International Investment, has also unlocked capital of over $US350 million in risk participation agreements to support trade finance in Africa and South Asia.
Despite its promise, blended finance in Africa faces several challenges. One of the primary concerns is ensuring that deals are structured in a way that balances the needs of all parties involved, including local communities, governments, and investors. Additionally, there’s a need for greater transparency and standardisation in blended finance transactions to attract more investors and ensure sustainability.
However, these challenges also present opportunities for innovation and collaboration. By developing more sophisticated financial instruments and risk mitigation tools, Africa can attract a broader range of investors. Moreover, there’s a growing recognition of the importance of localising benefits, ensuring that projects contribute to the economic development of the communities in which they operate.
To fully harness the potential of blended finance in Africa, several steps are crucial.
First, the capacity of African governments and institutions needs to be enhanced to structure and negotiate blended finance deals. This includes developing local expertise in project finance and legal frameworks. Africa needs to develop its innovative risk mitigation instruments to help attract more commercial investors.
This could include guarantees, insurance products, and other financial derivatives. There needs to be clear guidelines and standards for blended finance transactions to increase investor confidence and reduce transaction costs.
Finally, inclusion in the planning and implementation of projects of local communities and other stakeholders is critical for the success and sustainability of bankable projects.
Blended finance represents a powerful tool in Africa’s development blueprint. By leveraging the strengths of both public and private sectors, it’s possible to unlock significant funding for critical infrastructure and development projects.
While challenges exist, the potential benefits of blended finance in driving economic growth, reducing poverty, and enhancing living standards across Africa are too significant to be ignored. As the continent continues to evolve, embracing innovative financing solutions like blended finance will be key to realising its vast potential.
The writer is the Standard Chartered’s Kenya & Africa Managing Director and CEO
Africa stands at a pivotal era in its development trajectory. With a rapidly growing population, an increasingly youthful demographic, and vast untapped resources, the continent is poised for transformative growth.
However, realising this potential hinges on one crucial factor: access to finance. This is where blended finance comes in, offering a pragmatic solution to bridge the funding gap that has long hindered Africa’s progress.
Blended finance combines concessional funding from public or philanthropic sources with commercial financing to support development projects. By blending these two types of capital, projects that might otherwise be deemed too risky for commercial investors become viable. This approach not only mobilises additional funding but also mitigates risk, making it an attractive proposition for investors and project developers alike.
During the
Africa Debate
conference held in London, UK, which brought together the world’s most influential leaders to discuss and debate the continent’s trade, I engaged with the pertinent question of the imperative of blended finance in Africa’s sustainable development.
Africa’s infrastructure deficit is staggering, with an estimated $US130 billion needed annually to meet the continent’s infrastructure needs, according to the African Development Bank [AfDB] Group. Traditional funding sources, such as official development assistance (ODA) and government budgets, are insufficient to bridge this gap. Blended finance offers a way to leverage additional capital from the private sector, thereby amplifying the impact of limited public resources.
Several projects across Africa have successfully utilised blended finance to achieve impactful outcomes, thanks in part to blended finance structures that de-risk investments for commercial financiers. Similarly, infrastructure projects in countries like Kenya and South Africa have benefited from blended finance models, attracting private sector investment in roads, ports, and energy generation.
Case in point, Standard Chartered financed $US 4billion worth of infrastructure projects in Africa last year. Part of the blended financing solutions arranged by Standard Chartered in Africa include the $US455 million [EUR533 million] of financing, backed by the African Development Bank (AfDB), for the Ministry of Finance and Budget of the Republic of Côte d’Ivoire for its key projects under the country’s five-year national development plan.
In Angola, the Bank helped facilitate a $US1.47 billion solar-powered electricity distribution programme to improve rural access to clean energy for roughly 230,000 people. In Tanzania, a US$1.46bn term loan for a 550km Standard Gauge Railway underscores how infrastructure can foster regional integration and reduce freight service costs by up to 40 per cent.
Over the years, Standard Chartered, in partnership with British International Investment, has also unlocked capital of over $US350 million in risk participation agreements to support trade finance in Africa and South Asia.
Despite its promise, blended finance in Africa faces several challenges. One of the primary concerns is ensuring that deals are structured in a way that balances the needs of all parties involved, including local communities, governments, and investors. Additionally, there’s a need for greater transparency and standardisation in blended finance transactions to attract more investors and ensure sustainability.
However, these challenges also present opportunities for innovation and collaboration. By developing more sophisticated financial instruments and risk mitigation tools, Africa can attract a broader range of investors. Moreover, there’s a growing recognition of the importance of localising benefits, ensuring that projects contribute to the economic development of the communities in which they operate.
To fully harness the potential of blended finance in Africa, several steps are crucial.
First, the capacity of African governments and institutions needs to be enhanced to structure and negotiate blended finance deals. This includes developing local expertise in project finance and legal frameworks. Africa needs to develop its innovative risk mitigation instruments to help attract more commercial investors.
This could include guarantees, insurance products, and other financial derivatives. There needs to be clear guidelines and standards for blended finance transactions to increase investor confidence and reduce transaction costs.
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Finally, inclusion in the planning and implementation of projects of local communities and other stakeholders is critical for the success and sustainability of bankable projects.
Blended finance represents a powerful tool in Africa’s development blueprint. By leveraging the strengths of both public and private sectors, it’s possible to unlock significant funding for critical infrastructure and development projects.
While challenges exist, the potential benefits of blended finance in driving economic growth, reducing poverty, and enhancing living standards across Africa are too significant to be ignored. As the continent continues to evolve, embracing innovative financing solutions like blended finance will be key to realising its vast potential.
The writer is the Standard Chartered’s Kenya & Africa Managing Director and CEO
By Kariuki Ngari