Investing in Africa: What to Know About Impact Funding… and More

Thavin Audit, deputy head of corporate and investment banking at Bank One, explores how Mauritius and the Middle East could partner for deeper impact financing.

Bank One has gleaned — and shared — some exclusive insights from a meeting with the Gulf region’s key financial-sector players.

The goal was to understand how Mauritius could form a league with financial institutions in the Middle East to fund impactful projects in sub-Saharan Africa.

At the meeting, Bank One explored the financial landscape in the Middle East, through expert eyes. This helped the bank’s leadership team to form a nuanced view of what this region means to us, while we’re keen to impart what we learned to other financial institutions interested in the region. We view collaboration with financial sector stakeholders as key to realising the potential of a Mauritius-Middle East partnership.

Taking into account the way the global macro-economic environment is maturing, as well as the position Middle Eastern banks are taking to embrace the African journey, Bank One believes that the time is ripe. Mauritius is ready to explore deeper affiliations with institutions in the Middle East to see how best to leverage opportunities that will support sub-Saharan Africa.

The Syndication Landscape

The region has positive investor sentiment, as captured by London-based investment data company Preqin. Surveys by Preqin showed that 94 percent of global investors agreed that the macro-economic cycle was “starting to decline or near the bottom”. That’s in sharp contrast to the Middle Eastern investors’ viewpoint; just 19 percent agreed with that downbeat assessment in February 2023.

In Mauritius, the sentiment is significantly more optimistic: capital continues to flow, and a rising number of global investors are knocking on our door.

While Middle Eastern banks have traditionally offered Sharia-compliant products, the excess liquidity such banks are encountering has implications for involvement in syndication and trade finance deals. Emirati banks have recently been beating Wall Street at its own game, with a 10-year $3.25bn loan, syndicated by regional banks, to finance an education-sector deal for Dubai’s GEMS World Academy, which focuses on the International Baccalaureate qualification.

When a consortium led by Canadian fund manager Brookfield was seeking funding for one of the largest private education centres on the planet, four Gulf banks confidently stepped up.

Fertile Ground for Syndication

In Africa — the second-fastest-growing region in the world after Asia — massive deal-flows sustain economic growth. The African Development Bank (AfDB) Group highlighted this in its latest Macro-economic Performance and Outlook report. The continent will account for 11 of the world’s 20 fastest-growing economies this year. The real GDP growth for Africa is expected to average 3.8 percent in 2024, and 4.2 percent next year. That far outstrips projected global averages of 2.9 percent and 3.2 percent, the report emphasised.

Bank One positions itself as a gateway to Africa, primarily enabled by our shareholders’ footprint, with the I&M Group firmly rooted in East Africa. Our approach remains bullish, as we invest energy and resources to maintain our edge.

Along with other financial institutions in our syndicate and network, we arrange and set up mandates for selected banks, in the space of trade loans or factoring deals. We particularly look for syndication partners who are happy to come on-board because of the knowledge we have in, and of, Africa.

Mutual Benefits

The flourishing financial landscape of the Middle East holds the key to its appeal for Africa. Apart from the overall positive economic sentiment in the Middle East, it’s the world’s fastest-growing regional market in terms of the banking and capital market sectors.

A PwC report notes that the region’s financial services sector “is in the midst of a massive overhaul”, with diverse financial products and services accompanied by growing regulatory requirements for finer monitoring of processes and the development of secure financial systems. No wonder, then, that financial institutions across the Middle East are diligently investing to match or outstrip their international peers, with commercial banks developing apace and offering easy access to banking credit.

Reports abound that Gulf banks have more liquidity than many of their foreign peers, mainly due to the higher interest rates in Europe and further afield. They have a pressing need to match funding to projects and transactions that constitute economic and geographic diversification. However, Emirati banks looking at emerging economies — such as those in Africa — need to partner with institutions with the expertise, access, and knowledge of the “Hopeful Continent”.

Focus Areas for Middle Eastern Banks

When it comes to sectors of focus for Middle East forays into Africa, we note a concentration of deals in oil and gas, as well as infrastructure.

The oil and gas sector in Africa has immense potential, with gas reserves in 2021 estimated at 625.6 trillion cubic feet — which nearly matches the US. Once a major oil or gas discovery is made, the biggest challenge for African governments and their commercial partners is finding sources of finance to develop projects.

However, there is a ready domestic market for such output. The Gas-Exporting Countries Forum noted that the demand for energy in Africa is expected to rise 82 percent by 2050, with natural gas making up 30 percent of the mix.

If you look at the pace of infrastructure development on the continent based on rising deals in transport, energy, and telecommunications, there is huge demand for funding. The AfDB notes that the demand for adequate infrastructure — secure energy, efficient transport, reliable communication systems, resilient sanitation, and affordable housing — is prominent in Africa. When it comes to infrastructure in Africa, bridging the financing gap is a major challenge, with the AfDB estimating that $130bn to $170bn will be required each year. This leaves a yawning gap of around $100bn and one that development finance institutions (DFIs) alone would struggle to fill.

The Way Forward

In February 2024, the UAE was removed from the “grey list” after two years on the FATF’s radar, underscoring its commitment to combatting money laundering and terrorist financing. This is likely to boost investor confidence in the UAE’s regulatory framework, and will probably be accompanied by greater foreign capital inflows. There will also be reduced compliance costs and the costs of borrowing.

Bank One welcomes this development, and has seen Middle Eastern banks confidently looking to channel funding into Africa after our recent visits.

In terms of strategic partnerships, there are hopes that DFIs will join forces with financial institutions in the Middle East. Recently, the AfDB, European Investment Bank (EIB), and the OPEC Fund for International Development (OFID) announced support for the African Capitalisation Fund. This new private equity fund will be created by the IFC’s Asset Management Company (AMC). The fund will seek to capitalise on systemically important, private-sector commercial banking institutions in Africa to spur an economic recovery and create jobs. In an encouraging development, the Abu Dhabi Fund for Development (ADFD) has announced that it, too, is considering commitment to the fund.

Lastly, systemic efforts are being made to stimulate investments from the Middle East to Africa. With a comprehensive economic partnership agreement between Mauritius and Dubai announced last December, the first of its kind between the Emirates and an African country, Bank One is keen to explore the full potential of this landmark agreement. It was widely reported at the time it would pave the way for increased trade, investment, and private-sector co-operation between the countries.

With the right partnerships, we at Bank One intend to explore how such economic co-operation can be realised on the ground — with a focused eye on Africa.