Raising capital in a tough global environment

The global financial system finds itself in a very different situation from a few years ago when interest rates were at multi-year lows and stock prices were at all-time high highs, said Bertrand Badré, CEO of BlueOrange Capital.

Speaking at the Ministerial high-level policy dialogue at the ECA’s Conference of African Ministers of Finance, Planning & Economic Development in Dakar, he said, “In 2015 we all believed that financing the SDGs would be relatively straightforward in the era of multilateralism and globalisation, but things have not happened like we thought they would happen.”

In the context of Covid-19, Russia’s war on Ukraine and creeping isolationist policies across the world, investors are looking at “nearshoring” – investing closer to home rather than looking at risker regions like Africa.

This could have profound impacts on Africa, a continent that requires billions of dollars each year to finance its development objectives.

To counter negative market conditions, Africa must “step up and participate” aggressively in the global financial system to attract finance.

One way to do this, Badré said, is for Africa to position itself as a key destination for environment, social and governance (ESG) funds.

Investors are still keen to finance the space, allocating significant portions of their portfolios to development-led investments.

Mohamed Maait, Egypt’s Minister of Finance, said that he would not go to the international markets in the current environment, fearing that any issues will most likely be undersubscribed.

This is in stark contrast to 2020 when Maait went to the market to raise $3bn but returned with $5bn due to high levels of investor interest.

“At the time, I was even being offered as much as $24bn at a very reasonable cost so I decided to increase our demands,” he said.

Maait says that African countries “must diversify” capital-raising strategies if they want to invest in critical sectors, pay off steadily ballooning debt and deal with rising commodity prices.

The minister suggested green bonds and loans from commercial banks as ways to do this.

Rindra Hasimbelo Rabarinirinarison, Madagascar’s finance minister, echoed the Egyptian minister’s sentiments, saying that “alternative and innovative sources of funding must be found”.

One key area is to encourage the diaspora to send funds back to Madagascar, she said.

The country will also look at increasing the tax base and raising funds through green and blue bonds to tackle the lack of fiscal space and dearth of opportunities to plug gaps on the international market.

Serge Ekué, President of the West African Development Bank, said that the IMF’s special drawing rights (SDRs) have not been deployed to their full potential in Africa.

Africa has received a fraction of the SDRs, despite being one of the poorest regions in the world, reinforcing the need for the continent’s finance ministers to push Bretton Woods institutions for increased funding at more favourable terms.

Read the article on the website of African Business