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Our mission is to positively impact people's lives.

Summary: Mallam Samaila D. Zubairu the, third president and CEO of the African Finance Corporation (AFC), is an infrastructure finance man through and through.

He completed his first year in office at the helm of the continent's leading multilateral infrastructure development finance institution in July 2019. He brings his experience as CEO of Africapital Management Ltd, where he established a joint venture with Old Mutual's African Infrastructure Investment Managers (AIIM) to develop a market for infrastructure private equity across West Africa. As CFO of Dangote Cement Plc, he launched Africa's largest syndicated project finance facility for a local corporate.

His mission, he tells Mushtak Parker, is addressing Africa's huge infrastructure needs while seeking a competitive return on capital for the corporation's shareholders.

SAMAILA D. ZUBAIRU, PRESIDENT & CEO, AFC

After one year in office, what priorities have you set for yourself?

I have four big priorities -- to grow AFC; deliver on AFC's mandate of creating value; accelerate growth in African economies; and impact people's lives.

AFC will do this by, firstly, raising the balance sheet from $4.5bn to $10bn in the next five years via building a broader and more diverse coalition of investors across the world. This is key to accelerating our efforts, impacting many lives and building the African economy.

Whereas before we would have con- strained ourselves to the Development Finance Institution (DFI) community, we now see the opportunity offered by the capital markets. By diversifying, we will increase our liquidity, develop more financ- ing relationships and will collaborate with a new investor base in the Middle East, Asia and, of course, China.

China has many state and private-owned financial entities that would like to collabo- rate with Africa and has a growing appe- tite for infrastructure deals. AFC has been working with China since 2012 and has a formalised a strategic collaboration with the China Africa Development Fund (CAD Fund). AFC, in late 2018, also acquired a $300m loan facility from the state-owned Export-Import Bank of China.

What sectors have you targeted for investment?

To accelerate growth in African econo- mies and impact people's lives, AFC will continue investing across the five main sectors we believe most essential to unlock- ing the economic potential of Africa: power, transport and logistics, natural resources (including mining), telecommunications and heavy industries.

These sectors are enablers that will deliver major benefits. Well-maintained infrastructure is vital for farmers, miners, etc. to get their products to market. For example, the Bakwena Toll Road in South Africa was designed as part of the Maputo development corridor to connect South Africa's industrial and commercial heartland, the Witwatersrand, with its nearest deep-water port in Maputo, Mozambique and stimulate agriculture, manufacturing, mining and tourism.

The lack of reliable and affordable power significantly constrains economic growth across Africa. For example, a World Bank study found that electricity shortages reduce a person's chance of finding a job by 41%.

An example of job creation is AFC's investment in the bauxite mine in Guinea, which brought much needed capital to a country ravaged by Ebola. During construction, the project employed more than 1,500 people, 85% per cent of whom were Guinean nationals and over half from local communities.

Infrastructure is essential for economic growth. As South Africa's President, Cyril Ramaphosa, said in the Financial Times, his government is "establishing an infrastruc- ture fund, as part of an economic stimulus and recovery plan".

AFC's investment of up to $140m in the Gabon Special Economic Zone (GSEZ) will accelerate Gabon's economic diversification and development. The GSEZ was created in 2010 to accelerate Gabon's economic diversification and development.

The World Bank estimates that Africa's infrastructure gap reduces productivity by 40% and cuts economic growth by 2% a year.

Is diversifying also a major consideration for AFC?

Yes, a priority is diversifying AFC's invest- ment portfolio by increasing the number of projects we invest in -- with member and non-member states. So far, we have invested in 30+ countries. Ultimately, all my priorities are linked to remedying the infrastructure financing gap that is stunt- ing Africa's economic growth and dragging the pace of poverty alleviation.

The risks involved in infrastructure finance include the lack of political will in some cases and also, the lack of capacity to execute projects. How do you mitigate against these?

AFC mitigates the risks associated with these hindrances by investing in and devel- oping capacity responsibly and sustainably. We also assist with respect to legislation or policy work that may be needed. Further- more, risks can be mitigated and barriers to bankability can be decreased by adhering to an environmental, social and governance (ESG) framework.

Africa comprises of 54 countries and is very diverse in its priorities and infrastruc- ture needs. As such there is no universal fix.

However, it is our belief that our defined five key physical infrastructure sectors are where investment can make the biggest difference.

In terms of growth, Africa has a good story to tell; why then does the continent fail to attract its deserved share of FDI and infrastructure funding?

I think the question can be explained by the infrastructure paradox. That said, Africa does attract infrastructure funding. The current African portfolio at the US Overseas Private Investment Corpora- tion (OPIC) -- which helps US businesses invest in emerging markets -- has a value of $6.1bn, which is invested in 128 projects throughout the continent. In 2017, Sub-Sa- haran Africa accounted for 27% of OPIC's portfolio.

China, during FOCAC last year, also pledged $60bn, specifically for Africa. The financing includes: $15bn of grants, interest- free loans and concessional loans; $20bn of credit lines; the setting up of a $10bn special fund for development finance and a $5bn special fund for financing imports from Africa.

What does Africa need to do to boost its growth trajectory?

The continent's growth rate is actually quite exceptional. For example, since 2000, at least half of the world's fastest-growing economies have been in Africa and, today, six of the 10 fastest-growing economies are in the region.

The IMF expects growth of more than 3% this year in Egypt, Rwanda, Cote d'Ivoire, Ethiopia, Senegal and Tanzania. And by 2030, Africa will be home to 1.7bn people, whose combined consumer and business spending will total $6.7trn.

However, there is a notable lack of beneficiation and value addition to the raw materials, thereby stifling the growth of downstream industries, where arguably the highest socio-economic impact can be achieved.

In-country beneficiation is integral to Africa growing its economy. This should become a priority as it will have an unprecedented effect on the continent's growth.

One of the reasons for the huge infrastructure gap is that Africa seems to depend heavily on foreign funding. Can Africa finance its own infrastructure? When it comes to funding, African countries can do much without using foreign capital. For examples, governments may wish to issue sovereign bonds in their own currency or tap into their pension funds or the remittances from the African diaspora to increase the availability of funding sources.

But, as mentioned earlier, there is plenty of funding -- and there is no shortage of infrastructure projects. What is lacking is capacity and skills. African countries can build African capacity by encouraging their citizens to study the necessary trades and subjects and staying in Africa to help develop the continent.

That said, African countries can look within to find new funding. African countries may need to do this increasingly as protectionism, populism and isolationism are impacting global trade and growth.

A nationalist agenda in countries such as the US could very well lead to sacrific- ing its global investment footprint and redirecting funds to improving domestic facilities. African countries will have to find other ways to pick up the slack through domestic venues.

Returning to China, is it not time that a more balanced model is achieved which reduces dependency on Chinese largesse and respects Africa's FDI sovereignty? Yes, there are heavily indebted African countries but this is not the case across the board and it does not need to be the case. But Chinese finance should not be feared. Accepting financing, irrespective of the financier, must be based on rational decision-making. The client (or country) needs to know what terms they want and have a plan on how to pay it back.

Each African state needs to know what it wants from China -- the same as for any in- vestor and any investment. Moreover, each government needs to ensure it is courting investor funding for the right projects -- i.e., that will make a positive difference and nurture inclusive growth -- and work hard to get the funding at attractive rates.

Overall, countries negotiating on their own will have an easier time securing attractive rates if each country upgrades its financial system and works towards a higher degree of governance. Together, we are greater than the sum of our parts.

Will China continue to be a source of funding for AFC and are you comfortable that much of Africa's infrastructure-linked FDI is coming from China?

AFC has been working with China since 2012 through our MoU with the China Africa Development Fund (CADFund) to provide a framework for cooperation and collaboration in promoting investment and infrastructure development across Africa.

We are very pleased to have collaborated with the CADFund and signed an agree- ment with Export-Import Bank of China for a loan facility of a $200m five-year loan and a $100m five-year stand-by facility for general corporate purposes.

Yes, we would like China to be a source of funding and we would very much like to continue working with China, both at the state level as well as on a company-to- company level.

However, the AFC is also looking to di- versify its capital, and that means going outside of the DFI community and con- necting with the capital markets in different regions globally, including Asia.

By diversifying, we will increase our liquidity, develop more fifinancing relationships and can collaborate with a widening investor base.

AFC isn't solely an investor. We participate across the infrastructure value chain offering project development, financial advisory and principal investing. This means, as locals with a more nuanced understanding of the investment opportunities in Africa, we can help Chinese fi nancial institutions and companies that want to invest in Africa and African governments that want investment from state and non-state Chinese entities.

Do you see Islamic finance as a potential source for funding Africa's infrastructure needs?

Yes, in January 2017, AFC issued the fifirst sukuk transaction from an Afri- can supranational entity -- a three-year murabaha (cost plus fifinancing) offffer- ing sold through a private placement to investors in the Gulf Cooperation Council (GCC) states, Europe and Asia.

Following high investor inter-est our initial target of $100m was more-than-twice oversubscribed, resulting in the transaction being up- sized to $150m and a fifinal order book of approximately $230m. We are now in an enviable position where we are not in need of new capital. However, if we were looking at fundraising options, Islamic finance would be ideal for long-term infra- structure projects.

Furthermore, Islamic finance is in align- ment with AFC's principle of inclusive growth, seeing as it facilitates social mo- bility and enables the equitable distribution of wealth to people of all classes.

The idea of Shariah (sharing risk) is in effect what a PPP) is -- government and private enterprise coming together to share the risk of developing a project. I expect DFIs across the board will eventually tap into this source of capital.

PPPs have often been touted as the cure- all of infrastructure financing but as the UK's National Health Service discovered, they can turn out to be very expensive in the long run. Your views?

Yes, you cannot rush into a PPP or any other agreement for that matter. AFC has had some excellent experiences working alongside private businesses and govern- ments to ensure that their PPPs are agree- able and attractive to all sides.

For example, AFC was lead project developer, mandated lead arranger and the largest equity investor in the $887m Kpone Cenpower IPP. When it comes on- stream, it will provide an additional 10% of Ghana's generation capacity, 20% of its available thermal generation and supply power to approximately one million house- holds.

Organisations like the African Legal Support facility have an important part to play in ensuring that Africa achieves its economic potential by providing support in disputes with vulture funds that yearn to gain at the cost of Africa's economic emancipation.

Has your previous experience stood you in good stead in your new position as head of the AFC?

Yes, I believe my experience will be of great use here at AFC. As the pioneering CFO for Dangote Cement Plc, I launched Africa's largest syndicated project fifi- nance facility for a local cor- porate and I saw fifirsthand the importance infrastructure and in-country beneficiation has on the living standards of the local communities.

I led finance transactions for over $3bn covering greenfield project finance facilities,acquisitions, corporate transfor- mation initiatives, privatisation and equity capital market transactions -- all of which gave me a deep understand- ing of how necessary it is to have the right people negotiating on behalf of the everyman. ua

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Publication:African Banker
Geographic Code:9CHIN
Date:Aug 5, 2019
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