Africa faces a substantial funding gap between the amount that needs to be invested to accelerate its economic growth and the amount that is actually spent, says Atanas Bostandjiev, CEO and founder, Gemcorp Capital.
Indeed, on top of the $100bn annual trade finance gap the continent faces every year, the African Development Bank says that that there is also a difference of approximately $100 billion annually between what should be spent on infrastructure alone and what is invested.
This situation has been exacerbated by the Covid-19 pandemic which either slowed down or brought many programmes and potential investment opportunities to a grinding halt. Much good work is being done by global and regional organisations and Development Finance Institutions (DFIs), but there is a far greater role that private capital can play in addressing this gap.
Addressing the continent's capital gap should be viewed through the lens of opportunity: for growth, development, and investment in its already thriving sectors made up of proven successful businesses with highly skilled and talented personnel with clear goals and ambitions plans to scale.
And since 2014, with over $6bn in investments Africa, Gemcorp Capital has been working to relentlessly help investors unlock and harness these opportunities.
The opportunities are particularly compelling in the continent's mid to large scale corporates. These expanding businesses offer a sizeable footprint, are well-established in their home markets and are often eager to expand into complementary jurisdictions given the right investment.
And unfortunately, there often isn't the amount of capital they need available from local banks.
That's because the banking sector in Africa remains considerably smaller than in other regions. A good measure of this is banking lending to the private sector as a percentage of GDP. In sub-Saharan Africa this has not risen at all since the turn of the century, remaining at below 30% of GDP. Meanwhile in Eastern Europe the percentage has gone up from around 25% to 45-50% of GDP since the turn of the century, with Latin America even higher at around 55% of GDP.
But increased investment from international institutional investors could change this picture, while offering compelling investment opportunities.
Institutions have traditionally been concerned about levels of risk in investing in Africa, but there is now a compelling case to be made that the risk involved in providing private credit to well-run African corporates is actually lower than it would be in similar transactions in developed markets, and because the market is less crowded, the potential returns are much higher.
The opportunities are particularly exciting in sectors such as TMT and renewable energy. Africa's booming tech sector has become a very attractive option, especially in recent times.
The exponential growth in this space has been encouraging. TechCrunch estimates that African tech start-ups went from raising $400 million in 2015 to over $4 billion last year. This sector is being pioneered by brilliant entrepreneurs building creative solutions in response to some of their most complex issues.
The sector's rate of growth enables exponential growth which sometimes outpaces developed markets. JUMO, a market leading banking as a service platform, enabling real-time access to funds at the lowest possible operating cost, is a brilliant example of this innovation.
Since 2015, JUMO has served over 19 million people, provided over 120 million individual loans with over $4 billion (and counting) in funds disbursed. The firm is also helping sectors of society previously unable to access credit - to date, a third of JUMO's customers are women, underpinned by gender-blind credit scoring.
And as recent global events have refocused minds on the need for alternative sources of energy and the importance of energy transition, the continent's need for this has become pertinent more than ever.
The International Energy Agency estimates that more than 600 million people in Africa are without access to electricity while more than 900 million cannot gain access to clean fuel for cooking. This presents an immense opportunity for growth and development.
Despite an abundance of local resource in many regions, much of the continent remains heavily reliant on imports to meet their energy needs. Tied to this is the urgent need to further invest in the development of the utilities and other related infrastructure required to support this.
Meanwhile investment opportunities in the ESG sector are aplenty. Water infrastructure is one such area.
With over 300 million Africans without access to clean drinking water and over 700 million without access to good sanitation, the African Development Bank estimates that US$ 64bn should be invested annually to meet UNICEF's Africa water vision for 2025; but the actual figure invested stands between US$10 -US$19bn per year, with 40bn hours of otherwise productive time is spent just collecting water.
In turn sub-Saharan Africa loses 5% of its GDP annually because of a lack of water, contaminated water, or poor sanitation. Investors should think about how their contribution could make an immediate impact in this, and other opportunities in the broader ESG space.
It must be emphasised that when prospecting any of these opportunities in their respective sectors, our approach has always been to work with corporations with proven business models, highly capable leadership teams with technical know-how and clear, attainable goals. And it has been our experience so far that these companies are not only capable, but are brilliant investment opportunities.
The realities that come with investing in emerging markets mean that local knowledge is critical. Where other investors invest from an arm's length, we are immersed in local markets across the continent. And with a team of over 100 skilled staff we are able to deploy extensive experience and expertise.
Gemcorp Capital has set itself an ambitious target to facilitate over $10bn in investment over the next decade to a continent bustling with opportunity. Our vision is to help investors and key stakeholders shift their attention towards the continent where they can help deliver lasting change that will accelerate its growth and close the development chasm while realising the tremendous opportunities that exist.
By Atanas Bostandjiev, CEO and founder, Gemcorp Capital
