Africa’s $2trn Institutional Capital Idle As Real Economy Starves For Funds — AFIS

Africa’s $2 trillion in institutional capital could fund more businesses and infrastructure if regulators ease investment rules and development financiers expand risk-sharing.

Director of the Africa Financial Industry Summit (AFIS), Hicham Al Morabet, stated this in Lagos at a media parley organised by the International Finance Corporation (IFC) and AFIS ahead of the sixth edition of the summit scheduled for November in Luanda, Angola.

Al Morabet said while African banks are recording strong returns and pension funds, insurers and other institutional investors control huge pools of long-term capital, businesses and infrastructure projects continue to face high financing costs and difficulty accessing affordable long-term funds.

He disclosed that African banks record an average return on equity of about 19 per cent, almost twice the global average, while institutional investors control more than $2 trillion in assets under management.

He said the challenge was now to move a greater proportion of that capital into the productive economy, rather than leaving it concentrated in short-term government securities.

According to him, unlocking the funds requires action on three fronts: increasing the volume of savings, reviewing regulations that govern institutional investments and creating more bankable projects capable of attracting long-term capital.

He said regulators could review sector exposure limits for pension funds, insurance companies and other institutional investors to allow greater investment in productive sectors, while ensuring that the financial stability of institutions managing citizens’ savings was protected.

Al Morabet said governments and development institutions must also deepen pension funds, increase insurance penetration and develop digital savings instruments to expand the pool of capital available for investment.

Principal Investment Officer at IFC, Dafe Oraka, said the financing gap across sub-Saharan Africa exceeds $400 billion despite the significant pools of capital already available on the continent.

“We see opportunities in connecting capital more effectively to finance businesses, to finance infrastructure, and to create jobs in Africa,” Oraka said.

Division director for Nigeria and Central Africa at IFC, Olivier Buyoya, said greater collaboration among financial institutions, regulators and development finance institutions was needed to unlock capital for strategic sectors, noting that decisions taken by major Nigerian banks influence financial markets across Africa.

Speaking on the summit, El Alamorabet, said that the summit has grown from 700 participants at inception to almost 1,500 participants, with more than 65 partners and 47 sessions for this edition.

“This year’s program will have more than 50 sessions structured across banking, insurance, private capital and capital markets. What is new is a focus on rethinking the new financial architecture for development and financing industrialization, agriculture and energy transition,” he said.

The summit is expected to host top leadership from IFC, African Development Bank, major pan-African banks, insurance companies and capital market operators including the CEOs of BRVM, NGX, and stock exchanges of Angola and Egypt, as well as more than 30 high-level public sector representatives including almost 20 governors and supervisors.