Sows seeds of financial inclusion, prosperity across Africa
By Kemi Osukoya
“Whenever I visit Africa, I am struck by the remarkable energy of the people, including all of the entrepreneurs who have started small businesses that are making a difference in their communities,” says David Bohigian.
Ask Overseas Private Investment Corporation Acting President and Chief Executive Officer David Bohigian what the mission of the new BUILD Act is and OPIC’s strategy for Africa and he explains it using an unlikely business example.
“When I visited the Magrabi ICO Cameroon Eye Institute in 2017, I saw how OPIC is helping improve people’s lives by enabling them to access cataract surgery to preserve their vision. OPIC financing is helping this hospital provide cataract surgery to thousands of patients, not only improving their quality of life but in many cases making it possible for them to work and support their families. As the son of an eye doctor, I found it particularly moving to meet people who had regained their sight. I met one patient whose neighbor had brought him to the hospital on a bicycle. After he received the surgery and regained his sight his grandson said, ‘Welcome back to life,’” David Bohigian tells the Africa Bazaar magazine in an exclusive interview in late April.
That example, in a nutshell, is what the co-mission of the BUILD Act and OPIC is about. It’s about unlocking social impact investments and advancing development goals around the world.
So how does that mission of unlocking social impact investment and advancing development goals around the world fit into the Trump administration’s America First, bilateral trade agenda, and its vision and strategy for Africa? You may wonder skeptically. The short answer is contrary to alleged negative rhetoric about Africa and other news reports, the Trump administration, while in some aspects has reduced foreign grants to the continent, it has redirected those funds to increase trades with countries on the African continent, which fits perfectly into the administration’s trade agenda.
A broader answer to help understand how the overall mission fit into the administration’s agenda starts with the baseline of what OPIC is and the generational opportunity it offers and means for the U.S. in terms of asserting its foreign policy in the world. In this context, it’s the only salient bipartisan agenda that both parties in Congress—Democrats and Republicans, including both the current U.S. President Donald J. Trump and House Speaker Nancy Pelosi have always agreed on because it allows the U.S. to advance its foreign policy goals around the world as well as make longterm social impacts in advancing development goals in developing nations.
The other part of that answer is that OPIC—which will morph into the new Development Finance Corporation that will manage the BUILD Act–as a business enterprise within the U.S. government gives the U.S. the competitive edge to demonstrate its business as well as its altruistic hierarchy to some of its biggest competitors in world, especially China, while simultaneously promoting humanitarian agenda in developing world. This part of the U.S. strategy is especially important, experts say, when it comes to equalizing and stemming Chinese growing economic prowess across Africa, Latin and Central Americas.
Chinese economic influences in developing nations around the world have steadily grown in the last two decades and is now conspicuous as evidence by the current contentious trade negotiations between the U.S. and China. While the U.S. and the rest of the developed world reacted skeptically and slumbered on the economic and other development transformations that began across Africa around three decades ago, China saw a leadership void as well as an economic ascendency opportunity to move its position up in the world. The eastern Asian country, the fourth largest and most populous in the world, jumped in and seized the opportunity to fill the void left by the West in these countries and in that process developed strong trade partnerships with African countries and other developing nations.
According to a report from Washington D.C.-based think tank, Brookings Institution, Chinese investment increased globally between 2005 and 2018. Africa receives two major lump-sum investments from the Chinese government between 2015 and 2018 totaling $120 billion, bringing the government’s overall investment on the continent to more than $150 billion between 2006 and 2018 — making the African continent the third largest investment destination for Chinese after Asia and European Union, with one-quarter of that investment concentrated in oil-rich countries Nigeria and Angola. The rest of the Chinese investment spread across transportation, energy, finance, technology, agriculture, metals, and real estates in Cameroon, Congo, Democratic Republic of Congo, Ethiopia, Kenya, South Africa and Zambia and other African countries.
Now that the West has woken up from its slumbers and finally gotten over the pessimism about Africa, it’s playing catch-up with China to reverse the damages that pessimism caused. Despite being late to the party so to speak, experts say the West doesn’t need to fret too much about playing catch-up with China in Africa, noting that the U.S. and the rest of the West still have many advantages over China in the developing world and among that advantages is the decades long humanitarian investments that the U.S. has made and continue to make in places like Africa in helping countries develop important institutions and socioeconomic programs such as funding educational programs for children, promoting financial inclusion, women’s health and encouraging the development of democratic institutions and civil society programs. This, Bohigian implicitly implies is how the U.S. can best win and reverse the trade contest against China in Africa and other developing nations.
“When you talk about measurable outcomes, I think about development, impact bond as well as social impact bond,” Bohigian says. “I’m really proud that my first overseas trip in the job last year I went on a West Africa tour and visited affordable housing in Ghana, where you drive in and see American flag and Ghanian flag and see wonderful mixed use of affordable houses. In Togo, we tripled the amount of electricity in that country.”
Bohigian later expounds on what he meant by measurable outcomes when he spoke to a group of American investors in New York City in March at an event organized by Impact Capital Forum.
“When it comes to social impact bond, it’s really been ground breaking,” he says. “Einstein said you can’t solve problems at the same level of consciousness as when they are created. So I think there’s a synthesis going on in the world— between the government, the private sector and civil society that can solve problems that they couldn’t in silo, and social impact are a great measure of that. The global impact we can have it is in catalyzing capital. America has infinite needs for capital to advance impact development, but when we talk about overseas investments, primarily people starts to think about equity in Japan and the European Union and when you talk about the private markets, about emerging markets and frontier markets. I think there’s a tipping point happening right now and I’d like American investors to understand the opportunities that are awaiting in Africa where amazing demographics and the abilities to generate generational opportunities and returns from world opportunities and cross-products from venture capital to bonds.”
Bohigian adds that while OPIC is looking within the U.S. private sector to catalyze capital for development goals, the agency is also looking to create a synthesis to work with its overseas allies in the United Kingdom, France, Germany, Netherlands and Sweden on shared agendas to accelerate development goals across Africa, partnering with organizations like CDC, U.K.’s Development Finance institution, DEG in Germany as well as the private sector in these countries.
The BUILD Act, which Bohigian describes as blended finance serves as a catalytic agent that attracts investors to engage with companies by providing initial seed capital that entrepreneurs need to raise funds or grow their businesses.
Bohigian’s first official tour after he assumed the top position at the agency in March was to Europe, where he met with counterparts and business leaders from across EU member nations.
“That piece has been missing and I really think at the end of this, it is going to unlock unlimited, endless amount of capital, especially in the early stages,” Bohigian explains further. He adds that this will provide entrepreneurs with access to capital and remove an obvious major business impediment that impact many entrepreneurs in developing countries such as in Africa and the Americas.
OPIC helps American businesses invest and expand there footprints in developing markets by providing political risks insurance and other business tools.
“Entrepreneurs are the world most committed citizens and are changing societies,” says Bohigian.
John Meyers, an American investor and Board President at Impact Capital Forum agrees that the BUILD Act emergence is important at this particular period in the world to ginger American investors’ interests to invest in developing countries. “It’s important to note that the BUILD Act had bipartisan support and not only re-envisions, but re-positions U.S. development finance. American investors welcome some of the added features in the BUILD Act, which include the capacity for equity investments and to support technical assistance and feasibility studies,” says Meyers.
Although most American investors have recently warmed up to the concept of Africa as a viable investment destination, there’s still some trepidation among investors due to the current states of the global economy–the International Monetary Fund in April lowered global growth from 3.6 percent in 2018 to 3.3 percent in 2019. In addition to the downturn in the global economy, good governance, lack off reliable markets data and security issues are some of the biggest concerns and drawbacks for American investors considering investing in Africa.
Investor Asad Mahmood, Chief Executive Officer and Managing Partner at Social Investment Managers & Advisors, says American investors’ trepidations to invest in Africa is also partially due to lack of knowledge as well as limited exposure to news about African markets.
“I think partly it’s not having that exposure and the media sort of present snippets and usually it is the bad or worst news that comes out of different countries and I think that prejudice creates reluctance and increases in risks and whenever there’s prejudgment, there’s opportunities,” says Mahmood.
“People need to bring out the positive about Africa because people [in the West] have very negative views of the continent,” urges Mahmood. “Think about Ethiopia for example, it’s a big country, a very lush green country but in the mind of many Americans, Ethiopia is associated with famine and that aid concert that happened in the country several years ago. Some of that have to change. There has to be active marketing of this because perception don’t change without that idea of opportunity. You can look at the story of a businessperson who went to Africa and say nobody wears shoes in Africa, there’s no market and another person say nobody wears shoes, that’s tremendous market.”
Mr. Mahmood, who has been investing in projects in African markets for the past two decades as well as in other emerging economies, adds that the U.S. government can help ease some of those concerns by refining certain aspects of its investment requirements that have to do with advancing U.S. political interests in these countries to encourage more American investors and more American businesses to invest more in the development of Africa.
“There’s always going to be a political dimension to development but I think what we can do is while maintaining aspect or portion of development work that’s politically related, there should be a portion of the work that’s based on meritocracies and the best ideas and pushing them irrespective of the political interests and that’s what really would drive innovations and drive the best ideas to come fourth because you are not doing it because it’s political but doing it because it’s the best projects,” says Mahmoud. “Balancing that out is good, but the reality of life is constraints by a lot of factors because we don’t live in a perfect world. It’s difficult to say we won’t stand for women’s rights, or for equality or for gay rights or whatever it is that we want to do, but in order to sort of make investments sufficient, some of those requirements need to be refined because it’s very burdensome to create a whole bunch of requirements that comes with your investments because it make investors less competitive.”
For example, he adds, “how the financing can take place, what levels of risks [investors] can take, how commercial the financing is sometimes—some of the projects that I work with are not fully commercial. Taking early risk positions, those are examples of spurring innovations and trying to do a larger amount in an efficient manner.”
In response to those concerns, Bohigian says the U.S. government, still the largest economy in the world, plans to address these concerns and minimize some of these risks for credible, merit investors through political risks insurance programs like the one OPIC has with Liberty Mutual, which will support American investment projects in Africa and other developing countries.
Empowering African Entrepreneurs, Women
OPIC’s strategy for the African continent is to leverage and harness the American private sector investments to spur development and economic growth in Africa, And it plans to do that using one of America’s notable keen business knowledge available at its disposal: investment and commitment to supporting small medium-sized enterprises, which are seen as the vehicles driving economic growth and job creation throughout Africa.
“Africa is an area of strong focus for OPIC,” Bohigian tells The Africa Bazaar magazine during our interview. “While we are committed to efficiency, we also closely review every potential project to ensure the financial terms are viable and that the project will deliver a positive benefit. We are supporting projects that will have a positive impact over the long-term.”
OPIC has about one quarter of its portfolio invested on the continent across a range of regions, sectors and businesses such as Atlas Mara, Africell Holding Ltd, Kiva Microfunds, Sunfunder and Stanbic Bank. “We partner with businesses of all sizes and support a range of projects from utility-scale power plants to projects that support Africa’s smallest farmers. As a key partner in the U.S. Power Africa initiative, the agency supported more than 30 utility-scale and off-grid power projects in Sub-Saharan Africa, including off grid electricity in Chad. While OPIC can mobilize the significant resources of time and money that are essential to build critical infrastructure, we also are committed to supporting small businesses, which are driving economic growth and job creation throughout Africa,” states Bohigian.
In February, OPIC contributed $25 million to Sunfunder’s inaugural $85 million fund raising for its Solar Energy Transformation Fund, which will support businesses providing affordable solar energy to millions of people living in remote areas in Sub-Saharan Africa and India who lack access to electricity. OPIC’s investment in SunFunder’s SETF helped catalyze funds from other investors, including Calvert Impact Capital with $7.5 million, $5 million from Ceniarth, and a $5 million grant from IKEA Foundation. SunFunder, a San Francisco-based solar energy finance business with offices in Nairobi, provides affordable clean energy to people in Africa and Asia by financing solar companies active in off-grid and weak-grid communities.
OPIC has also provided $100 million financing loans to African cellular communication, Africell Holding Ltd, supported microfinance company Kiva Microfunds with a $10 million loans that in return has supported 100,000 small businesses in Africa and Asia with microloans. In Nigeria, OPIC helped promote digital banking and financing for women-owned businesses with $200 million financing loans to Union Bank of Nigeria. In Ethiopia, it provided a $126 million political risks insurance to support Afriflora’s expansion in the country. Afriflora, a horticulture business, grows and exports flowers such as roses to overseas countries.
During an interview in New York last September, former OPIC President and CEO Ray W. Washburne told this publication that America’s interests in Africa is different than the Chinese interests. “America’s goal is to empower African people,” said Washburne. “Three objectives for Africa is the Power Africa, the other one is OPIC’s Connect Africa, which is to help cross border trade to try to smooth that out for logistics and supply chain so Africa is more connected on trade element. The third one is women’s empowerment. We now have a women’s initiative called 2X, which we initially put $350m to get funds to women’s owned businesses, SMEs lending. We have gone into many of the local banks and invested money so women can take out loans from those banks. [OPIC] recently put $400 million into Atlas Mara Bank in Nigeria to help with that type of lending as well.”
When asked if he was worried about the Chinese having a competitive edge against the U.S. in Africa, Washburne answered that “the Chinese are putting the shackles of debts on many of these [African] countries” and can take control of key assets of African countries. “When a loan goes bad, and they take it back, they are additionally taking away rare earth minerals like copper from countries. OPIC is a business enterprise that loans money and that has to be paid back.”
While China takes on big infrastructure projects across Africa, the U.S., which also finances big infrastructure projects on the continent through Millennium Challenge Corporation has figured a better way to level up its trades with African countries as well as make a lasting impact through deeper connections with the small businesses and women-owned enterprises—the marginalized, often underserved demographic of the business sector in Africa.
Getting access to financing and unlocking capital in early stage companies, particularly small medium-sized enterprises, have been the biggest obstacle to enterprise growth among SMEs in Africa where majority of the markets are made up of SMEs, often owned or managed by women. According to the World Bank, SMEs in Africa contribute around 40 percent of the continent GDP and 50 percent of the overall employment, however, challenges remain in SME financing due to lack of established credit bureau, among other reasons.
As part of its strategy in Africa, OPIC sees an opportunity to have longterm impactful investments in this often overlooked business demographic.
Last July, OPIC launched a new African program, Connect Africa initiative, a program aimed at improving connectivity within Africa and the rest of the world. OPIC’s plan is to invest $1 billion in various sectors during a three year period in projects that support infrastructure, including railways, ports, roads and airports, technology, and value chains. As part of its Connect Africa, 25 percent of the investment from the program has been reserved to help fund women-owned businesses and projects that will help close the gender gap and empower women, economically on the African continent.
During a visit to Africa in mid-April, Bohigian joined White House Special Adviser Ivanka Trump in Ethiopia to announce a new economic empowerment program for African women, 2X Africa. Through the new initiative, Bohigian says OPIC plans to directly invest $350 million in businesses owned, funded or led by women, or providing a good or service that intentionally empowers women on the continent. The objective of the program is to catalyze the $350 million investment into $1 billion to unlock the full economic potential of women in Africa.
“Through the 2X Women’s Initiative, we are supporting a project that is helping female food vendors in Kenya access more fresh produce so they can increase their sales and profits. Through our Connect Africa initiative we provided financing to a project that will expand mobile connectivity in multiple countries including Gambia, Sierra Leone, Uganda and the Democratic Republic of the Congo.” says Bohigian.
These are just a small piece of what OPIC and the U.S. government are doing in Africa, and plan to do across Africa, indicates Bohigian. Through its investments across a range of regions and sectors, OPIC is seeking to achieve a strong positive impact in Africa, in places where it is needed most.
The Social Impact Effects
Having a strong positive impact and making the world a better place by providing socioeconomic opportunities, financial empowerment to those marginalized within the societies or living in what is considered peripheral parts of the world is what impact investments are all about. It’s doing good for the world at large while also making money, which aligns with capitalism. And that is what OPIC, and the U.S. government are trying to do in advancing development goals around the world.
John Meyers adds that “by design, capitalism is driven by and most successful when there is opportunity to leverage and access different types of capital. Blended finance brings in different types of public and private financing, including philanthropic, concessionary, and guarantees, to de-risk investing in emerging and frontier markets. Linking investments to social impact priorities can leverage blended finance to attract more capital and profitable investing in key areas such as food production, women-owned businesses, and renewable energy.”
With $23 billion currently in portfolio across private equity, political risk insurance and project finance in 90 countries around the world, an investment cap that is set to increase to $60 billion, and the recently passed BUILD Act that was signed into law by President Trump last October, which will allow multiple agencies within the U.S. government to coordinate effectively and work efficiently to maximize U.S. government foreign investments output with more investment tools that will help catalyze $100 billion, either through syndication platforms like Liberty Mutual, venture capital initiative, bond offerings or through OPIC portfolio through impact program, OPIC might be the secret business arsenal that U.S. government has at its disposal to effectively negate its biggest trade competitors as well as advance long-term social impacts in the world.
Think of the new DFC and the BUILD Act as a mashup of all the U.S. government foreign aid and financial assistance agencies that have emerged over the decades but with a lot more utilitarian and very little red tapes. It’s part technical assistance, equity investment, venture capital, private equity, bond offering, impact investment where companies,—from small startups, women-owned enterprises to large companies will be able to access capital finance to grow and expand their businesses.
“The ability to work with U.S. Agency for International Development and other agencies within the government and reach into their missions and work with development credit authorities is going to be a major step forward for us to operate within the government,” says Bohigian. “Going forward, we are also going to have less of a U.S. nexus. As a capital finance, it’s not just U.S. banks that we are working with here and throughout the markets that we’re trying to catalyst capital, so being able to have preference for U.S. businesses rather than a requirement is going to help us advance development goals in the world.”
While advancing U.S. foreign policy agenda, and closing unfair trade loopholes and practices have been a focus of the Trump administration since it took office nearly two and half years ago, the BUILD Act, which was co-spearheaded by Bohigian and his predecessor Ray W. Washburne, is one of the main cores to which the Trump administration aims to achieve those objectives.
Even though the concept of social impact and impact investment is not novel or newsworthy, America’s recent growing fierce enthusiasm for the idea as a main focal point of its national foreign policy agenda as a way to equalize development goals around the world is a notable pivot from its main capitalism linchpin.
When Bohigian and his predecessor assumed office in 2017, OPIC was on the chopping block in the FY2018 budget until the two aptly convinced the White House and Congress not to eliminate the agency but to use it as a major source to promote U.S. foreign policy agenda in the world. In the past two years, OPIC made $410 million in profits from its investments— $150 million in 2018, $260 million in 2017. And the OPIC’s 2X Women initiative the agency launched last year has helped catalyze an estimated $1.4 billion within its first year.
“Our 2X women initiative really was an idea this time last year. We will be celebrating the first anniversary just in two weeks in Washington D.C.,” says Bohigian. The first anniversary of the 2X Women Initiative was celebrated in March. The brand, which has since evolved beyond the U.S. into a global brand for G7 nations. G7 members, including Canada and France have committed $3 billion for women’s empowerment, globally
“That catalyze additional capital so we are hoping for billions more,” says Bohigian. “Those projects are intended to help women-owned businesses, women-managed businesses and women empowering businesses. We have seen when women are invested in, they invest in their families and at higher rate, they are better credit risks than men and are truly transforming their communities at the local levels, whether that be water or health. It’s a thrill to take that from a dream into a true global initiative that impact the lives of millions of women and children and their families around the world.”
OPIC has its critics and Bohigian is very well aware there are other competitors in Africa other than China, but he’s not losing sleeps over any of them. “We know that Africa represents both a great need for investment as well as a significant opportunity for private investors and about one-quarter of our portfolio is invested in Africa. OPIC provides financing when sufficient financing is not available from private lenders as well as political risk insurance to help mitigate some of the challenges they may encounter. We also support emerging market private equity funds. As the U.S. government’s development finance institution, OPIC works to mobilize private capital to address critical development challenges,” says Bohigian.
In terms of leveling the playing field for women and promoting women’s empowerment such as physical safety and property rights for women in some part of African countries where certain government policies, regulation and regulatory issues create barriers for women, Bohigian also sees OPIC’s role as an advocate to make sure those barriers are removed. While OPIC is not confrontational with foreign governments in its advocacy for women’s empowerment in developing nations, it systematically works with counterparts within the U.S. government, State Department, USAID, MCC—where the Compact comes into play. Through this method, OPIC is able to effectively effect changes in these areas.
“We don’t have a formal policy shop but my prior role at the Department of Commerce, where my job was to level the playing field to create opportunities for American businesses overseas, I’d go and talk about anti-corruption in Russia and intellectual property rights in China. What I have today is a $23 billion cheque book to help those conversations, which is soon to be a $60 billion check, and those conversations are effective in driving policies,” he points out.
For example the work OPIC is doing with women, he notes. “When you think about some of the projects we’re helping to develop, we are taking banks and governments from having diminutive requirements for gender inclusion up to 30-40 percent requirements of banks providing loans to women. So we’re having impact there. We don’t typical face-off with foreign ministries when we go overseas, but working with our colleagues at the State department, USAID, and MCC have proven effective.”
For Bohigian, it’s not always work, work and no play during his trips to Africa. He also enjoys a bit of leisure time in-between meetings and touring companies. From Senegalese fish to Ethiopian spices and Cameroon Cassava, he’s tasted so many great African cuisine and he looks forward to experiencing more, he tells The Africa Bazaar magazine. Other than the African cultures and great cuisines, he says he’s esteemed and fond of the people living on the African continent.
“Whenever I visit Africa, I am struck by the remarkable energy of the people, including all of the entrepreneurs who have started small businesses that are making a difference in their communities,” says Bohigian.
Tapping into this remarkable energy and helping to unlock the economic potentials that he sees encapsulate in African entrepreneurs is what OPIC and the U.S. government hope to achieve across Africa.