Africa now has $2 trillion in domestic capital and yet there is still a $300 billion financing gap. The money exists. The projects exist. So what is actually broken in between? Joining me is Sanjeev Gupta, CEO and Board Member of the Africa Finance Corporation Foundation. Sanjeev, welcome to the show.
First of all — $2 trillion in domestic capital and still a $300 billion gap. What is actually broken?
Interestingly, data suggests that there is close to $4 trillion of African domestic savings in the system. And on the $300 billion gap — I want to come back to the word gap. To me, it is not a gap. It is more a work in progress. The good news is that Africa has capital, which was never really understood or appreciated before. The good news also is we know where the funding opportunities are, and African capital can take the early-stage development risks to allocate that capital. I would say it is work in progress about matching capital that is available to opportunities that are obvious.
Global investors still see Africa as too risky. Is that perception still accurate today or is it outdated?
It is still largely there, but increasingly less so because data is now available. Project default rates or credit default rates in Africa are actually one of the lowest globally — by far. It is not me saying it. It is global data. People who care to see the data will appreciate that the risk perception is higher than the actual risk. The second point is that risk, at the end of the day, is inherent in any investment — it is about how you manage it. Because you now have African capital backing African projects, they are better positioned to take certain early-stage risks. And regions like the UAE and GCC are looking at Africa as a strategic opportunity rather than an opportunistic one — which means when you think long term, you have a very different outlook to risk.
What does blended finance actually do to fix these problems?
Blended finance is really common sense. Any investment you want to make in any opportunity in any region requires different kinds of capital, different risk appetites, and different time horizons. Blended finance blends long-term capital with short-term capital. It blends capital that expects a certain return against capital that can operate at a lesser return. It blends capital that looks at climate and environmental issues with capital that looks purely at financial returns. Any big transformational project has community aspects, climate aspects, financial return aspects, and long and short-term horizons — and blended finance brings aid, concession grants, philanthropy, pension fund capital, and private sector capital together to address all of those simultaneously.
Where does philanthropy fit in — is it charity or is it actually a financial tool in Africa?
From the 1960s until today, close to $1 trillion of aid money has gone into Africa. And you do not have to be a rocket scientist to know that that has not catapulted Africa into any great levels. Philanthropy money suffers from two problems. One — it does not have a return view attached to its deployment, which means it very often does not look at the long-term sustainability of what it is supporting. That needs to change. Two — philanthropy money typically comes in small tranches, which means the impact is not as impactful as it should be. My argument is that if philanthropy money works alongside private capital and other sources of blended finance, it creates in aggregation a much bigger impact in sustainable, transformational investments.
Carbon credits keep coming up as a way to finance African development. Is that a real solution?
Of course it is. Africa emits less than 3% of the world’s emissions, but Africa probably absorbs 70% of the world’s emissions because of its carbon sinks, its mangroves, its forests. The world is essentially enjoying a free ride. The greenwashing problem is real — a lot of global companies have used African carbon credits to greenwash their activities, and that has to stop. But the asset exists. One of the areas of work I am doing is to encourage African governments and communities to systematically and on a data basis capture the carbon credits available, and then find ways of monetising them. If you can monetise it, you can use that money for your own development. It is not a red herring. The asset is real.
Thank you so much Sanjeev for being with us today.
Thank you for having me. I appreciate it.
