ESG investments will fuel Africa’s post-pandemic recovery
For the past year, the Covid-19 pandemic has grounded the growth of Africa’s developing economies, says Simon Rankin.However, the easing of the pandemic, aided by the global vaccine rollout, means that the African markets are turning their attention towards post-pandemic recovery. Taking centre stage in this recovery is a focus on environmental, social, governance (ESG), which has been demanded by investors, assisted by continued government stimulus, and supported by Development Financial Institutions (DFIs) and multi-national development banks.Impact on Africa’s fundingCovid-19 has had both a very direct and negative impact on Africa’s growth. OMFIF and Absa’s Africa Financial Markets Index found that in 2020 there was minimal economic growth across the Continent, and that there had been a significant disruption in supply chain financing due to the pandemic.This has had a severe impact on some of the most vulnerable economies such as Angola and Zambia, which lack the macroeconomic opportunities of countries such as South Africa and Egypt. With the recovery from the pandemic a key focus for Africa, new funding models are required to support those impacted and ensure Africa’s smooth recovery is sustainable both financially and ecologically.Development Financial Institutions have a large role to playThis is where DFIs come in. DFIs have long track records of being critical providers of financing in Africa, supplying riskier, longer term investment capital that tends to focus on sustainability, with ESG-like metrics that seek to ‘crowd in’ commercial lenders.While certain differences lie within the DFIs’ specialities, with some focused on a sub-set of countries, sectors or currencies, most DFIs invest across the board to ensure, and enhance, a prospect’s success.As investment vehicles, DFIs can plug in the funding gaps on projects that banks might turn down due to concerns over the risk or length of an investment, as most banks tend to be more focused on shorter investment loans and less risky projects.
Source: Further Africa