The need to add value to African exports has been the subject of several bells and whistles in recent years. It is to respond to this urgency that the Fund for the Development of Exports in Africa (FEDA) – the impact investment branch of the African Export-Import Bank (Afreximbank) – has just made its first closing of 670 million dollars broken down through four specialized funds with complementary strategies. “We are very pleased with this first closing which constitutes a first step in financing the equity gap in the trade sector in Africa. The various funds generated by FEDA will also facilitate and increase foreign direct investment in the trade and export sectors by attracting leading institutions with a strong interest in the development of Africa”declared Benedict Oramah, president of Afreximbank who entrusted, last May, the piloting of the strategy of the FEDA to the Congolese Marlène Ngoyi.
Private equity, venture capital… for the « Made in Africa »
The four funds that will deploy these investments are: FEDA Direct Equity Fund I which will inject $270 million in equity and quasi-equity into various ventures across the continent; the Strategic Initiatives Fund, which will have 250 million dollars to provide capital support for high-impact projects that are catalysts for intra-African trade and the development of value-added exports; the Africa Credit Opportunities Fund says “debt funds”, will receive $125 million; Finally, a soon-to-be-launched venture capital-focused fund will receive $25 million to leverage small businesses across the continent.
“In accordance with our mandate, we are targeting all African countries as long as we can find a company that needs equity or quasi-equity investment with the objective of either developing intra-African trade or making substitution import, the promotion of industrialization or the export of manufactured products”, explains Gaisie Yao, private equity specialist and investment manager at FEDA. And to specify: “By value-added export, we mean any export of manufactured products whose processing has taken place in Africa”.
Closing a $110 billion gap
By creating the FEDA in 2019, Afreximbank clearly displayed the ambition to fill a significant financial gap that prevents exporting companies from raising the level of their business and trade in general. According to the expert, the studies carried out in-house have made it possible to lift the veil on “an equity financing gap of around $110 billion in Africa in areas that promote intra-African trade and the development of manufactured exports as well as industrial value chain development in Africa”.
As soon as it became operational in the fall of 2021 following the accession of Rwanda – the country hosting the entity’s headquarters – FEDA made its very first investment in Liquid, the firm of Zimbabwean billionaire Strive Masiyiwa, which has been building the first fiber optic network crossing all of Africa. Since then, Mauritania, Togo, Guinea and South Sudan have ratified the agreement establishing the Fund. And one of the pillars of Marlène Ngoyi’s mandate as CEO is to win the support of other countries on the continent.
Although still slightly lower in value than imports, African exports surged 40% to $572.59 billion in 2021, according to Afreximbank’s 2022 Africa Trade Report. While until the early 2010s, Europe was the leading destination for African exports, the “old continent” is now overtaken by Asia. North America has drastically reduced its imports from Africa, while African countries are increasingly delivering to Middle Eastern markets. Historically, these exports have been dominated by mining, energy and agricultural raw materials, delivered in their raw state.
“Unlike banks, we bear all the risks with companies”
Under the African Union (AU) Agenda 2063 and the Continental Free Trade Area (Zlecaf), one of the continent’s key objectives is industrialization, with the aim not only to boost potentially Africa, which represents only 3% of world trade, and intra-African trade in order to broaden the horizon of businesses throughout Africa. “One of the big differences at the economic level between developed and developing countries lies in manufacturing production and in intra-community / regional trade (EU, USA, Asia) which are a source of value creation and jobs for developed countries; which strengthens the economic indicators of these countries. As you can see, in most cases this is the opposite of what is done in most African countries,” explains Gaisie Yao.
In the dynamic that is now its own, the FEDA intends to position itself as a close partner of African SMEs. “Unlike banks, we are an Equity fund which invests as a shareholder and therefore bears all the risks associated with this security, in the same way as the existing shareholders of the company in which we invest. We do not ask for a guarantee as such; but of the rights that they are linked to our role as shareholder”.
