Africa Finance Corporation (AFC) is a pan-African multilateral development finance institution established in 2007 to bridge Africa’s infrastructure investment gap through the provision of debt and equity finance, project development, technical and financial advisory services. Sanjeeve Gupta is responsible for advising on the treasury, trade finance, debt, and Ethiopia’s relationship with AFC. He was a corporate and financial strategist before he joined AFC. He has worked for Ernest & Young Global, and the South African insurance company, Sunland. The former CEO for businesses on two continents, Sanjeeve, grew up in India but has lived in Africa for the last 20 years. He has been Executive Director of AFC since November 2015. He talked to Capital about his mission in Ethiopia. Excerpts;
Capital: How is AFC different from other Development Financial institutions?
Sanjeeve: AFC is a multicultural financial development institution. So in many ways it’s very similar to IFC or the African Development Bank or Afro- Exim bank or TDB but there are some differences. We only look at certain sectors. Our focus is on power, telecom, mining, oil and gas, heavy industries and transport (road, rail, airports). Unlike other DFI’s we do project development, so we take early stage project development risk, we do that because we believe that to find proper investments we need to able to develop from the early stage development risk. Not all DFI’s do that. Secondly we do equity, we also do long term debt and we do trade finance, short term. Different DFI’s do different parts of all those we perhaps we are the one who does all of these. The other thing that makes us unique is public private share holders, we have the private sector share holding from some of the larger African Banks. As a matter of fact, our total private sector shareholding is more than our public shareholders. We don’t have any shareholding outside African institutions and African governments it makes us truly an African institution and representative of African interests funded by Africans. This is very unique even the African Development Bank has shareholders from the outside Africa so the dialogue tends to be different.
Capital: AFC is utilized by governments and entities in Africa. How does this structure help AFC and the African Continent?
Sanjeeve: Structures don’t help companies, strategies do. I think the structure that we have allows the African government and African institutions to be invested, which is useful but what really makes us successful is our strategy. Our strategy is very simple. We are very simple. We don’t go outside sectors because we don’t want to invest in sectors that we don’t understand. It is as simple as that. That keeps us very clean you know the moment that you start looking at things you don’t understand you likely will make mistakes so we employ people who have worked in these sectors. I’m telling you that a lot of our investment professionals are not corporate finance people. They actually are engineers who worked in our business. So our power sector, we have people who were engineers who have worked in power companies we have got people in our transport sector who worked it ports so when we are are looking at investing in these areas we get a very serious amount of experience and insight from people who manage business. The other thing is that because of our private public shareholding, the thinking tends to be commercial and that helps the moment you look start investing purely and only from the development angle and don’t think about the commercial viability. Inevitably you invest in projects that overtime will not be sustainable. However, if you make it commercially viable. That allows other investors to come. It allows you to diversify investors. It allows you make money out. It allows you to do more.
Capital: Tell us about your success stories.
Sanjeeve: We have invested in more than 29 counties in Africa so far, this includes counties like Egypt, Tunisia, and Morocco, so we are not just sub-Sahara, were are in North Africa as well. In this region we have invested in Rwanda, Djibouti, and Kenya and soon Ethiopia. We have interesting projects, let me explain if you go to Côte d’Ivoire, you will see a bridge that connects the main residential areas of Abidjan to the main commercial area. We developed that bridge from conception to financial closure and it’s made a big difference in people’s lives. Previously it would take more than two hours now it takes thirty minutes so it’s very satisfying. There was a need and we fulfilled the need and are making money. We developed power projects in Rwanda using technology from Finland that created 80mw the nation’s own resources. In Cape Verde we used the tremendous amount of wind they have to create a wind project that gives them 30 percent of the power they need. In Djibouti we are developing their first wind power project that will make 60mw. In Gabon, which is known for minerals and agriculture, we developed the Olam Special Economic Zone. We added technology to local resources. These projects cost up to USD 600 million. So we brought in investors and let them see we are doing it properly. In Ethiopia we plan to get involved in mining. Eventually telecom, aviation and gas when privatization becomes a reality.
Capital: How much does membership cost countries?
Capital: Why have you done it this way?
Sanjeeve: You know when we tell countries, the idea is not making money out of that money we are not a club right? The idea is for countries to become members. It gives us certain privileges. We do long term investments like mining, roads, ports rail, power. These are not two year investments; it takes time to build them and it takes another seven, eight, years to make money out of it these are ten fifteen twenty year investments. So for us it really important that counties give a certain protection we don’t want counties to encourage us to come in and tomorrow leave. Membership to us is the commitment the country shows to us because once they become members what they essentially provide to us are certain privileges around preferred access to foreign exchange currency we need pay the debt so now you can ask the country that is giving that what they can give the counties getting it in return. First, when the country becomes a member I can do much more investment in that country that I can do in a non-member country. Number two and most important remember when we invest practically when we lend money for a project, most lenders including us when we come in the country there is something called political risk so when a non member country comes that means we are not protecting against the political risk that means we go separately and buy political risk insurance from somebody else that adds cost to the lending so the counties says no I am going to sign as the member that’s cost saved now. When that cost is saved, I am not taking the money, it’s the country benefiting my cost is the same. I’m just adding another insurance cost. I don’t have pay for my insurance, the prefect cost is lower so it helps both partners so membership is zero we encourage members to become an investor in AFC. We say when you are going to be a member why don’t you become the investor in AFC but it’s not mandatory it is not compulsory it’s a win- win, you give us privileges we do more in your country both parties win. It’s another insurance cost. I don’t have pay for my insurance, the prefect cost is lower so it helps both partners so membership is zero we encourage members to become an investor in AFC. We say when you are going to be a member why don’t you become the investor in AFC but it’s not mandatory it is not compulsory it’s a win- win, you give us privileges we do more in your country both parties win.
Capital: I understand that you are here to lobby for Ethiopian membership. Why now? Why Ethiopia?
Sanjeeve: Ethiopia is a large country that it’s growing with many opportunities, but more importantly there are serious policy reforms. In terms of privatization, in terms of wanting to work with other financial institutions those are enabling factors right? These don’t exist all the time it’s existing now that’s attracting people like us.
In terms of the meeting I have had, I met the Minister of Finance, the governor, investment commissioner, all in all I have been extremely gratified with hospitality and more importantly the enthusiasm for them to help us. Everybody welcomed us with open arms. People have told us you should do business in Ethiopia and all of them have confirmed that they will definitely take up the membership very seriously we had very positive meetings, the energy level is very good, you know at the end of the day engaging and investing you feel good.
Capital: Is there a local partner who advises you?
Sanjeeve: Yeah, we have someone named Zekarias, a young man from Ibex Frontier Investment Advisory, who is helping us, advising us, in existing opportunities and introducing us to the relevant people. He adds to our credibility and tells us what to avoid. You know, investing is not only what you do, what you don’t do as well, that is what makes you successful. Because there are enough investments in this world, because one bad investment kills five good investments.
Capital: What is AFC’s vision for Africa? Specially Ethiopia?
Sanjeeve: It’s the same. The vision what we have for Africa is the vision that we have for Ethiopia. We want to be the institution that facilitates investors, operators, from outside Africa to come and engage in Africa to fill up the infrastructure deficit, create jobs. We don’t’ want to invest we need to be the platform. We want to create the opportunities for the world of investors
For example, a cement company would like to come in a cement project, so we want to be that platform we go to advise we have money, yes our money alone cannot change Africa. We can add value by bringing expertise; create projects. Because Africa’s need is our vision cannot be fulfilled by one institution. So please remember this, we don’t see ourselves as a junk book that will solve we primarily see ourselves as facilitator that brings.
Capital: How successful is AFC?
Sanjeeve: We have been operating only for 11 years, which is not long in infrastructure. We have successfully managed to deploy close to twenty billion USD. Our current balance sheet size is just below five billion USD. We have invested in 29 countries. We have been profitable if you look at our results for the few years in spite of investing assets and that it takes time to make money. We pay dividends for our share. Not every DFI pay dividends. We consistently pay and in those great stories of ours, we have maintained very very high credit ratings. We have a rating of three, which is the second best rate next to African Development Bank. It is clear we manage risks well; otherwise the current rate cannot be possible. I think its good story and a good ride, and should be replicated for the next ten years.
Capital: Is there anything you want to add?
Sanjeeve: I represent an institution that has shown you can invest wisely and profitably in Africa. It’s possible because of project preparation, project structure. There are no quick fixes but we have proven that it is possible. We just hope that we can replicate that in the coming years. Our success gives confidence to other people. As I said African needs are a thousand times bigger than we can do. All we can do is encourage and inspire others to achieve as we have. I do hope the Ethiopian government will provide the environment for us to be successful. There are 100 million people in Ethiopia. They need jobs and better lively hoods without infrastructure and industry, jobs will not happen, without jobs taxes will not be collected, without tax Ethiopia will remain poor. Right?