U.S. Investors Facilitate New Investments For Growth in Sub-Saharan Africa

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(Left to right) Christian Dunbar, Deputy Treasurer, City of Philadelphia; Donna Sims Wilson, Chair, NASP & President, Smith Graham Investments; Honorable Kyle McCarter, U.S. Ambassador to Kenya; Aymeric Saha, Managing Director, MiDA; Lee Stephens, Chairman, NASP Africa Institutional Investors Advisory Council & Executive Vice President, BNY Mellon

Since the March 2013 cover of The Economist titled “Aspiring Africa,” hit newsstands, experts on the subject have been reporting on Africa as “the newest destination for emerging markets investors.”  

The 2016 partnership between National Association of Securities Professionals (NASP) and the U.S. Agency for International Development’s (USAID) Office of Private Capital and Microenterprise that led to the launch of MiDA (Mobilizing Institutional Investors to Develop Africa’s Infrastructure), among similar initiatives tasked with facilitating private sector investments at commercial, risk-adjusted returns, has set out to promote growth on the continent and has already made some inroads worth touting.

 

2019 MiDA delegation in Kenya

 

MiDA, which “mobilizes, advises, and expands opportunities for U.S. institutional investors – pension funds, insurance companies, foundations and endowments – into infrastructure investments in Sub-Saharan Africa in seeking higher returns while making a meaningful impact on development in the region,” recently announced that The Board of Trustees of the Chicago Teachers’ Pension Fund approved a total of $20 million in commitments to African Development Partners III (ADP III) managed by Development Partners International (DPI), and AFIG Fund II managed by Advanced Finance and Investment Group (AFIG) based in Dakar, Senegal. 

Further, Alameda County Employees Retirement Board approved up to $30 million in the Taurus Mining Finance Fund No. 2 as part of ACERA’s Real Assets Portfolio – Natural Resources, pending completion of legal and investment due diligence, background investigations, and successful contract negotiation. Taurus Mining Finance Fund No. 2 will finance mining projects primarily on the continent of Africa.

 

Everstrong Power Plant Site Visit to Kenya

 

In a recent interview, Aymeric Saha, managing director of MiDA, told me a bit about risk-adjusted returns with regard to investing in the continent. “When we discuss risk-adjusted returns, we refer to the notion of perceived risks and real risks of doing business in Africa. As a frontier market, US investors would certainly face frontier market risk exposures that are different from developed markets but in many sector like infrastructure, these risks tend to be well mitigated in the structuring of the transactions,” he explained. 

He continued, “For example, default rates in infrastructure in Africa are lower than they are in the United States according to Moodys’ research and reports. However, these projects are perceived as high risks across the board. So the risk-return profile of these opportunities can be very attractive when you consider the spreads U.S. investors can potentially receive versus the degree of actual risks, and relative to other infrastructure opportunities in developed markets where there is high competition for good deals and significant dry powder chasing the same assets.”

Saha, who oversees a team of investment experts, program resources, and several joint operations with the World Bank and the United Nations Economic Commission for Africa, says that since 2017, MiDA members have closed on new deals totaling close to $800 million. “The initiative was showcased at the last G20 Heads of State Summit in Argentina in November 2018 as a successful model for mobilizing private sector financing for infrastructure in developing countries and supporting the sustainable development goals,” he notes.

A recent delegation of potential U.S. investors and NASP members who traveled to Africa included NASP Chair and President of Smith Graham Investments Donna Sims Wilson, who said, “These two new investment allocations are another successful demonstration of the progress we are making within the NASP-USAID partnership (“MiDA”) to expose our members to education and opportunities in Africa. We continue to believe that there is tremendous potential to further diversify U.S. institutional investors portfolios with attractive risk-adjusted returns in Africa.”

 

2019 MiDA delegation in South Africa

 

Another NASP member, Renae Griffin, who serves as executive director at GCM Grosvenor, was on the same investment mission as Sims. It was her second trip. “The goal of the trip was to expose U.S. institutional investors to good investment opportunities on the continent, and to dispel many of the misconceived notions about the opportunities there,” she told me in a recent interview. “I think NASP did a great job of bringing together a high-profile group of investors, and I think it was eye-opening for many of them as it was for myself.”    

An online post from Investopedia contends that, much like The Economist’s March 2013 cover story, Africa’s big ambitions have grown and are encouraging. “Increasingly, there is political stability, economic growth, and advances in its banking systems, with better accounting and transparency,” the writer reports. “There is increasing demand from its growing middle class, and local companies are filling that need expanding. Nobody can predict the growth trajectory with accuracy, but Sub-Saharan Africa is poised for growth.”

 

Garden City Site Visit in Kenya

 

As for Griffin, her observations too, point to growth. “There are notions that Africa is extremely risky. There are ideas around corruption, political instability; less experienced fund managers; and a series of inherent problems that are hard to overcome,” she says. “We found that, sure, countries in Africa have issues just like any other country, but the potential opportunities, in many cases, outweigh the challenges. You have to go and see for yourself and speak with the locals and the other investors who are there.”