Role of development finance institutions to Africa's growth

Development Finance Institutions (DFIs) have played a crucial role in Africa by filling funding gaps in countries and sectors that struggle to attract sufficient investment. One notable example is the International Finance Corporation (IFC), which injected over $25 billion into African businesses in 2015 alone, focusing on sectors like agriculture and energy. To delve deeper into the impact of DFIs in Africa, CNBC Africa spoke with Suresh Chaytoo, Sector Director of Banks and DFIs at Rand Merchant Bank. The discussion highlighted the significance of these institutions in driving economic growth and development on the continent. Chaytoo emphasized that DFIs are not only motivated by the pursuit of impact investments that deliver social and environmental returns but also by the tangible financial returns they generate. He pointed out that African countries and corporations have demonstrated a strong track record of repaying investments, highlighting the success of DFI initiatives in Africa. Despite economic fluctuations, including commodity price shifts, Chaytoo underscored the resilience of DFIs in maintaining their investment momentum in Africa. These institutions take a long-term view and often support projects that commercial banks might consider too risky or short-term in nature. This long-term perspective enables DFIs to play a crucial role in funding infrastructure and other high-risk projects essential for Africa's development. The conversation also touched upon the evolving landscape of investment in Africa, with an increasing trend of countries seeking locally-raised resources for development. However, Chaytoo dismissed concerns about this trend posing a threat to DFI investments from the West. He highlighted that many infrastructure projects in Africa require hard currency, which DFIs can provide at rates that surpass what local governments can offer. The concessional funding and longer-term investment horizons of DFIs make them indispensable in driving development projects that rely on foreign capital. Looking ahead to 2017, Chaytoo identified key sectors that are expected to drive DFI investments. Power infrastructure, oil and gas, telecommunications, agriculture, and trade finance are likely to remain focal points for DFI funding. Power infrastructure has been a dominant sector in the past decade and is expected to continue attracting significant investment. Oil and gas, despite price fluctuations, will retain its importance due to its impact on African economies. Telecommunications, agriculture, and trade finance are also poised for growth, with both local and international DFIs showing interest in these areas. As African countries strengthen their regulatory frameworks and governance practices, Chaytoo predicts a sustained flow of investments from DFIs. The combination of indigenous African DFIs and international investors bodes well for continued economic growth and development across the continent. With DFIs playing a pivotal role in financing critical projects, Africa is poised to leverage these investments for sustainable and inclusive development.