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Date: 4 December 2023

Africa’s Reopening Economies: Risk and Revival (Panel at EMW 2023)

Africa’s Reopening Economies: Risk & Revival (Verdant Capital at EMW 2023)

Globally, macro-economically volatility has increased over the last four years, and along with country specific factors has led to volatility, stress, and in some cases sovereign default in specific countries in the continent.  As specific markets recover, investors are offered the opportunity to re-engage, but how soon is too soon to reinvest after a default?  Verdant Capital chaired a panel session at the European Microfinance Week (EMW), which took place in November 2023 in Luxembourg. The panellists were Felistas Coutinho, Managing Director at Tujijenge Tanzania Limited (a subsidiary of LOLC), Isabel Wanjohi, Group Treasurer at Platcorp Group Holdings, and Orli Arav, Head of Debt Funds at Cygnum Capital and Ollen Machimbirike, Vice President of Verdant Capital (Moderator).

The panel session was centred around Africa’s reopening economies, exploring various factors driving the reopening to investment in certain African economies over the past two years and the opportunities these present to impact investors, as well as risks and mitigants.

Addressing Isabel, Ollen asked, “What is the demand for impact investor funding, and what opportunities are there in Africa for investors to explore?” Isabel replied, “There is certainly demand for impact investing in Africa, which has an entrepreneurial population where 22% are starting new businesses driven out of necessity, with most of them being women. The employment opportunities are mostly in the informal than formal sector even for the educated youths. The challenge that these businesses face is a lack of access to capital from formal financial institutions, which often ignore them since they are start-ups that do not meet their credit underwriting procedures. This presents a big opportunity for impact investors to provide capital to fund this space and help drive financial inclusion.”

Addressing the question to Felistas, Ollen asked, “What are the key risks to investors investing in Africa again, and how can these be mitigated?” Isabel replied, saying, “The key risks are in the areas of politics, governance, regulations, cultural differences, and foreign exchange risk, which investors should scrutinise when considering making investments in a certain country. Some countries, such as Nigeria, Malawi, and Zimbabwe, among others, have experienced challenges with their currencies over the years. With respect to foreign exchange risk management in the markets where LOLC operates, a back-to-back hedging mechanism with local banks has been the most preferred approach because it is more affordable than using international hedging mechanisms.”

Addressing the question to Orli, Ollen asked, “Why are some investors still hesitating to invest, and why have some pulled out of Africa? Orli replied, saying, “In the US and other developed markets, the interest rate is high, and you can invest there and get a very high return without taking emerging markets’ risks. The risk premium is going up, and that’s why some of these investors are not looking at emerging markets. Local investors or investors like Cygnum Capital are still investing in Africa only. If you have a global mandate, you will follow where risk-return meets your appetite.”

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