Many of Africa’s national economies have enjoyed rapid growth in recent years.
They are among the fastest-growing markets worldwide, with rising purchasing power and a large and expanding middle class. In coming decades, the African economy has the potential to become the largest economic growth driver worldwide, due in part to the formation of the world’s largest free trade area (AfCFTA) in operation since 2019 signed by 54 of 55 African countries.
Driven by its very young and increasingly well-educated population, coupled with rapidly advancing digital transformation, sizeable and, as yet unsaturated markets are developing in Africa. This is leading to numerous opportunities for European companies as well.
The G20 Compact with Africa (CwA) was initiated under the German G20 Presidency in 2017 to promote private investment in Africa, including in infrastructure, given that investment in infrastructure is critical to attract private investment, connect Africa’s regional markets, and better integrate them into global value chains.
The CwA’s primary objective is to increase attractiveness of private investment through substantial improvements of the macro,
business, and financing frameworks. It brings together reform-minded African countries, international organizations, and bilateral partners from G20 and beyond to coordinate country-specific reform agendas, support respective policy measures and advertise
investment opportunities to private investors. The initiative is demand-driven and open to all African countries. So far, twelve African countries have joined the initiative: Benin, Burkina Faso, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia.
AfricaConnect forms part of the Development Investment Fund (EIF) of the German Federal Ministry for Economic Cooperation and Development (BMZ) and is being implemented by the German Investment Corporation DEG, a subsidiary of the German state-owned development bank KfW.
AfricaConnect provides financing support on attractive terms to European companies in both their existing and planned activities in Africa. It promotes and facilitates local investments in a targeted manner, offering tailored financing solutions without red tape.
Type of Investment Financing:
- Loans for almost all African markets in EUR, USD as well as in selected local currencies
- Direct disbursement to the African subsidiary (without detour over house bank)
- True risk sharing: equity provided by applicant and debt financing by DEG (usually without guarantee by the parent company)
- A single point of contact: Financing supplemented by technical assistance for training programmes, E&S risk assessment etc.
- Use of the DEG network and long-term experience in structuring and implementing investments in Africa
Eligible companies:
- Subsidiaries of European companies already active in Africa or planning to enter the market
- African companies holding long-term business relationships with European companies
- Conditions of financing:
- The company is profitable and can service the loan from its operating activities
- The investment generates local value, e.g., job creation, market innovation
The AfricaConnect investment financing facility is not eligible for :
- Companies without a profitable business model and sufficient equity
- Companies wishing to restructure or redeem existing loans or use the funds to distribute profits or pay dividends
- Projects without a proof of concept
Financing conditions:
- Repayable loan of EUR 0.75 million up to 4 million, subject to availability of funds and positive risk assessment
- Tenor up to 7 years with optional grace period
- EUR, USD and selected local currencies
- Risk-oriented equity contribution of 20% to 50%
- Attractive, risk-oriented conditions: 1% to 7% EUR interest p.a.
Application requirement:
- A company profile
- The last two audited financial statements of the parent company and subsidiary
- A qualitative and quantitative business plan demonstrating a positive outlook for the coming years
- An organizational chart showing the corporate structure of the company and the group
- A description of the developmental effects of the investment, especially the number of new jobs
- COVID-19 impact financing facility
As a result of COVID-19 impact which has altered the starting premise for AfricaConnect, DEG is implementing a specific response to COVID-19 as an additional component of the programme, alongside its original offering of a crisis investment financing facility benefiting the financing conditions mentioned above.
Eligible COVID-19 impacted companies are subsidiaries of European companies already successfully operating in an African country which
- Have created local jobs and want to secure those throughout the crisis
- Have a fundamentally sound and profitable business model with sufficient creditworthiness which allows them to service the loan through operating activities
- Face liquidity bottlenecks due to the COVID-19 crisis
- Have a good outlook for after the COVID-19 crisis
Sources:
www.dginvest.de
www.compactwithafrica.org
