How Can Africa Finance Its Own Transformation?

Arancha: Hello, everybody. My name is Arancha González. I'm the co-chair together with Yemi Osinbayo of the Future of Development Cooperation Coalition. This new initiative launched this week that is co-sponsoring this conversation together with CGD.

And I want to thank CGD for giving us this opportunity to discuss: How can Africa finance its own transformation? Let me say a few words by way of background to why this conversation. We know that development finance is the fuel that is necessary to help countries transform. We've been having a conversation since 2015 about the necessity to mobilize more private capital towards this effort. In addition to aid, in addition to concessional lending, this is the engine that we wanted to ignite, and we called this “from billions to trillions” in 2015. Suffice it to say that maybe it's not landed where it should have. So this is a conversation that requires reframing, that requires changing the ingredients that we will require in order to mobilize private capital, and it probably requires starting at home. Not how can we mobilize private capital in high income countries towards lower income countries, but how can countries mobilize their own private capital? This is a bit the backdrop to this conversation.

We know that this has a lot to do with regulatory frameworks. This has a lot to do with conditions of markets. This has a lot to do with incentives, with the risks, framing and pricing of risks. We know that this is the new conversation we need to conduct. And we want to do that because at the end of the day, certainly the starting point that the Coalition will take is one of agency. The agency of countries to impulse their own economic transformation, their own social transformation cannot be just an abstract concept. It has to be grounded on the conditions for this agency to materialize. So in order to conduct today's conversation, let me introduce this panel. Let me start on my left with Samaila Zubairu. He's the CEO of the Africa Finance Corporation, a multilateral institution in Africa, very focused on mobilizing capital for the infrastructure deficit. Welcome. Next to him, Greg Guyett, First Vice President European Bank for Reconstruction and Development, EBRD. Greg was formerly HSBC, a bank that is also taking a lot of interest in Africa—which will be the focus of this conversation. And last but not least, the co-chair of the Coalition on the Future of Development Cooperation, former Vice President of Nigeria, Yemi Osinbayo. Welcome to all of them. And finally, not with us physically, but iwith us virtually, thank you very much, Tidjane Thiam, former CEO of Credit Suisse, a life spent in global finance. Thank you for joining us virtually. And maybe let me, Tidjane, start with you, if you allow me. When global investors allocate capital, Tidjane, and you've got a long experience on this, how do they decide whether to invest in emerging countries, in emerging markets, and how do they decide between countries?

Tidjane: Thank you, thank you, Arancha. Very pleased to be here, and I apologize for being a virtual participant. I hope you hear me clearly. Look, I ran for many years Prudential, which is a life insurance company. We have a very strong presence. We are very important in Asia. I salute my ex colleague from HSBC. We had a lot of connection to HSBC there, but to answer your question directly, it's a risk reward equation that we always look at, and you want to be compensated for the risks you're taking. And you look at various aspects, various size, but I would say growth is more important than size. I like to say that at the beginning of the 20th century, Argentina and the USA had about the same GDP. So you could choose to go to Argentina or you could choose to go to the USA, they'd have given you a very different path. So very often we understand that emerging economies are smaller in size, but you look at their growth and exponential growth changes the scale of business over time.

You also want—and this is a point I cannot emphasize too much—you want domestic partners, you want local partners. It's a bit like if you explore space, you get to a foreign planet, you're not going to take off your helmet unless there is life on this planet. It's really the same in business. And you tend to think that if local companies that are native, that speak the language, that know everybody, that know the environment can’t succeed, you're very unlikely as an external player to succeed. So my point on that is that I think governments, particularly in Africa, need to pay a lot of attention to their local companies. Nurturing local companies is the path to long term attractiveness to foreign investors. Because the first thing you look at is, is there a sizeable company that has emerged in the economic context of that country? And of course, there is all the usual stuff around, rule of law, predictability. But I would say that varies depending on the sector. Extractive sector companies will tend to just look at really stability and can they run their mine for long enough and not look so much at the domestic environment. But if you're a bank or an insurance company or a retailer, you will look very much at rule of law.

I had a foreign investor who told me once I only invest in countries where I can sue the president's son and win. He was serious. So I thought it was a very effective way to talk about the rule of law and whether you can operate without fear.

Maybe just one word… But the interesting thing about Prudential, it was it was created in 1848. And we financed all the industrial revolution. “The man from the Pru” is an expression well known in the UK because he was collecting the little savings of everybody: shillings, pence. And the small rivers make bigger, big flows in the end. And really, this notion that you can collect small savings and turn it into institutional investment is central to the Prudential model, which we then carried to Asia. In Hong Kong, you'll see the Prudential sign on the bay. We were number two in 16 Asian markets. And in Vietnam, in countries that are very poor, we ended up being a key institutional player, being a key player on the stock exchange. Because the beauty of life insurance is that it will provide the ultimate provider of equity in the economy. People always think that it's banks that finance the economy. It's not. It's life companies. All the money that is at PIMCO or, you know, BlackRock, it's money from pension funds. And that's equity. And it’s the perfect asset when you have pensions. Prudential paid more pensions than the UK government every month. When you have long term pensions, the best asset to back pensions is equity, which generates the best return over the long term. So the life insurance industry by nature is a provider of equity to the economy. And then the equity allows you to leverage yourself, get some debt and implement all your projects. And it's a natural investor in infrastructure. And maybe I'll finish with that example. Because I designed many years ago, 1998, 99, the third toll bridge, which is in Abidjan, in the Ivory Coast. And we closed the funding, the equity funding, with the army pension fund, which was a funny thing. But the army was, because we were in a French system of pay as you go, not pension fund, it was the only entity that had a pension fund. And to this day, the bridge and the toll is contributing to paying the pensions of the soldiers. But life insurance is a natural investor in infrastructure, which is something Africa desperately needs. And finally, if you look at the demography, I did this in Indonesia, where the average age was 28. This is a ticking time bomb. We always talk about how young Africa is. If we don't have proper pension provision, as the demography evolves, we're going to run into a wall.

So it's a win-win-win: Developing long term savings is a way to provide equity to the economy. Equity is the foundation of capitalism. It allows you to have investments in local currency. The other point about the bridge is that the toll is in local currency. The pension is in local currency. So you don't have to borrow in yen to build a toll bridge in Abidjan, which makes no sense. So I'll stop here just to throw a few things and stimulate the discussion.

Arancha: That was very helpful. Let me take you again back to Africa. What are, in your view, the two or three things that countries can make, can do, can take to improve how investors assess and how investors price the risk? What are a few recommendations?

Tidjane: That's a tough one, but it's a crucial one. You can never blame the market. It's a bit like when you see, most CEOs will tell you the market doesn't understand my company. My share price doesn't reflect the true value of my company. But it's your job. It's your job. You can't blame the market. The market is always right. You need to really, first of all, understand. Perception is reality. What is driving that perception? We did investor surveys. Every country, we interviewed hundreds of investors every year. I had 250 investor meetings every year. Because you really need to understand what it is, how the investors perceive you. Before then, you can’t know exactly what are the points you need to address. There's certainly one thing that they're worried about, which is political risk. And I think you will see that countries that have been able to have a peaceful transition will carry a smaller risk premium than others. So really, I think actually that’s an argument for democracy. Because if I invest and I think that my investment is safe, even if the government changes, that's a very big factor, if I invest beyond four or five years. Then there is the rule of law: establishing an independent judicial system. Every new government who comes in says they're going to do that, they never do it. Because they find it very convenient to have a legal system that they can basically manipulate. But a country that has done that in Africa is Senegal. And you've seen at the last electoral crisis that the Supreme Court, I think, saved the system. Because really one of the key reforms that had been implemented in Senegal was to make the justice really independent. The judges are not dependent on the government. And that is, I think, a foundation for a successful business climate.

And then also, I really believe that a lot of countries need a sovereign wealth fund. It's something I've been advocating for a long time. I'm happy I think Ivory Coast created one yesterday. But it's very simple. It's a bit like privatization. If you want people to have a stake, for instance, take cocoa in Côte d'Ivoire. For me, a sovereign wealth fund should be a major shareholder of Nestlé. Because when the cocoa price goes down, Nestlé profits go up. It's a natural hedge. It's a perfect hedge. And for me, ultimately, you will want to make every little farmer a shareholder in that pension fund, so that you align the interests. I mean, before we're able to bring the chocolate industry to Côte d'Ivoire, it will be a long time. But on the other hand, we can actually today have a stake. And once you're there, when I was at Credit Suisse, Qatar was a major shareholder. And I always went to Doha to talk to them. If you're at the table where the remuneration of the leadership is set, people listen to you. OK? The capitalist system is about capital. If you're not at the table, if you don't have a shareholding, you're not heard. Going to Nestlé and saying, oh, you should pay us more for cocoa is never going to work. Saying, look, we own now 5% of Nestlé. I think, you know, we need to talk about the cocoa price. It's a much more likely to be successful conversation. So for me, the Democratic Republic of Congo should be a major shareholder of Glencoe. And if you look at the Gulf countries, they've done that in the oil sector. They've really taken significant shareholdings in the downstream players. And that has put them in a very strong position. The other thing is, sorry, the Nestlé stock is great. Nestlé has paid a dividend every year since its creation. You invest $100 million, you'll get $5 million of dividend every year forever. And you still have $100 million, which will also appreciate. It's better than taking that to build a road. That will then, after five years, be poorly maintained, be destroyed, and leave you with nothing. Because $100 million is gone, and your road is gone. So you need to take a long-term view to managing the national wealth and the national rents, whether they are agricultural or non-banking. Sorry, it's a long answer.

Arancha: Thank you. Very helpful. Let me move to Samaila. We often hear that Africa is a continent that is resource poor. But your institution has put the price tag to the amount of savings that the continent has. You've put this price tag at $4 trillion U.S. dollars. And yet, this $4 trillion are not flowing into the economic transformation of countries. So what's failing? What should be done?

Samaila: Very good question. So I think I'll start by maybe updating the research. When we did the research, initially it was $4 trillion. Towards the end of last year, several of the pension funds and insurance companies saw the report, and then they came up with additional data. So the update is actually $4.4 trillion, with over $600 billion with the pension funds, and over $400 billion with insurance companies. We also got an update on the sovereign funds, and also on the central bank reserves, where we found that quite a number of them also had gold as part of their reserves. So to answer your question, I think it's twofold. The first one is, you know, this research was done as part of the need for agency for development. We've always believed that Africans must take ownership of our development, and we must understand that the systems that we operate, you know, were transferred to us, and without much question in the beginning, which is why we don't see the outcomes that we expect. So we can't change that, you know, with help from outside. It has to be an intentional decision that, look, this thing is not working. You know, we need to put something that works. And nobody's going to help you do that. So we must fund that change by ourselves, which is why we did this research. Another point also was we wanted to make the case that domestic resource mobilization is not just about, you know, additional taxes. It's about taxing higher value output. So if you export raw material, and I give an example of a country, exports significant raw material, about a billion dollars of that material. Now, assuming royalty is 10 percent, that's like $100 million. But that same raw material can be transformed into a second intermediate product, let's say alumina. And then the value goes, I mean, for just a portion actually, not the whole amount. So even just 20 percent of that transformation would result into something like $4.7 billion. So tax of 10 percent of that is $470 million. Now, if you go further, you're talking $7.8 billion. And tax on that is $790. So it's really to address these two points that, look, you don't have to increase tax rates. You just need to increase, you just need to transform and have higher value output that results into higher tax. And then number two, you need to look within your system and look at the amount of capital that exists and understand the regulation that determine the flow. So most regulation for pensions are for investment in government securities. Not a bad thing, but government securities can just be sometimes recurrent expenditure. So just consumption as opposed to growth. And to the point, of course, you need to invest in infrastructure. But most infrastructure by government, I'm sorry to say, not very efficient. So maybe a road can cost twice as much. It can take three times the time to construct. But if you do it on a public-private partnership, it's clearly more efficient. Now, the funds for that has to be defined, which is part of why we did this research. And in doing the research, we've also highlighted the changes that must happen. Again, from experience, we've invested in a company called InfoCredit that provides guarantees for pension funds to invest local currency in infrastructure. And there has been no call on any of that. And that's the guarantee. Which is why I want to thank CGD for the work they did on Africa risk, which kind of clearly highlighted that it's not as risky. And on the back of that, we can actually do a lot more mobilization. Last week, we had a conversation with the African Development Bank on the new African financial architecture. President Sidi convinced a number of us to discuss that. And part of the outcome of that is how can we mobilize domestic capital that allow us to reduce our cost of funding? Because a big part of the challenge we have is that not only is capital not readily available, it costs so much more. And it costs so much more because it is externalized in the main. So most of the savings actually are outside the continent. In fact, some countries actually have regulation that says that they should invest outside their country. Just imagine how that sounds. And these same countries have significant need for investment in infrastructure and industry. So it is really trying to change all of this. And this change must happen now because what we're seeing in the world today is a significant reset that is unlikely to reverse. What that means, and we saw that, and I was invited for a meeting with finance ministers on the future of development. And I said, can we just please accept that you don't have time for Africa? And the best thing you can do for us is just let us be. And letting us be is rethinking this whole idea that foreign reserves should be outside the continent. Why should they be outside the continent? I mean, their presence in the banking system on the continent allows more leverage within that economy. And that is the kind of conversation that you should have with us. Just that change, I mean, based on your votes and in IMF would result into significant change for the continent. So the change is happening. We see a lot of African capital financing, African industry, African projects. So for example, the Angute Refinery in Nigeria, on its way to be the world's largest refinery, is mainly financed by Africa. The fertilizer complex, mainly financed by Africans. A lot of the projects that we do, I mean, I give an example. So recently in Sierra Leone, a frontier state, fragile state, were able to mobilize in the main 400 million to finance the first industrial scale gold mine in the country. And it was mainly African capital. There we found, I mean, Tidjane mentioned sovereign wealth funds. So the Angolan Sovereign Wealth Fund invested in a project in Sierra Leone. So again, part of the shift that's already taking place in the continent, whereby African capital in the main is financing Africa's growth. And this is important because as Africans, we must build our future now. We can't allow our future to be something that will happen eventually. We can't allow that. There's so much urgency now for us to create jobs for our young people. Our young people are so, I mean, they're so creative. They have so many things to do, and we're not allowing financing flow to them, which is why we have to change the pension system and the pension rules to allow for allocation to private equity venture capital in the main so that we can first accept that we can't create jobs for everybody, but we must provide mechanisms for them to fund their creativity. So all of this change, I think, is happening now, but it needs to happen at a larger scale. And we hope that governments can recognize the urgency for jobs, the need for us to not export raw materials in the main. And I know there's a huge demand now for critical raw materials from Africa, but there must be an understanding that that transformation has to take place in Africa, because if we don't create jobs in Africa, we're going to increase migration pressures across the world. So it's important that jobs are created in Africa, and we have the capital, and this capital should be directed towards creating those jobs so that we stop exporting jobs and importing inflation.

Arancha: That's very clear. And thank you also for these very concrete examples of how this is working on the ground. Let me go to Greg now. Greg, you're in the EBRD, and I want to look a little bit at the role of multilateral development banks. Maybe in the past it was more about unlocking financing, and now it's perhaps as important to look at financial systems, capital market systems. I would like you to tell us a little bit of your own experience in the EBRD, and give us a sense of how this is working on the ground, too.

Greg: Great. Well, thank you. And I think it will build on some of the points that have been brought out already. I think the first thing that we're focused on in Africa, based on some of our experience in other parts of the world, is to put more of our investment at the bottom of the capital structure. And so one of the great examples we have of this is in the wake of the pandemic, in the wake of the full-scale Russian invasion of Ukraine, in the next 24 months, we deployed a billion dollars of investment into private equity and venture capital funds. And that was really about stimulating local investments, so family offices, wealthy individuals, local institutional capital, to come in alongside of us because they had confidence based on the diligence that we'd done and the focus that we have. And so that, I think, is one of the ways that we can make Africa work, is to have the MDB system from the outside putting their capital into the bottom of the capital structure and to give confidence in the pools of capital that are already available in Africa to come in. And this is the fundamental business formation that we were just talking about. So that's the first experience that we're bringing to our new work in sub-Saharan Africa, where we're alongside of partners. I mean, we're not trying to do it alone. The second thing, and Tidjane mentioned this, I think it's very, very important that we create the transmission mechanisms for what today are young people to have the opportunity to create retirement savings so that there is a strong confidence in their future. And when there's a strong confidence in their future, not only are they more... confident about making investments, they're also... We're creating capital pools, and these are the biggest capital pools. I mean, they're going to be much bigger than the sovereign wealth funds and the government funds if we can mobilize private savings. And so we've got to create the transmission mechanism for private savings. You know, this is capital markets infrastructure, capital markets. It's instruments that are relatively simple, that both, you know, defined benefit as well as defined contribution-type programs can invest in. So that's the second thing that we're quite focused on. And then third, and I think this sometimes doesn't get enough focus when you have big infrastructure projects that need to be done. You have, you know, renewable energy that needs to be built. But the third area that we've always found very, very helpful, and maybe it's because of our private sector focus, is to put capital behind the development of, you know, small businesses and small enterprises. And here we, you know, we generally work with local banks. That's our transmission mechanism. But we bring policy work to help, you know, small businesses that need to digitize so that they can distribute better, so they can get access to a broader supply chain. And this is really where the human capital is going to get developed in Africa, when you've got small businesses growing, employing people. I mean, we know that most employment growth comes out of small and medium-sized enterprises. And the great opportunity in Africa, from what I've seen, and I'm, of course, much less of an expert than most of the people in this room, but is about the, you know, this leapfrogging, you know, this ability to not be burdened by the systems of the past, whether you think about, you know, transportation or you think about how you attract customers or how you operate your supply chains. And so we're putting a significant amount of our capital into risk-sharing facilities with local banks, you know, that have the end-customer relationships.

Arancha: So, I'm taking a lot of notes because all of this is extremely relevant for the work that the Coalition will be doing. But is there something that multilateral development banks need to do more of or maybe more together to take this to scale?

Greg: Well, I think that's a leading question because I think what I would say is less of competition and more of cooperation. You know, for one of the... To me, and as you said in your introduction, I'm new to the development world, maybe, you know, I can say this, but it... You know, today in this world, right, we have more need. We have less money. And so the idea that we're going to take the most valuable money, which is concessional funding from our shareholders, from philanthropies, and we're going to try to compete with that on a project-by-project basis, you know, just makes no sense. I mean, we ought to be... We ought to be concentrating that on the most systemic platform-based, whether it's stimulating the growth of small businesses in Africa. So I think a little bit more cooperation, a little bit more reliance on, you know, the mutual-reliance frameworks that we're starting to build so that we get better, faster, quicker, cheaper, easier for the clients. And then, a real thoughtful conversation about how we use, you know, this concessional or grant funding that we have that we've typically tried to sometimes compete with each other to see who can channel more of it into a particular project. So I would say those things. That's great.

Arancha: Let me get to Yemi. Nigeria is a very large and it's a very complex economy, and you've been part of the journey to reform the economy. You've been part of the journey to reform the financial sector, to deepen it, to reform pensions, as we heard, so important in order to have the right frame that would allow them to capitalize the transformation of the country. So from your experience in Nigeria, you know, what has it take to translate this into practice? Give us the two or three, you know, key steps to the success of those reforms in terms of unlocking private capital.

Yemi: Okay, I wish I knew what those secrets were. But I think an important word in innovation is co-creation. And one of the things I learned is that we also need to co-create rules and policies. And one of the significant stories of progress and of development in Nigeria was the emergence of the unicorns, the tech and tech-enabled business, especially the fintechs, you know, and that happened between 2015 and about 2020, in between two recessions. One of the very key things that happened was that a lot of these innovators, these young innovators, you know, were in a technical and policy committee, or two, three of them in a technical and policy committee, as part of an industrial, you know, a national industrial committee. And they kept saying, we need to be able to get the right legal and policy framework for fintechs to work. At the time, the central bank had one big license for deposit-taking banks, which was about 25 billion, you know, and that's what you'd have to pay for it. A few other licenses, but there wasn't any license that was suitable for fintech companies. And so we had this discussion with the central bank, with these young people, and they went on for a couple of months. In the end, the central bank agreed to create several other categories of licenses, which were, of course, much cheaper, some 100 million, some 50 million. And that really is what enabled these young, you know, entrepreneurs to come into the field and then, be able to do what appeared to be miraculous, because in another five years or so, five or six of these companies were already worth a billion U.S. dollars. So I think the important point is that if you get the right framework, the right policies, and those policies have to be co-created, because none of us has been this way before. I mean, what we're seeing now with AI, with digital technology, and with so many different things going on, we simply have to sit down with the players and work the rules and regulations out with them and hopefully be able to arrive at the right conclusions. But the government can no longer be arrogant and say, hey, look, we know exactly what everyone wants and we're going to make the rules, you know, any kind of top-down sort of approach.

Second thing I would like to say is that, so everyone agrees that private capital, institutional private capital, is what we should be looking at. Everybody agrees that that's the largest pool of resources and, you know, Samaila just even talked about that a moment ago. You know, I think it is true, you know. But we also, again, have to do something about that. And for Africa in particular, you know, I mean, look at the whole field of development. There is so much to invest in, but nobody knows exactly how because no one knows how to create these asset classes. How do you create an asset class out of health finance, for example? And we know that that's huge. Everyone knows that, look, pharmaceuticals is huge. We know that even diagnostics is huge. Everything is huge. But how do we create an asset class? And a lot of that will depend on investors, you know, what the investors are able to do because they are the ones who are going to create these classes. And one of the key problems we have, in my view, is that if you look at the GEMS risk data, which should be open to all investors, only the MDBs and the DFIs have at least the correct data to determine whether or not the GEMS risk data should be open to all investors. Only the MDBs and the DFIs have at least the correct data to have at least the concrete, the raw loan data. That has to be opened up. Because if we are going to, if we are going to create these asset classes, we simply have to open that up so that everyone has access. There's a lot of talk now about a program for opening it up, I believe, by 2028 or something. The earlier we're able to do this, the better. Because really, I mean, there's no point talking about domestic resource mobilization, you know, especially bringing in institutional capital to these various asset classes if the investors don't have the kind of data that at least the MDBs and the DFIs have.

Arancha: So, you know, one of the things you're pointing at is the capacity of the states also to do a lot of very difficult reforms, very, very sophisticated regulatory frameworks for which the state needs to have capacity. So what, in your experience, is the role of the, I mean, are we where we should be? How do we deal with the capacity of the states to be able to do all of this? To co-create, but to co-create means that you have to have the ability and the capacity to do so.

Yemi: Yeah, absolutely. And I think, you know, you point to a very significant problem. And that is really, you know, the capacity, you know, of players, you know, especially, especially in government. And there's a great need to improve capacity. Some of what we've seen, you know, in terms of capacity building is probably not fit for purpose because you find there are lots of trainings, you know, short training and negotiations and short training and this and that. I think that what really needs to happen is a proper, you know, a proper curriculum of education for, for public servants with respect to certain, you know, specific, specific areas. What, what has happened in some, in some of the examples that we've seen in, in, in some, in some countries is, for instance, there, there's a good example from Taiwan where they actually, the capacity building was, you know, a very detailed curriculum which, you know, for all, for practically all civil servants. I mean, you simply cannot become, you know, a, a civil servant of any, of any consequence if you were not taking through this very detailed sort of capacity building program. And I think it's the sort of thing that we have to emphasize because really, I mean, this is you know, you have to learn to do well is really that the, the capacity to be able to do the right policy, you know, do the regulations and then implement. I mean, for us, you know, the weakness of, of, of the state in implementation is, is such a big problem. And I think that is the sort, we really need to pay significant attention to it. And I think this is a big problem that we have in many of our governments is that we bring in, I mean, if I, if I'm appointed a minister, I bring in some smart people from here and there, especially, you know, private institutions and all that. But then, they leave when I leave. So, you don't build the institutional memory of institutional capital that is required to get things to, to happen. So, I think we have to pay attention.

Arancha: I'm gonna open the floor for questions in a moment. But before that, I want to have a quick round with all of you. I'm going to start with Tidjane, with, what's a quick win? What does a quick win look like that, you know, that we could unlock in the short term to get the, to get the, the, the, the, the unlocking of the private capital going?

Tidjane: No easy questions, huh? Okay, a quick win. Um, okay. I'm gonna, I'm gonna take two votes. You said one, but I'm gonna take two. And I will start with a dialogue and the Vice President Osinbajo just explained how those, those, unicorns basically were born from the quality of the dialogue between them and the entrepreneurs. So, when I was in the UK, Prime Minister Cameron had a business council and we met once a month, the top CEOs of the country you know, it's invaluable to have that access because we are a reservoir of ideas, the private sector, okay? And it's not, no use reinventing the wheel if you listen to the private sector. So, I would say listening to a private sector is a silver bullet. Having a dialogue with them and I would emphasize also SMEs, as Greg said, SMEs, SMEs, SMEs, every large successful company was born as an SME. You can multiply the examples, you know, the quality of that dialogue between the government and the private sector is vital and I've seen it in Germany. Every country that is really economically successful has found its own way to make that dialogue happen and out of that then will come a lot of good things.

The second one, cheating, I wanted to mention was pension funds but I think just if I can stop with the dialogue, I'll stick to that.

Arancha: What's a quick win look like for the AFC?

Samaila: A couple of points. You know, the first point for me is the ongoing work on creating an African guarantee program whereby we can provide first loss and mezzanine guarantees to pension funds and insurance funds to invest in African infrastructure. We're working on a program for to mobilize 15 billion dollars. You know, recently now we're having conversations with our European counterparts on what we could do together in this new round of MFF conversations ongoing and I think there's room to expand that to even larger depending on what they have in mind. I mean, they've mentioned that aid or development assistance is declining but they can have a vote of I don't want to mention the number, but I'm just going to ask them for 1% of that to go into to work with us to provide guarantees you know, for pension funds and insurance funds to invest in Africa. That is important because for me we also have to use that to reduce the cost of capital. Cost of capital is a real constraint you know, because most governments their budget goes to servicing debt. In some countries up to 70% goes to servicing debt. That is simply not sustainable. So we have to find a way to reduce the cost of capital.

Arancha: Very clear. Greg, on your end.

Greg: I'm going to pick two things. The first one is that data is critical and I think back to I'm old enough to have been around during the creation of what's now known as the high yield bond market but which was known as the junk bond market at the time and the reason it's grown to the size that it has is because the analysis was done which said the perception of risk was outsized relative to the actual risk in a diversified portfolio. That is true in the EM. It's true in Africa because we've got to close the pricing gap between where we're originating today and where the private sector is going to buy it.

The second one I would say is I think we have to work hard and this is with local banks to a large degree to scale the capital we're channeling to the SMEs and I think one great use case for AI is to do the exploration, do the evaluation, do the channeling and learn from that which ones work and which ones don't. I mean I think it's a great use case for AI. I know there's some experimentation around it and I would put some capital behindtrying to really scale that.

Arancha: So AI for know your customers SMEs. I see Sandra in the room. I think she's taking very, very big notes ahead of the UN Global Compact. Yemi, what's your...

Greg: I'm sorry I stole yours.

Yemi: I don't know but I think I'll steal from them both. But one important thing is really to take very seriously this money that Samaila is talking about 4.4 trillion in capital that's just lying there. You know I think it's a very important thing to take advantage of and to do so as quickly as possible. The point of course is to identify this. Obviously, there are those who will say how do you de-risk this? How do you ensure that this doesn't you know I mean so these are the issues again with regulation with policy and those kinds of things. But I think we should have a very quick conversation with Samaila about look what do we need to do in terms of policy? What do we need to do in terms of regulations to get this money working for our countries and our continent?

Arancha: Thanks a lot. Floor open. Did you ask for the floor? I'm sorry I've been placed in this uncomfortable situation but I'm not giving you the back.

Audience Member 1: Thank you. Really excellent conversation. Thanks for all the points. The question is really for Swyla. This 4.4 trillion you talked about I'm also very interested just as Vice President is. Is it domestic or external? Because when you look at where it sits now in the context of ODA and domestic resource mobilization that's critical at least for us in Africa. Thank you.

Arancha: Very good question. Let me maybe gather three and then we take it from there. We'll take this gentleman over here and then this gentleman over here.

Audience Member 2: Thank you, Chola from Zambia. My question relates to addressing gaps in this overall system because my understanding is that capital flows where it can see not just risk but also return, right? And so the question that I have is firstly at the first part is the gap between the international source of financing and the domestic opportunity that is being provided to the international source of information asymmetry in a systematic manner and local opportunities. I'm the ambassador for Zambia in New York and we see a lot of people come to the mission looking for opportunity. They just know that Zambia has opportunities, but they don't know exactly how to get in. So unlocking that issue is that something that we need to look at and we need to look at this domestic resource mobilization to the more informal because in African countries you have both a large informal sector and a formal sector and I think most of the discussion here is really focused on the formal sector. So now how do you close the gap between the informal sector and the formal sector. Where I come from in Zambia most of the wealth is held in cattle. So now how do you unlock that capital stuck in your cows or in a warehouse? And then again cutting across is the information question. Thank you. Thank you.

Audience Member 3: Can you hear me? I'm not a finance person so I will not delve into the finance issue but I'm learning now very interesting that there is a lot of resource in the world right now. I think we have to think of the jobs with according to the World Bank estimate there are about 1.2 billion youths are going to be looking for a job in the next decade in Africa with the continental capacity of creating only probably about 400 million or less. So I lead a consortium of women. few conversations with the world about how can we take this financial resources and expertise into agriculture because in Africa agriculture is the biggest employer. So without really focusing on agriculture and SME manufacturers we cannot really see the transformation we want to see. So how do you see that and how do you finance it locally? Thank you.

Arancha: Let me start with Somaila.

Samaila: Very good questions. The first one on remittance is that really it's not part of this research. It will only fall into like a transient flow. It's not a domestic capital pool. And the focus of the research was on domestic capital pools. But it's a very important point. What we've tried to do there is to capture it through diaspora bonds. So we have encouraged African governments to issue multi currency instruments that speak to various publics. So in Nigeria we did a diaspora bond We sought to raise 500 million. We got something like 900 million. So it shows that that funding is available and can be trapped. And we're working on a program to continue those issuances.

The second question around formalizing the informal sector, I mean, that's a very good point. Because in the research we did, a large part of the economy is informal, that’s true. What we’re doing is we’re supporting technology to try to find systems to formalize the informal sector. And technology is one of the best ways for that to happen. And we're supporting two technologies from actually just on Monday we signed with Light Rock, and then we signed with Future Africa. And the idea is to find ways to formalize the informal sector. And I’ll give two examples. One of the things that we're doing with SMEs. They're using technology to track livestock. They're putting, you know, chips in the ears of the livestock. And with that, you can trap them. And of course, if you can track them, you can have a value on them, especially if you can track livestock. Africans love football, they can play football. Most times they get, I would say, their skill or talent is mispriced because the hunt, the scouts, you know, need to see them play in Europe. But they have these apps that they can show the players, you know, from Africa, and then theyget better prices for them.

What we’re doing now with the government of Zambia, we've actually commissioned a study, you know, around the Lobito corridor project that we're working on, you know, to look at, we've encouraged the government to do a Zambian Corridor Authority as part of the intergovernmental agreement with Angola. Angola is doing theirs as well. And the whole idea is to understand the amount of economic activity that can take place on both sides. We’re keen for that because we want cargo on our trains. So we're working to support that. I'm sure that there are other things that can be done, you know, because I've really not thought deeply about it, but it's something that we can do.

On agriculture, we can't do everything, you know, and we try not to do everything. What we do is we focus on fertilizers; we focus on industrial parks to support input and output of agriculture. We provide support to banks that are focused on SMEs. What we do is we provide credit enhancements to banks that are focused on SMEs so they can access funds cheaper. And that way they can provide longer dated funds, cheaper funds to SMEs. So that is the form of our intervention in that space. We don't really do agriculture directly.

Greg: Can I just add to that? I think on the question of the informal economy, once you have the technology linkages, then you can transmit cash, and that transmission of cash can be an incentive to sign up to the formal economy, and I think there can be a lot of confidence that most of that cash will be used to grow the business, to expand it, and then facilitate that transition from informal to formal. I think it’s one place where working through fintechs, sometimes the banking system, the MDBs could be channeling capital.

The second thing I would say is that I do think that the more that the MDBs are putting some of our investment at the bottom of the capital structure and equity, it's a way to get international institutional and international investors comfortable because there's a limit to how much time and attention they can spend on due diligence, on covering political risk and so forth. And I think that coming alongside of an MDB that is investing in a fund, investing in people that are building an investment business in the continent can be helpful to do that.

Arancha: Tidjane, did you want to come in on any of this?

Tidjane: I was very keen to say something on the informal sector because there are concrete examples of bringing it into the market to the formal economy. Mexico has the best example of that. And what they did is to do it through electronic invoicing. Fundamentally, you leverage the fact that everybody has a phone now, a mobile phone. And I've done it in Mexico. You go to any restaurant, they basically give you, they have a unique identifier. They have a data lake for the government. And when you pay for your meal, they give you an electronic invoice that goes into your phone. The beauty of that is that the little taco seller, he can do a P&L. The government can. We've had that. They produce his cash flow, his activity, the little hairdresser who has two shares and cut hair. He suddenly can go to a bank with data and he can actually borrow. And this system has allowed really enormous economic growth, has brought in all the little investors, informal sector players in the formal sector, has given them access to credit, has given opportunities to make very good loans. And also it's allowed, to the point of the ambassador of Zambia, the cattle and the fixed capital and how to leverage that. It's allowed also people to start to use their houses as capital and collateral, to start businesses and fraud, tax fraud went down by 60% in Mexico. So we were able to increase government revenue very significantly without introducing any new taxes. Brazil is doing the same thing today. I know Rwanda is looking, is doing it. Benin is doing it. And that's just the technology and the AI has created a huge opportunity. Every country should do it. It's a no-brainer. It's a win-win-win. And without the formalization of informal sector, the jobs that we all talk about, somebody mentioned the jobs for the youth, they won't happen. Only SMEs, only small businesses can create those jobs for African societies.

Arancha: I think we are clear that technology, artificial intelligence can be a big game changer in those conversations. I want to take this question, that question, and there was one in the back. And then I'll take a couple also from the audience online.

Audience Member 4: Thank you. Thank you, Tidjane. I'm Belarmino from Guinea-Bissau. Tijan was talking about risk and reward. I want to ask, how can companies mitigate the political risk in sub-Saharan African countries?

Arancha: Very good question. Let me add, maybe I'm a bit cheeky, I shouldn't be adding to the question, but it's not just in sub-Saharan Africa. Hi, everyone.

Audience Member 5: I'm Akash Bhavsar from Sky Quest. We are basically working on creating digital public infrastructure across the world, including working deeply in Africa. My question is, first of all, the panel has been very deeply insightful, so thank you for sharing your knowledge and experience. My question is for Mr. Zubairu. Pardon me if I don't pronounce it right. You see, AFC has been investing probably more than 36 countries here, give or take. And there could be probably billions of dollars at play in multiple projects. So given the already known sophistication which AFC deploys, it's still what has been observed that most of the project, the reporting is either self-reporting or physical site inspections. So where do you see role of technology or, let's say, satellite-based imagery or inspections to ensure that what is being reported versus what is happening, which actually also gives a single window of visibility to see and bring in more. In turn, if you have efficiency and transparency, then probably attracts more capital as well. So your views on that or anyone else from the panel.

Arancha: Thank you. Last question over there.

Audience Member 6: Hello. First, I'd like to thank the panel for sharing their wisdom and experience and insights on opportunities for policy and regulation. It's all been very interesting. One question I have that I was thinking of when you all mentioned jobs and at one point perception at being reality. Most good policy fixes that we're all nodding our head to in this room break down in the field because of retail domestic political considerations where the person on in the village doesn't understand all this nonsense and how it helps them and therefore doesn't vote for anyone who pitches it. Where are you seeing examples on the continent of governments at a national or provincial or other levels effectively communicating the value of these good policies in a way that a mother with a school child can relate to and show up and vote for?

Arancha: This is a question that Yemi will answer. Sanda, did you want to come in? Yes.

Audience Member 7: Thank you. And good afternoon, gentlemen on the panel. My name is Sanda Jambor and I work with the United Nations. It's been very insightful to listen to your perspectives. But as we sit here, of course, we know that the continent is facing extreme vulnerability because of what's going on on the street. So I wanted to get your perspectives because often when we talk about the structural transformation, perhaps we're looking at infrastructure, perhaps we're looking at energy. But at the same time, I wanted to get your perspective. For the same time, the extreme vulnerability to commodity shock I think is one that, you know, keeps us in check. So I'm sitting here trying to imagine massive infrastructure. I'm from Kenya. You know, we just now have our first flyover. But at the same time, facing potential massive famine again. And how do we square out those two? Because I think there's a real basic social development challenge that keeps our continent sort of in a very shaky position. So I just wanted some perspectives on that. Thank you.

Arancha: Thank you. And let me add two that we got online that are kind of related is investment in human capital as enabling an infrastructure also attractive for pension funds or institutional investors. And second one, rural health facilities in Africa. They often fall below investor thresholds. So how can we channel investment mechanisms to grassroots projects? Over to you, guys. Let me start with maybe Tidjane, since you're on the screen. Pick and choose.

Tidjane: Yeah. Oh, there's so much. I mean, excellent questions. I'm going to try and just touch a few ones. Commodity shocks, I don't believe that any country can really achieve proper development just based on being a commodity provider. The structure of the world economy is that the commodity provider is always, this is why, being a farmer is very difficult, is always taking all the volatility. There's nobody behind you, you know? There's a shock in the economy. It's going to flow down the chain and just hit you. So this is why I said either effectively you transform the commodities and take more of a value added, but I'm a bit skeptical about that. I'm still more into this capitalist strategy of saying you have to go downstream. You cannot survive or win long term by just being a commodity provider. And the lady is right to emphasize the vulnerability, but it is structural. And every government, depending on the commodity that it produces, needs to have an explicit strategy to reduce that volatility. That is not manageable. You can't have government resources going down by 40% from one year to another and conduct any effective long term development strategy. So that is something we need to get out of.

There was so much of a digital, political risk in South Africa. I mean, some of the people in the room will know my personal story. So I'm going to take the Fifth Amendment on that. But all I can say is that we led a two year campaign to a gentleman who talked about communication. I'm a great believer in common sense. I have never found an idea that I cannot explain to a population. OK, so all I told them is, look, the model I said that this was in French, but I said we need to move from the functionnaires milliardaires aux entrepreneurs milliardaires, for those who speak French in the room. And this is a sentence that has become now famous in the Ivory Coast. I said no country has been successful long term on the basis of an economic model in which you have millionaire civil servants. You need millionaire entrepreneurs or billionaire entrepreneurs. That's how you're going to have a healthy society. That's how you're going to have taxes being paid to build roads, education, health. And really, that is a central point of the private sector in the driver's seat of unicorns like in Nigeria, people who are really our role models. And really, that is a central point of the private sector in the driver's seat of unicorns like in Nigeria, people who are really our role models. And really, that is a central point of the private sector in the driver's seat of unicorns like in Nigeria, people who are really our role models. We face that. I brought him to talk to the African head of state in May 2021 in Paris, a young man of 30 who sold his company to Strive for $250 million, trained in Lagos, you know, born in Lagos, raised in Lagos. So we have the talent. We have entrepreneurs. We have them. What's missing is really the possibility for them to grow and to really reap the benefits of their hard work. What's missing is really the possibility for them to grow and to really reap the benefits of their hard work. What's missing is really the possibility for them to grow and to really reap the benefits of their hard work without rent seekers from the tax administration, the customs administration coming and robbing them of that, so that in the end, they end up going to Europe or wherever, where they are actually very successful. But that's not what we want. So we need to be able to keep that talent domestically. And you don't catch flies with vinegar. If people see that the environment is toxic, they will leave. So all these problems are linked. You need a healthy environment. You need people to be able to make money, to keep the benefits of that money. And in terms of communication, I think the Internet has changed the game in Africa, and I'm very optimistic about the political future, five, ten years down the road, because it's become increasingly difficult to pull the wool over our population's eyes. You'll be surprised. You go to the smallest village in the Americas, they know what's going on. You talk to them about the Epstein affair, they know what's going on. If their government was involved, they knew it was involved. So I believe in the power of knowledge and information, and in the end, it is transformational in itself.

Arancha: Thank you. Yemi, how do we manage the politics? You're the most proficient on this panel.

Yemi: I think that's a great question, by the way. The important thing for me is the following. One, people understand more than we think they do. And that's so important. And that I found, you know, campaigning going from what we have in Nigeria, local governments, provincial government to provincial government. People certainly understand more than we give them credit for. I think that the other thing is that we, that's the politicians, need to know what people really want. I'll give you an example. Look at health care, you know. Health care is always considered that important thing that is not a vote winner. It just doesn't win votes. Considered very important, but it's not the sort of thing that wins votes. I mean, so compared, for instance, to doing a big, a great road, you know, that's more likely to attract attention. And that's the way politicians see it. But if you look at some of the surveys, Afrobarometer did a great survey on, you know, various things. But a particular one on the place of, you know, what infrastructure is important to people. Or what, you know, economic activity is important to people. Number one, jobs. Number two, health care. And I was, I mean, an eye-opener. Because you would have thought, well, it could be other things. It could be roads. It could be, you know. But health care was number two and was considered so important. And the reasons that people gave was that, look, this is the only place where we know that government exists. That if my child is ill, my wife is ill, my husband is ill, and I go to a primary health care center and they get good service, then I know that government exists and that they're doing a good job. So it's a, sometimes it's a disconnect between what people really want or how people think and the way, you know, we may be thinking, you know, out there, you know, as politicians and all that. So I think, you know, sometimes just the humility to try and find out, you know, what exactly people want. And also to recognize that they know quite a bit, you know, and that people are not, that people, maybe because people don't necessarily have that much or haven't gone to all of the schools that we have been, you know, some of these guys are very smart and smart enough to keep alive despite everything, you know.

Arancha: So we are running very short on time. So one minute each. Greg, and then I'll end with Samaila.

Tidjane: Well, I guess I'm going to go back and build on Tidjane. I think that Iran's point, which is, and I'm going to link it to the question about, you know, future and migration and keeping human capital developed in countries. I think that we're at a point in time if you ever had any question about why we need to build the energy systems of the future, you should expunge all doubt after what's happened in Iran, not just on price but on supply and the cutoff of supply. And so I think one of the things that we need to do in the MDB system is redouble our efforts to provide that capital that will be the bridge to get from here to there on these energy systems, which are more resilient, more secure, more controlled in the countries and locally so that we start to head off this coming crisis of, you know, migration, which will create huge political backlash. And so I think we have to have a call to action, early sense of urgency around that in the continent.

Samaila: So very quickly, a couple of points. The first one is we use satellite imaging for both planning projects and monitoring projects. We've actually published a map on Africa's strategic minerals and infrastructure, you know, showing where everything is. So I encourage you to talk to my colleagues here for that. And the point you raised, very important point, I think the answer is resilience. You know, we have to build today for those shocks. Another example is the Angote Refinery, you know, which was built several years ago but is managing the shocks today. And we need to look at several other such projects like Greg mentioned that we need to put in place now. And it's interesting that MDBs are saying we should do this now, but before they were not interested in doing this. You know, so it's good that we have consensus now that this is what we should do. And finally, I would say that most people relate to physical infrastructure. You know, most people relate to jobs. Again, emphasis on Professor Osinbajo's point. You know, we've built a bridge in Cote d'Ivoire, in Abidjan, the Herring-Kwenon-Bedi Bridge. You know, it's one of our most impactful projects because several mothers say to us that project allows them to spend more time with their children. At the time that they use, spend in traffic, they can now teach their children or go to lessons with their children. So infrastructure is actually one of the things that most people relate to. And the absence of it is also very evident in most people's life.

Arancha: Thank you. We could have gone on for a little longer. Fortunately, this is where we will land for today. We've learned a lot of how to channel more capital into the domestic systems, but also how to build domestic systems that will channel this capital in a more productive manner. Let me thank the speakers, Samaila, Greg, Yemi and Tidjane. A big applause to you. Thank you for following us.