MOBILIST: exploring exit-mobilisation opportunities in Africa at Uxolo Global 2022

The shortfall in the financing required annually for delivering the SDGs in developing countries is greater than $3.7trn,[1] even after taking into account nearly $178.9bn in annual ODA.[2] Though much work has been done so far to fill the SDG finance gap, the key question regards how more of the enormous reserves of private capital invested in the world’s public markets could be attracted to what is both a significant opportunity and a pressing need.

For private capital to come in to higher-risk investments in emerging economies, it has historically required the de-risking presence (at least in the early stages) of public capital in similar quantities. But the available public capital for these purposes is finite: budgets for donors and development financing are constrained, particularly as global growth slows. There are thus important synergies to be captured by leveraging public and private capital together. Additionally, private capital markets can be efficiently mobilised to provide exit opportunities for existing capital, particularly for DFIs.

In October this year, MOBILIST convened global experts at the Uxolo impact investment conference in The Hague to discuss insights from our research examining opportunities for Development Finance Institutions (DFIs) to mobilise capital through exits to institutional investors.

This pioneering study led by Eighteen East looks in detail at the idea that exit-mobilisation allows DFIs, in one transaction, to crowd in private capital while simultaneously recycling its own capital, doing more with the same amount of capital in the same amount of time.

The MOBILIST research looks at the profile of assets held by DFIs in Africa, taking a sample of nine DFIs and examining 1,500 commitments made between 2010 and 2019. In addition extensive consultations were held with both UK and African institutional investors.

Key findings from the research showed that:

• Development finance in Africa is debt-centric. Of commitments by volume, 77% are in debt, of which 45% is financial institutions and 31% is energy and extractives. Roughly half of the energy commitment is to renewables.
• Equity investment is also quite heavily intermediated, largely by general partners located in the country.
• There is evidence, specifically in the east Africa region, that DFI commitments looked to be highly concentrated not just by sector but also into large businesses and projects.
• For UK institutional investors, exposure to Africa is most typically held through global emerging market index funds which allocate only very small amounts to Africa (For example, one local authority representative outlined a 5% allocation to emerging markets, within which 15% was earmarked for frontier markets, with Africa, in turn, receiving a small portion of this sub-allocation). As a result, MOBILIST emphasises identifying products, data dissemination and education around the opportunity more broadly.
• African institutional investors, by contrast, are governed by local content requirements, which in most instances demand close to 100% investment in country, resulting in uncomfortably high levels of concentration. Given the relatively narrow nature of local public markets they are typically majority invested in fixed income in the form of government debt. The portions that are invested in equity end up going to a small number of large companies which of course does not help foster dynamic local capital markets.

By prioritising the sale and listing of mature assets DFIs can help create the conditions for increased private investor participation in development and improved local capital market conditions.

The research identified clear pathways for exit-mobilisation in Africa and suggested specific investment structures through which it could be enacted. MOBILIST will also explore such pathways and structures in further detail in upcoming research.

[1] The World Federation of Exchanges, Market Highlights

[2] OECD and UNDP, Closing the SDG Financing Gap in the COVID-19 era 2022