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Image“The time has come for us to have a truly private sector owned, private sector run African investment bank. That is the vision of the AFC,” said Professor Chukwuma C. Soludo, Governor of the Central Bank of Nigeria, at the fundraising roadshow and launch of the Africa Finance Corporation.

“The Central Bank of Nigeria has taken the lead in promoting the African Finance Corporation,” said H.E. Dr. Christopher Kolade, welcoming guests in London to the first leg of the Africa Finance Corporation fundraising roadshow.

The event was organized to present information about the Africa Finance Corporation (AFC), an institution which the Central Bank Governor described as “a dream which came out of the realization of the huge gap Africa faces in financing itself out of its economic situation.”

The existing funding gap for key economic growth sectors and infrastructure in Africa presents significant opportunities for collaboration among African institutions in establishing a regional investment bank to bridge the funding gap.  The AFC is intended to reduce the dependence of domestic capacity on foreign financing and enable the growth of private sector businesses that can compete at a global level.

Africa Finance Corporation

The Africa Finance Corporation is a Nigerian dream but an African project, delegates were told.  The AFC – Africa’s equivalent to the World Bank’s private sector focused arm, the IFC – is intended to take off with US$1 billion in April 2007.  The institution will have its head office in Lagos, Nigeria, with branches in a number of other member states.  The focus of the AFC’s activities will include a full range of financial products including loans, guarantees, risk management products, equity participation in private-sector led projects and venture capital.  The AFC will also provide investment banking services including mergers and acquisitions, capital market activities, equity research and asset management.  Additionally, the institution will offer technical assistance and advisory services in support of private sector development in Africa. After its initial period of stewardship, the Central Bank of Nigeria intends to take a back seat and to enable equity contributors to run the institution.

The structure of the AFC is that of a private-public partnership in the first instance, said the Governor, with a minimum of 51% privately owned.  “The goal is to move to an institution that is 100% owned by the private sector,” he added.  Such is the support for this institution from Nigeria, he said, that while they expect share ownership to be oversubscribed, the Central Bank stands ready, if necessary, to meet any shortfall in the US$1 billion the institution is targeting for April.

Funding Projects for Growth

The AFC is being set up to provide funding for private sector led projects in key areas of economic development in Africa, Soludo said.  Against a positive growth outlook for the continent, increasing foreign direct investment – US$30 billion in 2005 - and strengthening local demand, the need for the AFC is critical.  Nigeria estimates its own growth at over 10% p.a. with huge opportunities for further expansion across sectors such as infrastructure, agriculture, oil and gas, telecoms and financial services.  Africa has 30% of the world’s mining reserves, Soludo said, yet it accounts for less than 10% of the world’s minerals markets. 

According to the Governor, typical funding sources in Africa today “are still a far cry from what is needed in Africa.”  Big ticket projects are in search of capital and, for the kind of transformation and massive investment Africa needs, “the funding gap is quite horrendous.”

Creating Accelerated Industrialisation

The vision of the AFC is an institution to “create accelerated industrialization and provide positive investment returns for shareholders”.  The AFC, Soludo said, “is not coming to supplant existing banks but to work in cooperation with them.  There will be enough room for everybody to play because the finance gap runs into tens of millions of dollars.”

Ownership of the AFC is intended to be broad, with predominantly private-sector ownership both in and out of Africa.  The institution will be managed by a highly professional Board, independent Non-Executive Directors and an experienced management team.  “Core banking principles and best practices will apply, as will ethical and high corporate governance,” the Governor announced.  “These are the building blocks from day one because we want it to compete – and possibly out-compete – with other sources of finance.”

Investing in Africa

With plans for a stock market listing of the AFC within 5 years, the Governor spoke of the groundswell of ownership interest. With a fundraising roadshow that will include London, New York, Johannesburg, Nairobi, Accra and Banjul, it is fully intended that the AFC commences operations in April.

The AFC has an authorised share capital of 2 billion ordinary shares of US$1 per share. It is intended that financial institutions in Africa, pension funds, institutional investors, independent Central Banks and high net worth private individuals take up ownership. For local investors, investment in the AFC, whose functional currency will be the US$, is projected to yield significant returns in a foreign currency denominated investment.

For the founders of the AFC, the bright economic prospects for Africa more than justify the need to establish an investment banking institution that will harness the continent’s evident potential to foster further economic growth for the benefit of its citizens.

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