Investment arm of UK international development plans to boost Africa spending

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The investment arm of the UK’s international development policy plans to increase spending in Africa as it bets on the continent’s renewable energy sector to provide strong commercial returns.

Nick O’Donohoe, chief executive of British International Investment, told the Financial Times that spending in Africa by the development finance institution would this year probably exceed the 2023 total of £1bn.

“It’s been a particularly difficult few years for Africa, as a result of the war in Ukraine, higher energy and food prices, and interest rates. But we need to be stepping forward, as others step back,” he said in an interview.

Launched in 1948, BII has an $8.2bn (£6.5bn) portfolio and is one of the largest single investors in African private equity. Fully owned by the UK Foreign, Commonwealth and Development Office, it has backed big infrastructure projects across the developing world, including ports and renewable energy plants as well as businesses including medical companies.

Last year was grim for investment in Africa, as currencies in countries such as Nigeria and Kenya tumbled, while average consumer price inflation across the continent hit 17.8 per cent, according to the African Development Bank — the highest in more than a decade.

Research published this month by the African Private Capital Association (Avca), an industry body, showed there were 450 private capital deals last year in Africa with a combined value of $5.9bn — the biggest decline in volume in 11 years and equivalent to a 22 per cent drop in value from 2022.

Despite the decline, O’Donohoe said the long-term investment prognosis remained solid.

“The story is still a good one. There’s a young, growing population on a continent with significant natural resources and opportunities to build infrastructure which will increase access to renewable power,” he said, adding that BII planned to target clean energy projects in particular.

Chris Chijiutomi, BII’s head of Africa, said the institution expected to make a commercial return on the £1bn it deployed in Africa last year, as well as delivering social impact. BII’s latest accounts show it made a 4.8 per cent return globally in 2022. 

“We’re managing taxpayers’ capital, so we’re very conscious that we need to provide a return. But we’re also looking to make an impact, and catalyse growth,” he said on the sidelines of Avca’s annual conference in Johannesburg.

Last week US bank Citigroup pledged a new $100mn “risk-sharing” facility with BII, earmarked for trade finance for “high potential” companies in frontier African countries such as Benin, Rwanda and Tanzania.

The mechanism is meant to close Africa’s trade finance gap — the difference between the funding needed to finance its trade with other countries, and what it gets — which has grown from $81bn in 2019 to $120bn, according to Citi.

Andrew Mitchell, UK development minister, said the facility was vital to “supporting fragile economies across Africa in accessing vital goods to support food production, including fertiliser and agricultural machinery”.

Stephanie von Friedeburg, Citi’s managing director for banking and capital markets advisory, said it would further chief executive Jane Fraser’s goal of hitting $1tn in financing sustainability efforts by 2030.

“If you look at the desire to get to net zero . . . all banks are going to have to focus on emerging markets, because 65-70 per cent of clean energy will be in emerging markets,” she said, adding that the involvement of institutions such as BII and the World Bank had mitigated the risk of investing in infrastructure projects.

Last year the BII said it would ensure half its annual budget went to the poorest and most fragile countries by the end of the decade, under a new target at the heart of a revamped government strategy.

Asked if a Labour party victory in the election expected this year would affect BII’s spending plans in Africa, O’Donohoe said: “If we have a change in government, I’m sure at the margin there’ll be different priorities and views. But there is general bipartisan support for an organisation that tries to fill the gap for private capital for Africa.”