Opinion

Financing sustainable companies: the real drive of African development

Lionel Zinsou, a French-Beninese economist, is the co-president of the Africa France foundation. Former business banker, he then acted as CEO of the European investment fund PAI Partners. He was also Benin’s Prime Minister from June 2015 to April 2016.
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Lionel Zinsou
Two landmark financial revolutions have shaped contemporary African history. The more powerful of the two is taking place right now. It is set to make the continent a global leader of economic growth for the coming decades. It results from a combination of new demand spurred by a private sector that is now properly structured; and new supply proffered by a financial sector that is gradually acquiring its own instruments and processes. Proparco was born of the first revolution, and it shall be at the helm of the second.

Creating a private sector and beginning to finance the Continent

To start with, a newly independent Africa found itself in an untenable position: its net financial flows were negative. Africa exported more capital than it imported, and went on doing so until the 1990s. Historically, there is no known way to finance the development of a continent whilst simultaneously depriving it of its means of financing. 
The contribution of development finance institutions (DFIs), first amongst which the AFD Group, consisted in replacing insufficient private financing, and then establishing financial stabilization using the combined power of structural adjustment and selective deleveraging. Supported by substantial growth in foreign savings by emigrants as well as improved political and economic governance, a reversal of net financial flows occurred in the late 20th century. Concurrently, privatizations of public assets throughout Africa led to the rise and growth of a modern, domestic African private sector. Without this first revolution neither supply nor demand for capital for productive development would have materialized. The most emblematic case of a strong and well-funded private sector has been the soaring telecoms sector across the continent. 

The new coalition of sustainable development

Act II is playing out today. The continent is better funded overall, but a historically unique imbalance has emerged: sovereign actors are over-indebted whilst private actors are dramatically under-leveraged. Africa has financial assets-to-GDP ratios that are four times lower than the world average. The new financial revolution unfolding before our eyes consists in bringing debt, and thus the core capital required for a creative, innovative, productive, and profitable private sector, which is now able to provide competitive services and goods but also certain public goods that states have failed to provide adequately such as education, healthcare, security, connectivity... 

The entire financial sector is part of this revolution: asset managers who are at last activating long-term domestic savings resources; private equity and financial markets that have invented a genuine continuous capital market; primary banks that are finally becoming competitive; micro-finance institutions that provide the working capital of the vast productive informal sector and ensure the creditworthiness of the community at large. But nothing will do more for stabilization and integration than the shift of the DFIs towards a much higher proportion of their funding directed towards the private sector. They can syndicate and guarantee credits to the productive sector by leveraging excessive international liquidity. The International Conference on Financing for Development held in Addis Ababa, and the UN's adoption of the Sustainable Development Goals in 2015 created a body of doctrine that recognizes the private sector as the main contributor to employment and hence, to the reduction of poverty.
This new "Addis consensus" is as compelling as the Washington consensus in its day. This new agenda for sustainable financing in Africa is the new roadmap for all stakeholders, first amongst which development finance institutions that are called upon to "coalesce" other financial entities. They also provide the ability to assist their new private clients in matters of governance as well as social and environmental standardization. It remains to win over the states themselves – through advocacy and by example, to advance legal and judicial progress, to find the tempo and professionalism to bring about the proper execution of public policies. A new generation of politicians – mirroring the new generation of African entrepreneurs – is already hard at work. They are the new revolutionaries. 
This great coalition between public and private sectors, between external savings and the revival of domestic savings, between the proponents of profitability and those of the general interest, was in fact already Proparco's model... 40 years ahead of its time.