(Ecofin Agency) - Although little known to African public opinion, Swedfund, the Swedish government's main development finance institution, concentrates a very important part of its efforts on the continent. At the beginning of this year, the Chief Executive Officer agreed to share with Ecofin Agency the evolution and prospects of her institution, related to the African’s private equity landscape.
Ecofin Agency : Swedfund is a major player in African Private Equity and the region accounts for 62.4% of your commitments. How can we explain this choice that is focused on a continent which often faces many challenges?
Maria Håkansson : Swedfund is the Swedish state's development financier and we have long experience of making investments in difficult and challenging markets. Our mission is to fight poverty by investing in sustainable businesses. We select the markets where the need is greatest and we can have the biggest impact. As a development financier, we ourselves or together with other actors enter these markets and through entrepreneurship and job creation we help people to improve their living conditions. We call it impact investing.
EA : You are currently implementing your 2030 agenda. What has been Africa's share in 2018, as we recall that you received fewer resources in 2018 (600 million Swedish kronor, or $66.42 million)?
Maria Håkansson : We are financed through annual capital injections from the development cooperation budget and financial revenues from our portfolio. In 2018, our capital injection was increased from 400 to 600 million Swedish kronor and we invested approximately 1.2 billion Swedish Kronor of which 61.6 % was invested in Africa.
EA : You plan to increase your annual commitments in Africa to 60-80% and three sectors are targeted, namely: Renewable energies, health, and small and medium enterprises. These are fairly complex areas and where profitability is progressive. Why do you risk it anyway?
Maria Håkansson : Our role as a development finance institution includes being additional, meaning that we finance projects that would not be realized with only commercial financing. We selected sectors and markets where we see the need is the greatest and where we see that we can contribute. Based on our 40 years of experience we have developed a business model that identifies and focuses on risk management – still, risks are very high and part of our mission. Through our business model based on impact on society, sustainability and financial viability, we contribute to the implementation of Agenda 2030 with leverage.
EA : In terms of direct investment, you do not intervene very much in the francophone countries of sub-Saharan Africa. Can we expect to see your organization become more and more involved, particularly in countries like Senegal or Côte d'Ivoire, which have good growth profile?
Maria Håkansson : Today we have direct investments in for example Nigeria and Ghana. However, we are actively looking for interesting investments also in West Africa. In October, our annual trip with the board was a visit to Ghana. The purpose was to visit a strategically important country and meet parts of the public society, the local business community and get an insight into how Swedfund can create jobs and growth through sustainable investments.
EA : Based on your experience, what lessons would you share in the field of African private equity?
Maria Håkansson : We need to involve countries and development aid providers in global discussions on private sector development. And we need much greater coordination between all efforts to mobilize private finance for countries, so that demonstration effects from investments can contribute to the efforts made to develop policy reforms. We need countries to continue improving investment climates. This is not only a responsibility of the DFIs/IFIs, it must be done in conjunction with other actors to ensure synergies and speedy progress.
As DFI’s we have an important role in job creation and driving the development of sustainable businesses. One example is how DFIs have influenced private equity funds in Africa to become more sustainable in their investments compared to funds in Asia but also the US.
Another important tool is to ensure that we are using the right business model. Based on our 40 years of impact investing, we successively introduced a new business model in 2013-2014 to balance aspects of impact on society, sustainability and financial viability also contractually. Our capital comes with conditions and support to the investee on its journey to become a sustainable business.
EA : More specifically, Africa's financial sector (banking and insurance) is undergoing profound changes and it accounts for nearly 34% of your portfolio. In view of the capital needs of these companies, should we expect to see you engage in new capital increases?
Maria Håkansson : We use our investments in financial services to ensure that our capital will reach more entrepreneurs and SMEs. More than 3 out of 4 jobs are created in SMEs and therefore we want to reach the financial institutions that work closely with the SMEs, if that also means capital injections has to be reviewed case by case.
EA : What message do you have for your African partners for 2019?
Maria Håkansson : To succeed, it is crucial to have a continued focus on developing sustainable business in order to increase mobilization of private capital. Development finance institutions like Swedfund play an important role in bridging the gap between concessional financing and private capital. To succeed, it is also key to further enhance the joint work between different actors to drive development of bankable projects as well as in improved enabling and regulatory environment. We focus on supporting companies and investments through collaboration to ensure long term impact and inclusive growth.
Interview made by Idriss Linge