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ATIDI - UNDERSTANDING MARKETS AND DE-RISKING AFRICA
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Obbie Banda, Underwriter & Acting RLSF Coordinator at the African Trade & Investment Development Insurance (ATIDI), on Egypt, encouraging private sector involvement, unlocking local currency finance and changing the perception of risk.
With Egypt set to become an ATIDI member, this will boost the country’s opportunity to trade with other African nations. Will energy be a part of this?
Certainly. When you look at Egypt's current energy mix, there's a huge reliance on the use of heavy fuel oil, which means the country has to import a considerable amount of oil and gas from neighbouring countries to meet local demand.
While Egypt has done very well in bringing many solar power plants on board, it still needs more renewables to help achieve a balanced energy mix; as the country becomes a member of ATIDI, we should be able to support the government's efforts towards this goal.
One thing we need to be aware of as an organization is scale. Historically, in many countries on the continent, the energy requirements have had small transaction volumes because of the size of their economies and existing infrastructure. In Egypt, the economy is on par with countries like Nigeria and South Africa, so you must structure large-scale products with lots of financing and guarantees.
So that's a challenge. But a challenge we're looking forward to finding a solution for.
Membership can take some time, and we've been discussing it with the Egyptian government for a number of years. So, it's encouraging that Egypt is on track to be the first country in North Africa to join ATIDI.
This should hopefully encourage other North African countries to join, which would give us the opportunity to be truly Pan-African.
The RLSF MOU signed with Kenya is another milestone to advance renewable energy projects and encourage private sector involvement. Do you anticipate that other countries may follow?
Kenya's energy sector is one of the most mature on the continent. This gives us an opportunity to participate in a market where many renewable energy projects are being advanced.
It also means we have the opportunity to really ramp up our portfolio in the next few years given the country’s mature energy sector, which is very exciting.
Once that is achieved, we are confident that other countries in the region will follow suit. The easiest way to sell ourselves and the products we offer is by delivering projects. Kenya will allow us to deliver even more projects, which in turn should make it easier and make the instruments we offer more appealing to other African sovereign states.
The local currency counter-guarantee agreement with InfraCredit in Nigeria is set to support the country’s infrastructure - will this have a particular impact on energy?
It will have an impact on energy, but not necessarily on renewables.
What makes this partnership with InfraCredit so unique is the local currency element. A lot of infrastructure financing on the continent is in either Euros or dollars, which makes it quite challenging as there is a mismatch between the currency of financing and the currency of revenue.
So, being able to unlock local currency financing is very, very important, and we are thankful to be a part of this solution offered by InfraCredit.
One crucial aspect to consider when examining a country's energy mix is the understanding of what resources are available within that specific country.
Kenya, for example, does not have oil and gas resources, so naturally, the country can proceed very quickly towards renewables as such projects are competitive relative to alternatives.
Nigeria, on the other hand, has considerable oil and gas resources. These are the type of projects that constitute this portfolio.
We may not be looking at renewables in the first instance, but some of the companies that InfraCredit is supporting with the guarantees within the portfolio we have supported can then provide either strategic gas infrastructure or pipelines that provide LNG.
So, you can look to displacing heavy fuel oil and replacing it with something cleaner, which is gas-powered, or you're able to replace firewood in households with LPG, which can be used for clean cooking.
It's one way of acknowledging that and in countries like Nigeria, the energy transition won't always be driven by renewables.
Risk is something that is always talked about when it comes to investment in Africa. ATIDI is helping to derisk Africa, particularly when it comes to helping IPPs. Could you say something about this, and the exciting solar and hydro projects ATIDI is supporting in Uganda and Burundi?
We have to acknowledge that the risk is there. That is the starting point. Some markets may be riskier than others, and it’s important to understand what risks are likely to be faced in particular countries. It’s very important for investors looking at the continent to be aware of that as well.
What we try to do as an organization is to bridge the gap between the perception of what that risk might be and the actual reality of that risk.
The challenge with perception is that if you perceive the risks as being very high when they’re not, you price that into your projects and your transactions. This results in more expensive projects and more expensive costs for end users.
What we try to do is simply bring our understanding of the market to the table. If we can bring that perception a bit closer to what the reality is, we can start to lower some of the financing costs that we see on the continent.
The second point is that you have to acknowledge that the default rate on African infrastructure projects is very low.
Projects in Africa take a long time to close and get financing, but once they close and are constructed, the likelihood of default becomes very, very low.
Uganda and Burundi are two such examples. Uganda is a very good investment destination in the eyes of most investors. We’ve supported two renewable energy projects in Uganda as part of a wider portfolio. None of these projects have faced any delays or had any defaults, which confirms the perception that the risk is good.
You then go next door to Burundi, where the perception of the risk is much higher. But even there, we supported a solar IPP, the country's very first solar project.
While it's true that there have been occasional payment delays, there have been no defaults. This is a testament to the government's unwavering commitment to making investments work, which is a crucial factor in attracting additional financiers to come on board.
So even in countries where the risk may be high, the actual likelihood of default, if any, is extremely low. I hope this will encourage more investors to participate in Burundi's economy, as well as others.
What are you most looking forward to at aef24?
There are two things really for me.
The first is the opportunity to network. aef is always the main networking event of the year on our energy calendar.
It's a unique and invaluable opportunity to meet partners, existing clients, and governments in one place over the course of four days – that’s one of the main things I'm looking forward to.
The second is the opportunity to learn. There are always announcements about new products, new projects, new ways of thinking, new challenges. And, of course, with YES! Youth Energy Summit being held alongside aef (in 2025), there will be a chance to hear from a different generation, with their own perspectives and views of the sector.