This state of affairs calls for innovation and according to Hassatou Diop N’Sele, the vice president for finance and chief financial officer of the African Development Bank Group, the bank is already showing the way in this regard. Speaking ahead of a panel discussion on innovative financing models at the 2024 African Investment Forum, N’Sele said the Bank views innovation as more than a tool, but as a necessity.

“Our commitment to financial innovation is central to redefining how we mobilise resources. We, at the African Development Bank, recognise that our mandate of combating poverty and improving lives on the African continent is formidable and this is why we are not just about lending, but we are about attracting additional resources into the continent, playing a catalytic, counter-cyclical role,” she said.

Synthetic Securitisation Transaction and Special Drawing Rights as Key Solutions

The Bank, N’Sele,= said, had initiated a number of novel transactions that accounted for the continent’s unique circumstances while also delivering the desired results. Among these was the first synthetic securitisation transaction by a multinational development bank, which it launched in 2018 and which was well received by investors. “This transaction helped to transform the risk perception of the Bank and we have first time investors who had never bought African risk taking a slice of our portfolio,” she said, adding that the model had since been replicated by the Inter-American Development Bank.

The Bank was also the first multilateral development bank to undertake a hybrid capital transaction which also received an overwhelming response from the markets.

Blended Finance Models Needed Against Currency Risks

Akin Dawodu, head of sub-Saharan Africa at Citi stressed the importance of blended finance as a key tool to address Africa’s investment gap by using limited concessional funding to mitigate risks like currency, political, and contract risks, thereby attracting private sector involvement. While mechanisms such as first-loss guarantees and partial guarantees can help reduce barriers to investment, there is also the need for harmonisation across jurisdictions, standardised treatments by rating agencies, and consistent capital relief frameworks. “We did a partial guarantee for a sustainable bond with the government of Senegal a few years ago, leveraging off a partial guarantee by the African Development Bank for $500m. That was one example of what we need to do more of, using different structures,” he recalled.

Ryad Yousuf, a partner at Goldman Sachs, suggested bypassing intermediary state entities in financing projects with strong dollar-based cash flows, such as Zambian copper mines or toll roads in Morocco, to directly tap into those revenues and enhance investment efficiency. He also stressed the need to reduce Africa’s reliance on dollar liabilities, advocating for blended finance models that provide protections against currency risks and enable repayment in local currencies like Naira. “The African Development Bank is always at the forefront and we are happy to work with you because it is easy to give dollars against your beautiful Triple A guarantees but Africa needs less dollar liability,” he said.