Source: EIB
Female-run businesses in Africa may be hardest hit by coronavirus, which is why the European response needs to focus on initiatives to help them, the European Investment Bank says, and it must tailor emergency packages to assist small and medium-sized enterprises and micro-financing institutions.
The bank is part of ‘Team Europe,’ a joint effort between the European Commission, the EBRD, member states and other development agencies, to provide support for countries struggling with the Covid-19 pandemic.
“It is very good to show the outside world that Europe as a team is taking on this challenge very forcefully,” says Ambroise Fayolle, vice-president responsible for development policy at the EIB.
In mid April, the bank unveiled €5.2 billion of emergency funding for its non-EU operations. The bulk of this will go to Africa to offer immediate support to the health sector and to provide liquidity to SMEs through local banks, Fayolle and Maria Shaw-Barragan, head of global partners EIB, tell Euromoney.
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Maria Shaw- |
The EIB is also looking at either taking an equity stake in or providing a backstop for the Africa Guarantee Fund, which underwrites banks to help them take more risk on female entrepreneurs.
“The reality is that in times of crisis, the most vulnerable are suffering more,” says Shaw-Barragan. “We want to make sure that it is not women-led companies that are first to be dropped by banks, and where lines of credit are not extended.”
SheInvest
SMEs are the main providers of jobs in Africa and are estimated to account for over 90% of all firms outside the agricultural sector. In 2018, one third of SMEs in Africa were registered to women, according to the World Economic Forum, and sub-Saharan Africa boasts the world’s highest rate of women entrepreneurs.
This is in spite of evidence showing that women find it harder to start, operate and scale businesses, while research says the economic impact of the Covid-19 virus will be harder felt by women, something the EIB is keen to avoid.
Gender is a priority for the EIB, says Fayolle: in November the bank launched SheInvest, a €1 billion fund that supports small companies with female leadership.
The best way to make these investors confident and continue to invest is [by] the strong and determined way public institutions continue to accelerate what they are doing in terms of their support
– Ambroise Fayolle, EIB
The EIB’s new funding is also designed to support microfinance institutions, which Fayolle says is the best way to help reach the informal sector and to mitigate the more acute challenges social distancing and economic shutdown pose for Africa.
“It is clear that when you need to work every day, to have food for yourself and your family, it is more difficult and more challenging for African countries than others in the world,” Fayolle says.
“This is why our support to microfinance institutions and to banks that continue to lend to SMEs is somewhere where we can really have an impact,” he says.
Pharmaceuticals and the digital sector are also key areas of focus.
“Ramping up activities by these corporates is going to be very important in the response,” he says. “What we want to have is a speedy process of appraising new projects, particularly in the healthcare sector.”
Sharing risk
African Development Bank president Akinwumi Adesina said in early April that the economic losses for Africa from the coronavirus will be between $22 billion and $88 billion, while the financing gap across the continent could be as much as $154 billion.
No surprise then that Adesina called for more support and said fiscal distancing is not acceptable.
Analysts agree that private-sector support is essential to meeting this need, and the EIB says it is working hard to bring capital to the region.
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Ambroise Fayolle, |
“Crowding-in is in our DNA,” says Fayolle. “The best way to make these investors confident and continue to invest is [by] the strong and determined way public institutions continue to accelerate what they are doing in terms of their support.”
Fayolle says the level of cooperation between development banks is unprecedented. Weekly video conferences ensure that support is disbursed quickly and that the coordination importantly translates to more efficient working on the ground.
One of the key issues for lenders to low-income countries is the level of risk it requires them to take on their balance sheets. A criticism levelled at multilateral development banks is that they do not provide enough financing to low-income countries, which are also, by definition, often the most in need.
Last year, 53% of the EIB’s lending in Africa went to low-income countries and fragile states, and Fayolle says the bank is keen to develop ways to share risk with other financial institutions to free up funds. It already shares some risk with local banks by mixing grants from the European Union with its own financing capacity, but there are constraints.
“This is costly in terms of capital, and our activity outside of the EU is based on what the group capital plan is,” he says. “We are having intense discussions with the European Commission about how to manage the grant element so that the projects that we develop offer the most favourable conditions for the beneficiary.”
The EIB is also working to ensure that the concession element of its lending is as large as possible.
Private-sector pivot
The growing importance of the private sector to African growth has seen the EIB pivot away from public-sector projects in recent years, though it will still provide fast-track financing to countries where it already operates.
Of the €3 billion lent in Africa last year, 60% went to the private sector. Now the EIB is looking to see how it can help nation states that are fighting the coronavirus pandemic.
“We’re lending to sovereigns for the acquisition of health equipment and for masks, gloves and protective equipment,” Fayolle says.
The EIB is also supporting projects to ensure access to clean water across the continent.
“The first thing we have all been told is to wash your hands with soap, but if you have not access to clean water, even this most basic thing is difficult to achieve,” he says.
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