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Investing in Africa’s Fragile States

G7 nations have set up a resilience investment accelerator to work within fragile nations in Africa; it promises heavy investment, investment mapping, and conflict sensitivity

TSI writer

On the 16th of December, the Africa Resilience Investment Accelerator (ARIA), an organization that includes major global development finance institutions whose aim is to unlock investment opportunities in transition states in Africa announced the launch of a new platform that is designed to enhance and boost economic investment in fragile and conflict-affected states in Africa.

These development finance institutions, funded by G7 nations like the US, Canada, UK, France, Germany, and others aim to unlock investment in nations beset by violence and strife but have significant economic potential through collective influence, pooling of technical expertise, and providing capital to enable the fragile nations to get back on their feet economically.

The new initiative will be headquartered in London and will be headed by Vivianne Infante, CDC’s Ethiopia Country Director. As per the communiqué issued to the press, “ARIA will design and implement practical strategies to support private sector strengthening, bringing together development finance institutions to collaborate on issues that could benefit from a collective voice or action.”

CDC Group, US International Development Finance Corporation, Proparco, FinDev Canada, Cassa Depositi e Prestiti, in its role as Financial Institution for International Development Cooperation (Observer), JICA (Observer), Swedfund, International Finance Corporation, African Development Bank, European Investment Bank (Observer) and the European Bank for Reconstruction and Development (Observer).

Members of CDC group

Jobs and business opportunity

Speaking during the launch of the ARIA, she said that growth and development is only possible in fragile nations if there are jobs and business opportunity;

“Development finance institutions have a mandate to provide investment to those that need it the most. Fragile states are desperately in need of capital to provide jobs and bring economic growth but investing in these markets is complex and challenging. ARIA’s work will be vital in addressing these challenges.”

Economists have watched the forays of development finance institutions into fragile markets and fragile states with fascination and intrigue. On the one side, the world has seen one or two stellar companies emerge out of conflict nations (and disturbed regions). These are companies that despite the odds and the unfriendly business environment have succeeded beyond the expectations of any market watcher. Troubled African nations have their fair share of such unicorn firms. But, on the flip side, there are disastrous examples of companies that were overwhelmed by the untenable market conductions occasioned by instability and strife.

On this front too, there are a plethora of African firms which were previously doing exemplarily well but which got swept down the river by one wave of unrest and market uncertainty. In nations fraught with civil unrest, fragile democracies, and market uncertainties such as Somalia, Central Africa Republic, South Sudan, Sudan, Egypt, and others, there is a substantial number of companies that were taken down by forces outside the business field, despite their previous record of massive growth or huge capital investment.

A mixed bag of results

This mixed bag of results when it comes to putting capital in fragile states is the chief reason for the initialization of operations by ARIA. The G7 nations and financial institutions that collaborate with them understand that there is potential within fragile states; potential for investment and for growth.

On this mission, ARIA insists that it aims to engage proactively in such markets in a way that would improve investment readiness – both a country’s readiness to benefit from development finance institution investment and their ability to invest in these economies.

It was also said, during the launch ceremony, that to achieve its stated objectives, ARIA will identify several countries in which it will provide targeted coverage, develop expertise and arrange country missions. The intention is for ARIA’s country activities to foster greater collaboration amongst development finance institutions, with a longer-term ambition for more coordinated activities.

Economists and experts who are involved in the project predict that once it is up and running, ARIA’s work will uncover additional investment opportunities (those hitherto unclaimed/unidentified) in targeted countries.

Three main areas of focus

The group shall focus on three main areas, including a) Market mapping, where ARIA is expected to develop a tool containing investment-related information, including key sectors, relevant local partners, financial intermediaries, potential investees, and barriers to investment. b) Conflict sensitivity, which encapsulates the harmonization of best practices around conflict sensitivity, including the development of common standards and tools that the development finance community can use to manage investment activities in areas that are at high risk of conflict. And lastly, c) Integrity, where the group intends to exchange views and experience around challenges relating to integrity, especially in investment due diligence processes, and to agree on common standards, approaches to work collectively to leverage information sharing across development finance institutions.

An important aspect of the recovery process post-conflict is the need to have a productive and meaningfully engaged citizenry in such nations. This means that nations recovering from war, from civil strife, or from aborted democratic processes tend to have a large mass of people out of work and out of business in nations where the economic and governance structures are impaired, if not completely broken down.

UK Minister for Africa, Vicky Ford, speaking during the launch of ARIA touched on the critical role a functional and running business environment plays in rebuilding a fragile nation after conflict. The UK Minister for Africa said: “Providing honest and reliable finance is one of the most effective ways to support countries to recover from conflict, create jobs and boost economic growth.”

Provide $80 billion of investment

It was announced that the Africa Resilience Investment Accelerator will immediately embark on a plan to assist development finance institutions to support the G7’s landmark commitment of providing $80 billion of investment in the African private sector by 2027.

ARIA’s project is a massive undertaking and it is no surprise that Africa Development Bank (AfDB) is involved in it. During the launch, AfDB, which is a member of ARIA, was represented by Solomon Quaynor, Vice President for the Private Sector, Infrastructure & Industrialization at the African Development Bank.

He exalted AfDB’s on-the-ground presence in various African nations, including in fragile nations, and vowed to offer the necessary structural and technical assistance needed to see this project through.

“The African Development Bank’s new private sector development strategy deepens our focus on fragile states. We have the on-the-ground presence in all fragile states and will be dialoguing with and supporting governments to design and implement the policy, regulatory, institutional, and legal reforms necessary to enable and scale up private sector development. This should unlock the potential for investments in the private sector, which we will work with ARIA and its members to deliver,” he said.

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