Aid and the private sector

The second edition of a comprehensive guide into the complex, interwoven world of aid agencies has been produced by two South African organisations, Africa Project Access and ABSA Bank. The Brief Guide to Aid Agencies details over 80 agencies.
Since budgets allocated to many aid agencies and concessionary finance institutions are not fully The second edition of a comprehensive guide into the complex, interwoven world of aid agencies has been produced by two South African organisations, Africa Project Access and ABSA Bank. The Brief Guide to Aid Agencies details over 80 agencies.
Since budgets allocated to many aid agencies and concessionary finance institutions are not fully used, but could often be accessed by the private sector if the right language and technology for approaching them was used, a book such as this is worth intensive study.
The book points out that there is even some ‘untying’ of bilateral aid to Africa from Europe, North America and Asia which permits access for African suppliers of goods and services to projects financed by taxpayers from those regions.According to other sources, the days when concessionary finance and venture capital finance was used for government-controlled projects have gone. Now, this kind of financing is being increasingly directed towards the private sector.
In presentations recently in Maputo, Mozambique, a general principle which emerged was that potential suppliers for projects in Africa should always consider the possibility of financing by international development organisations linked to the United Nations (UN), Nordic countries and the Commonwealth Development Corporation, as well as other national development corporations promoting development in Africa.
There are disadvantages to dealing with these organisations but they are probably overblown. These disadvantages are generally quoted as dense bureaucracy and considerable time involved. These are obstacles which most investors in Africa have to get used to anyway.
At least with organisations like the International Finance Corp (IFC), there is apparently some reason behind such a careful approach.
Two common perceptions of the operations of these development financiers are no longer correct:

  • That they only consider large projects. This has changed radically in the last five years, when most projects financed by the organisations named above have been between $100,000 and $500,000.
  • That they only finance in hard currencies. The IFC, a subsidiary of the UN, is now, for instance, financing in Rands. Nordic funds will also be doing the same soon (although their funds are normally tied to having Nordic technical suppliers or partners).
    Other factors to remember about these funds are:
  • They will take equity and provide loans. None of them is a permanent investor. They normally sell the stake back once the project is going.
  • They will never take management control of the project. A promoter of a project has no hope of eliciting financing from them if he does not have experience and normally if he does not have the majority finance for the project from other sources.
    Once the finance is secured from one agency, other agencies are also likely to provide finance.
    There are offerings other than financing – for instance, the skills of executives seconded from the First World.
    For investors considering attempting to gain finance from these organisations, a good first step would be to approach the African Project Development Facility (APDF).
    The APDF, a subsidiary of the IFC, is not a financier but offers to remedy the inability to provide development financiers with reliable and acceptable information. In effect, this means it knows what these financiers want and sets out the proposals in their language.
    With its costs subsidised, it:
  • Screens and develops the concept;
  • Attracts technical and financing studies;
  • Prepares a business plan;
  • Secures financing;
    The majority of projects in Africa financed by agencies have been in industry, followed by agribusiness and fisheries.
    Any applicant will require:
  • A brief summary of the project;
  • A summary of experience and background;
  • A preliminary estimate of cost;
  • Copies of licences, valuation reports, etc.
    The funds always emphasise that there is no shortage of financing for good projects. Indeed, approaching them for finance is a good exercise in gaining an outside opinion on the viability of a project.
    Selection of appropriate agencies for the particular project is, of course, advantageous – The Brief Guide to Aid Agencies could be useful here.
    For instance, for fishing projects, Nordic agencies could be considered for financing – although their financing is normally conditional on using Nordic suppliers or partners.
    The Brief Guide to Aid Agencies costs $50, including postage, outside South Africa (R150 ex VAT in South Africa).
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