The European Investment Bank offers advice for venture capital in Africa

BERLIN — Germany has positioned African economic development at the center of its G-20 presidency, with a particular emphasis on encouraging more private investment in the continent. Ahead of the heads of state summit today in Hamburg, dozens of potential investors gathered in the capital, Berlin, to learn more about how the investment landscape is changing on the continent and how some entrepreneurs are harnessing innovations to help grow sustainable companies.

Participants described a landscape big on ideas — especially ideas that could have a significant positive impact on communities — but short on the access to technology and funding needed to turn those ideas into sustainable companies.

“What we see is that institutional investors are much more interested than in the past,” said Gunnar Muent, director of the innovation and competitiveness department at the European Investment Bank. Along with the German federal ministry for economic development and the German-African Business Association, his institution was one of the organizers of Africa Day. “Of course, given their limitations in terms of exposure to this kind of risk, they are still hesitant.

Still, there are opportunities, including in addressing some of the shortcomings in the business environment. For example, the private sector could fill a gap in demand for better skills training in management and technology. Another opportunity lies in improving digitalization. Investments such as these could help mitigate future investment risks.

In opening the conference, the Minister for Economic Development Gerd Müller said the government was eager to do what it could to encourage more innovative approaches to investing in Africa.

Improving social services such as education and health, “can’t be done by only public funds,” he said. “We need a second pillar. We need the private sector in order to invest in a sustainable manner in and for Africa.”

Lessons from EIB

As Germany uses the G-20 to push private investment, Muent acknowledged that the need for development financial institutions such as EIB will remain.

Private investors can take some of the lessons that this bank and others like it have learned on the continent, he said. For example, investors could consider risk management tools such as long-term financing. Extended time horizons allow the bank to take on projects such as wind parks, that can take years to work through the various regulations.

He acknowledged, though, that even if other lending institutions could increase their flexibility, many projects would remain outside their comfort zones.

Since 2012, EIB has invested more than 4.6 billion euros ($5.25 billion) in the regional grouping of Africa, Caribbean and Pacific countries. In that time period, it also put more than 6.1 billion euros ($6.7 billion) into North African countries including Egypt, Morocco and Tunisia.

Ongoing projects

Muent said the specific focus on North Africa reflects the fact that more large companies are present to take loans. EIB’s presence in sub-Saharan Africa is largely through funds, in which the bank is normally a minority investor.

GreenTec Capital Partners is in early talks with EIB to set up one such fund, said Erick Yong, the company’s chief executive officer and founder. The two-year-old venture investor focuses on companies that could have a positive social impact — such as creating jobs or improving the environment — but that are missing a key component.

“They’re sometimes missing resources,” he said. “They’re missing technology. We decide to focus our effort to try to solve this problem for companies that have impact on the local community. That was something very important for us.”

Mobile Shiriki Hub in Rwanda is one example of a GreenTec’s 11 projects on the continent. The initiative aims to grow the small, roadside kiosks where Rwandans go to charge their mobile phones and other devices into solar-powered hubs that can connect up to 50 people to the internet at a time.

As part of the investment, GreenTec linked the company to technology that was developed elsewhere that could be adapted to the Rwandan context. Yong said this sort of linkage is among the innovations that the venture capital investors have included in their model.

“We embed a technology in a solution we already know is working,” he said. “But by doing this collaboration, you find innovative solutions that are creating real additional value for the local people and also for the companies to grow.” It also benefits the technology providers, by creating a situation where they feel comfortable entering a market they might normally be reticent about.

Yong encouraged other potential investors to think about how they could creatively fund companies and harness technology. Within a few years, he said he expects GreenTec to be investing in at least 50 companies on the continent and, eventually, to create a fund that a larger institution such as EIB might invest in.

Editor’s note: This article has been updated to reflect a correction. Since 2012, EIB has invested more than 4.6 billion euros ($5.25 billion) in the regional grouping of Africa, Caribbean and Pacific countries, not 379.9 billion euros.

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