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Africa has entered the 21st Century with its head held high and a yearly average growth of more than 5%. The journey has not been easy for Africa as the continent has had to face two decades of prolonged crisis but Africa is now being hailed as the land of new opportunities. Fuelled by nouveau urbanisation and the emergence of new middle class and a natural resource boom, growth is likely to last despite sporadic crises and if harnessed to its potential it can turn Africa to a major growth pole. With the economy looking up, demographic shift is also being seen on the African Horizon. It is being estimated that Africa will be seeing 4 billion people by the end of this century which is more than a third of humanity.

These changes have already impacted the economy of African continent. It is estimated that some $50bn (£30bn) a year would be needed to cover Africa’s infrastructure gap, which costs its economy up to two growth points every year.

Banks both public and private have a pivotal role in fuelling a promising future for Africa and time is running out for them to act and gear up for the challenges and the single major challenge is resource mobilization.

It’s been long that Africa’s capital has been invested out of the continent where the chances of risk is low and returns are high. Over the past three decades, Africa has been a net creditor of capital and assets to the world, with licit and illicit capital outflows far exceeding inflows in the form of aid or foreign investments.

Times are changing, and new opportunities can be harnessed to attract African investors back into the continent. Foreign reserve surpluses and the capital of burgeoning pension funds can be put to work to finance infrastructure and private sector development. For this, institutional investors need projects that are better prepared, as well as appropriate financial instruments to channel the right type of funding at the right moment.

The discovery of new oil deposits in Kenya and Uganda – with the potential to produce 500,000 barrels a day by 2018, according to estimates – by London-headquartered Tullow Oil have led investors and multinational corporations scrambling for the African space.

At this juncture when the continent is going through rapid progress at both economic and social level the role of new donors becomes very important. They should be encouraged to take an active interest in Africa’s transformation and engage in responsible investment and lending practices. Africa has garnered renewed interest from emerging powers thus increasing and diversifying the resources available to finance its growth. This could also lead to more joint ventures with more entrepreneurs willing to partner rooting towards preservation of Africa’s precious natural assets.

Luring private investments also requires public financial investors to put the first foot forward so that the risk of exposure in volatile environments is mitigated. Sharing risks with the actors of African growth implies mobilising more counter-cyclical loans, insurance mechanisms and guarantee schemes, as well as equity instruments.

Banks can take centre stage in the growth of African Economy as this is the ideal time to join ranks with telecommunication providers and make mobile banking a reality in Africa in order to add value to customer relationships. We see banks also taking centre stage in the future of the continent’s carbon market. The recent launch of the African Carbon Exchange in Kenya raised hopes for many who engage in clean investments, but also laid bare Africa’s unpreparedness to pick up a sizeable junk of the KES17.4trn ($200bn) global business.

Banks have to come to the fore to introduce appropriate products to finance green businesses, create a framework for the purchase and trading of carbon credits, and provide investment funds to those organisations that have viable green plans.

Posted on Jul 30, 2014

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