The African Development Bank (AfDB) announced it will invest $125 million to become the largest shareholder in the African Trade and Investment Development Insurance (ATIDI), a move aimed at significantly increasing the use of guarantees to attract private capital for African development. AfDB President Sidi Ould Tah revealed this plan, which is central to his strategy to mobilize Africa’s vast institutional capital amid declining development aid.
Context of Declining Aid and Financing Gaps
This strategic injection comes at a critical juncture for African development financing. Rich countries’ development aid dropped by nearly a quarter last year, totaling $174.3 billion, with the United States leading these cuts. This reduction includes impacts on the AfDB’s concessional funding arms, highlighting the urgent need for alternative financing mechanisms.
The New African Financial Architecture for Development (NAFAD)
President Tah’s initiative, known as the New African Financial Architecture for Development (NAFAD), seeks to harness an estimated $4 trillion in African institutional capital. This includes pensions, sovereign wealth funds, and savings schemes that are currently fragmented. The goal is to bridge an estimated $400 billion annual development financing gap that hinders infrastructure development and economic growth across the continent.
Expanding ATIDI’s Capacity and Reach
The $125 million investment will increase the AfDB’s shareholding in ATIDI from 3% to 14%, making it the platform’s largest shareholder. This capital infusion is designed to significantly expand ATIDI’s capacity to provide guarantees and insurance products.
“Our target is to bring the level of guarantees provided by ATIDI to 10 billion (dollars) annually and reach a target that will really unlock huge potential for financing infrastructure at scale,” stated Tah following the AfDB’s annual meeting in Brazzaville. Previously, ATIDI has covered an average of $3 billion worth of investments annually.
ATIDI’s Role and Ownership Structure
Headquartered in Nairobi, ATIDI was established 25 years ago to de-risk investments in Africa. It utilizes insurance and guarantees to channel private capital into markets perceived as riskier. Currently, ATIDI is owned by 24 African states and institutional investors, including African financial firms and Germany’s KfW Development Bank, which joined in April.
The AfDB’s move signals a departure from ATIDI’s traditionally dispersed ownership, where stakes were spread across member states. Countries like Togo and Benin held high single-digit shares, indicating a broad but less concentrated ownership base.
Broadening the Shareholder Base
The AfDB is actively encouraging more African countries and institutional investors to acquire stakes in ATIDI. This expansion aims to bolster the agency’s capital base and enhance its financial firepower to underwrite larger projects and provide more extensive coverage.
“We are also talking to various financial institutions and many countries to increase their contribution or to contribute if they are not yet shareholders,” Tah added. France is reportedly considering an increase in its shareholding, with further discussions anticipated at an upcoming G7 meeting.
Addressing Africa’s Savings Rate
While efforts focus on attracting external and institutional capital, some analysts point to the need for African countries to increase domestic savings. World Bank data indicates that Sub-Saharan Africa’s savings rate is approximately 18%, less than half the global average. This is attributed to factors such as low incomes and a young demographic structure.
Despite these challenges, Tah remains optimistic about Africa’s ability to finance its own development. “Africa can mobilise African resources to finance African development,” he affirmed, underscoring the potential within the continent itself.
Implications and Future Outlook
The AfDB’s significant investment in ATIDI represents a pivotal shift towards leveraging guarantees as a primary tool to attract private sector investment. This strategy could unlock substantial capital for critical infrastructure projects and other development initiatives across Africa, potentially accelerating economic growth and reducing reliance on traditional aid. The focus on mobilizing Africa’s own institutional capital also signals a move towards greater financial self-sufficiency. Investors and policymakers will be watching closely to see if this approach can effectively mobilize the necessary $400 billion annually and if other African nations and institutions will follow the AfDB’s lead in bolstering ATIDI’s capacity. The upcoming G7 meeting and France’s potential increased stake will be key indicators of broader international support for this new financing model.
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