America’s BUILD Act – a silver lining for Africa

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Jeff Buckland | Partner | Hogan Lovells SA | mail me |


 

 

 

 


Ewadele Butler | Senior associate | Hogan Lovells US | mail me |


Tension between the two economic giants in the world, China and the United States (US), might have a silver lining for Africa.

The administration of president Donald Trump is set to increase investment into the continent, in a bid to counter the narrative that China’s influence in Africa is rising, while the US falls off with its ‘America first’ approach.

BUILD Act

President Trump signed legislation, the Better Utilisation of Investments Leading to Development Act, or the BUILD Act, into law in October 2018.

The act combines the US Overseas Private Investment Corporation (OPIC) and other US agencies focusing on international economic development into a new consolidated agency called the US International Development Finance Corporation (DFC).

It is anticipated that the DFC will be operational in October 2019 and at that time the DFC will begin deploying US equity capital in African private equity.

The DFC expands OPIC’s budget from US$29 billion to US$60 billion and provides the DFC with the authority to make limited equity investments. Previously, OPIC was limited to debt investments.

Sub-Saharan Africa has long been a priority for OPIC, accounting for over one-quarter (27%) of the agency’s current portfolio. Although not clear, the hope and expectation is that the portfolio will remain at least 27% of the additional capital, therefore additional capital of more than US$8 billion available to invest in Africa.


PODCAST

An interview with Ewadele Butler, Senior Associate, Hogan Lovells US and Dr Ivor Blumenthal, CEO, ArkKonsult, discussing the Better Utilisation of Investments Leading to Development Act, or the BUILD Act, which President Trump signed into law in October 2018. This legislation is set to increase investment into the continent, in a bid to counter the narrative that China’s influence in Africa is rising, while the US falls off with its ‘America first’ approach.


Investment in Africa

While the US is the largest direct investor in Africa, with US$54 billion in foreign direct investments (FDI), it is trailing behind in its collaborative efforts, being more selective of the countries with which it engages (primarily South Africa, Lesotho, Kenya, Mauritius and Ethiopia), two-way trade at below US$39 billion, and only having ever held one summit with African leaders under the Obama administration in 2014.

In contrast, China leads in active engagement with Africa, with seven heads-of-state summits under its belt to date. However, Chinese support has mainly taken the form of loans to governments and state-owned entities (in excess of US$86 billion between 2000 and 2014, and growing), with FDI making up only 5% of total global investment in Africa.

Regardless, two-way trade has grown exponentially, and now exceeds US$200 billion.  China has also established more than 10,000 firms across Africa, becoming the most integrated investor into the continent.

The DFC ‘launches’ a new era for development finance, with the signing of the legislation. With more tools, flexibility and more running room – the US will be able to have even greater impact. A stronger and more competitive leader on the global development stage, with greater ability to partner with allies on transformative projects and provide financially-sound alternatives to state-directed initiatives that can leave developing countries worse off.

– Ray W. Washburne, President and CEO of OPIC

Increasingly, investors, be it the DFC or other private investors, are focused on the impact of their investments, and not solely focused on the financial returns.

Factors

Environmental, social and governance (ESG) factors are increasingly important considerations for investment decisions.

OPIC is the largest impact investor in the US government, and most of the projects that OPIC supports are in high-impact sectors such as agriculture, education, access to finance, housing for the poor, small and medium enterprise finance, healthcare, renewable energy, water and sanitation.

The challenge for African companies is to convince global investors, including American investors, that there are indeed opportunities to invest in Africa.

Companies, the private equity industry, and African fund managers must be more pro-active in reaching investors.

A focussed approach in marketing to the right potential investors – those with a mandate to invest in Africa and who have shown interest in Africa as an investment destination – together with the right investment ‘story’ of Africa’s enormous potential and advantages, can still go a long way in attracting the much needed capital to the continent.


 

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