Investing in Growth: Experts Push for Equity Boost

African leaders and experts are calling for a fundamental change in the way trade and business growth are financed across the continent. During the West African Economic Summit, panelists highlighted the importance of decreasing dependence on debt-based financing, especially from foreign investors, and instead advocating for equity investments to fully realize the potential of the African Continental Free Trade Area (AfCFTA). A report from the United Nations Conference on Trade and Development (UNCTAD) indicates that debt financing can result in unsustainable debt levels, hindering businesses’ capacity to invest in their growth and development.

The Power of Equity Financing

A recent investment of $70 million in regional trade facilitation initiatives has produced remarkable outcomes, achieving a return on investment of 240% in just one year, which translates to $213 million in cost savings. This success story underscores the capacity of equity financing to foster growth and development in Africa. The African Development Bank has noted that equity financing can equip businesses with the essential capital needed for innovation, expansion, and job creation. Experts contend that equity financing is especially vital for small and medium-sized enterprises (SMEs), which often serve as the backbone of African economies.

Harnessing AfCFTA’s Potential

To  fully capitalize on the potential of AfCFTA, African leaders must emphasize inclusive and innovative financing models that cater to both formal and informal businesses. This involves advocating for equity financing, particularly for SMEs, and enhancing service delivery to facilitate cross-border trade. Jumoke Oduwole, the Nigerian Minister of Industry, Trade, and Investment, has announced a new partnership aimed at removing regulatory obstacles and advancing digital trade solutions. The World Economic Forum has stated that digital trade can significantly contribute to economic growth and development in Africa.

Industry leaders emphasized the necessity for innovative financing solutions tailored to the distinct requirements of African enterprises. This encompasses the encouragement of local currency funding and a decrease in dependence on foreign investors whose interests may not coincide with local policies. A report from McKinsey indicates that local currency funding can mitigate the risks linked to foreign exchange fluctuations and enhance the accessibility of financing for African businesses. Numerous SMEs are currently financing their operations through personal savings, community assistance, or informal equity. Nevertheless, conventional bank loans remain out of reach due to stringent credit scoring systems and elevated collateral demands. Africa’s trade potential can only be realized by transitioning towards equity financing and diminishing reliance on debt-based financing. By fostering inclusive and innovative financing models, African leaders can bolster the growth of SMEs and informal enterprises, ultimately propelling economic development and integration. With appropriate financing models established, Africa can unlock its immense economic potential and foster prosperity for all. The moment for action is now, and African leaders must collaborate to forge a more sustainable and equitable economic future for the continent.