Portuguese-speaking countries in Africa are “a hotspot for investor interest”, says Mateus Magala, Vice-president of the African Development Bank. According to the Mozambican national, “the time is now” to invest in these countries, because of economic reforms, a burgeoning middle class and regional diversity against the background of the new African Continental Free Trade Area.
In a recently published article, Magala says new tools – such as the Development Finance Compact for Lusophone Africa – give investors and lenders more comfort to enter into these markets.
The six African countries called “PALOPs”, their Portuguese acronym – Angola, Cabo Verde, Guinea-Bissau, Equatorial Guinea, Mozambique and São Tomé e Principe – are very diverse, ranging from Equatorial Guinea, Africa’s richest country per capita, to lower income economies; from Angola’s and Mozambique’s populations of over 30 million to Cabo Verde’s and São Tomé’s, of less than one million; and from south-eastern Africa to the northwest of the continent, Magala adds.
These states “also share important traits”, including a common heritage and language. “As independent states, they have fostered trade ties with Portugal and Brazil, among others. And, most importantly (…) they have all recognized that they must do more to unleash the potential of the private sector in their countries”, says the Vice-President of Corporate Services and Human Resources at the African Development Bank.
“The private sector here faces constraints, ranging from lack of affordable financing to difficulties in project preparation. The good news is that the PALOP governments are determined to tackle these issues – with the help of their partners, such as the African Development Bank”, adds Magala.
In November 2017, Bank President Akinwumi Adesina visited Lisbon for discussions on how Portugal and the Bank could work in a more integrated manner. Out of this meeting emerged a vision for a new partnership, one that is open to other partners: the Development Finance Compact for Lusophone Africa.
Signed at the November 2018 Africa Investment Forum, its goal is very simple, according to the Mozambican ADB board member: to accelerate the diversified, sustainable and inclusive growth of the private sector in the six PALOPs.
“And it is completely focused on transactions to deliver practical results on the ground. How does the Lusophone Compact propose to do this? Put simply, it is results-based and focused on two types of interventions: financing and risk mitigation from the partners for specific private sector and public-private sector partnership (PPP) investments in the PALOPs; and technical assistance projects that enable the private sector or specific investments, such as project preparation and access to finance”, he adds.
Magala adds that the program is operationalized through country-specific Compacts, with concrete targets, that have been signed for each PALOP, benefiting from €400 million in guarantees that Portugal has made available in 2019 to back Bank financing for private sector and PPP projects in the PALOPs. And the Bank is contributing its own financing as well as resources for the administration of the Lusophone Compact.
“Additionally, it is important to stress that the PALOPs themselves are equal partners in this initiative: they have a responsibility to work on enabling the private sector investments in their countries, and the Compact also seeks to leverage intra-PALOP investments and sharing of best practices”, says Magala, who joined ADB in 2018 after a stint as CEO of Mozambique´s biggest utility, EDM.
The ADB, he says, is “encouraged that other states and development finance providers want to join or partner with the Lusophone Compact. (…) Now is the time to invest in Lusophone Africa. Angola and Equatorial Guinea have both embarked on ambitious programs to diversify their economies away from natural resources. Mozambique, which is beginning to receive massive investments related to the natural gas sector, also recognizes the need to grow sectors like agribusiness and industry, to increase employment”.
Cabo Verde, “already a middle-income country, is seeking to diversify its economy too – attracting new types of tourists while also growing its fishing and agribusiness sectors. São Tomé e Principe and Guinea-Bissau, members of the Alliance of Small Island States, seek sustainable investments that both promote growth and deal with their exposure to climate change, including through the so called “blue economy”, adds Magala.
“All of these countries are determined to increase trade, both among themselves and within their regions, which include Africa’s largest economies”, says the ADB representative. He adds that the 2019 Africa Investment Forum, held this week in Johannesburg, South Africa, included a specific panel on Investing in Lusophone Africa to highlight these opportunities. At the event, Board Room sessions involve projects in the PALOPs – including at least four that are eligible under the Lusophone Compact.
“The African Development Bank is proud to be part of this new dawn for the continent’s Portuguese-speaking economies”, says Magala.