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Baker McKenzie outlines shifting patterns of infrastructure funding in Africa

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Baker McKenzie latest report – New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding – shows the state of the African infrastructure market, and how the major global players’ approach infrastructure lending on the continent is changing. While the IJ Global data shows a decline in the value of infrastructure lending, it is expected that as economies recover, new types of financing will be unlocked.

The data

The report’s data shows that multilateral and bilateral lending into Africa has declined – with investment levels falling successively in 2019 and 2020 compared to peak levels seen after the financial crisis. In 2019, bilateral and multilateral lending into Africa amounted to USD 55 billion, which drops to USD 31 billion in 2020. Over the last six years, the decline is significant – deal values dropped from USD 100 billion in 2014 to USD 31 billion in 2020.

This slowdown in infrastructure investment was attributable to a number of factors, including the pandemic. Economic contraction has affected Nigeria and South Africa, meaning that the region’s largest economies have not been feeding in growth as in previous years. However, market fundamentals signal a region with underlying resilience and, as the global economy recovers, finance will be unlocked. There are already positive indicators of forthcoming investment. Commodity prices are rising and landmark deals are returning. For example, mining multinational Sibanye-Stillwater recently committed ZAR 6.3 billion to South African infrastructure projects.

The data also shows that deal tenor is contracting – from a high of 17 years in 2019 to 13 years in 2020. However, the long-term nature of infrastructure projects means that international partners have made lasting commitments to the region, which are unlikely to be abandoned despite immediate pressure on national finances.

China

Surprisingly, given the pandemic, the data shows that lending by Chinese banks into energy and infrastructure projects in Sub-Saharan Africa saw a small uplift in 2020, although deal values are well below their 2017 peak. In 2017, Chinese banks lent USD 11 billion to African infrastructure projects, which decreased to USD 4.5 billion in 2018, USD 2.8 billion in 2019 and USD 3.3 billion in 2020.

Simon Leung, Partner, Baker McKenzie Hong Kong, explains, “There has been a slowdown in the number of infrastructure deals from China. In the short-term, we expect to see more targeted lending – fewer projects of a higher quality using sophisticated structures – and new finance options, such as factoring, used to deploy Chinese capital into the region.”

International players

It is also clear that other international players have the region in their sights, with key political changes in the United States (US) and United Kingdom (UK) likely to see capital flow into Africa.

Michael Foundethakis, Partner and Global Head of Projects and Trade & Export Finance, Baker McKenzie Paris, notes, “The US hasn’t kept pace with Chinese lending into Africa. The recent change in administration is likely to renew focus on impact-building and financing strategic long-term projects in the region, but bankability and risk-sharing remain a priority for US lenders.”

Lodewyk Meyer, Partner, Baker McKenzie Johannesburg, notes further that, “The infrastructure funding gap is so large and of such strategic importance, it remains necessary to encourage international investment to fill it. African DFIs are very good at collaborating and I am encouraged by the actions of the new US administration, UK government and New Development Bank, in particular in their willingness to work with regional institutions in this regard. The UK is making a strong play for influence, investment and trade with Africa post-Brexit. Further to key summits held in 2020 and 2021, there are signs that finance will be redirected into Africa.”

Commercial banks

The report points to infrastructure gaps in energy provision, internet access and transportation that have resulted in an urgent imperative to identify and enable new sources of finance outside traditional lenders and international partners. Further to the expected return of multilateral and bilateral lending, there is room for evolution to bridge the funding-opportunity gap.

The report shows, however, that this vacuum is unlikely to be filled by commercial banks, noting that in 2020, just 84 projects were supported by commercial bank finance and their involvement in Development Finance Institution (DFI) and Export Credit Agency (ECA) deals continues on a downward trend.

Luka Lightfoot, Partner, Baker McKenzie London, explains, “Banks are likely to be focusing on managing liquidity, with lenders deploying capital selectively.”

DFIs and new financing solutions

Instead, local and regional banks, specialist infrastructure funds and private equity and debt are stepping in to collaborate with DFIs and access returns. This outlines the deepening DFI involvement in the infrastructure ecosystem at large, with DFIs increasingly anchoring the infrastructure ecosystem in Africa – serving a critical function for project finance as investment facilitator and a check on capital. This is because they can shoulder political risk and access government protections in a way that others can’t, enter markets others can’t and are uniquely capable of facilitating long-term lending.

The report explains how the amount of capital needed to fill the infrastructure gap is significant and DFIs can’t bridge it alone. Private equity, debt finance and specialist infrastructure funds are primed to enter the market, and multi-finance and blended solutions are expected to grow in popularity as a way to de-risk deals and support a broader ecosystem of lenders.

Lightfoot comments, “We expect to see an increase in non-bank activity in Africa in future as a result of new credit mitigation products come to market. We have seen an increase in appetite from established market participants, such as development banks, to create products that are not tied to existing arrangements that may have limited the type of finance available.”

A new era

Lamyaa GadelhakPartner and Co-head of Banking, Finance and Projects at Helmy, Hamza & Partners, Baker McKenzie Cairo,adds, “The pandemic represents the end of an era and the start of a new one. There will be a re-prioritization of funds and strategy through this lens. I expect to see more investments in the healthcare industry and connected infrastructure, as well as water related projects, to be top priority. We should also consider the impact of other factors aside from the pandemic. For instance, the African Continental Free Trade Agreement and what it needs to translate into increased cross-regional trends. I would expect development of transportation and logistics infrastructure focused projects to enable the acceleration of on-ground execution of intra-African trade.”

Emeka Chinwuba, Partner, Baker McKenzie New York, and Banking, Finance & Major Projects Group member, concludes, “Last year was a relatively difficult year across jurisdictions and for investors – with considerable uncertainty and change in the ways in which we do business. Shutdowns had a depressant effect on the infrastructure market, as deals in the pipeline were delayed and projects halted as a result of COVID-19. Full vaccination in Africa is still quite a long way off comparatively, so we can’t expect a full and fast return to normal activity. But we’ve reached the bottom, and the only way is up.”

Article by Baker McKenzie

 

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Chaka secures $1.5M pre-seed round to power digital investments and wealth management opportunities across Africa

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Chaka CEO, Tosin Osibodu at a press briefing (Image & Press Release: Chaka)

Chaka is thrilled to announce its $1.5M pre-seed funding round led by Breyer Capital, a global venture firm focused on catalyzing growth in high-impact companies like Spotify, Facebook, and now, Chaka. Other participants in the round are 4DX Ventures, Golden Palm Investments, Future Africa, Seedstars, and Musha Ventures.

Chaka is a technology solutions company on a mission to enable every business and person in Africa to access borderless digital investment and wealth management opportunities. The team combines investment expertise and best-in-class technology to provide reliable digital Investing, trading and wealth management solutions that are easy-to-use and easy-to-integrate.

Their mission is to enable digital border-less investing for African businesses and individuals. They’re powering the digital investment landscape in Africa through partnerships with asset managers, financial technology firms, and regulators with whom we have a shared mission. We achieve this by providing trading solutions that are easy to use and easy to integrate.

With this capital, they will focus on the goals to build a roster of formidable partners and accelerate expansion to other markets within West Africa. This investment also enables them to hire top talent and integrate more advanced functionalities into our investment and wealth management solutions.

Jim Breyer, CEO of Breyer Capital, shared his view on this investment and it illustrates their shared vision: “We are proud to align ourselves with a company that is leveling the investment playing field for Nigerians (and Africans at large). We’re confident in the value Chaka provides through its digital tools, and we look forward to playing our part in supporting Tosin, Bo, Olaolu, and the Chaka team.”

This is a significant milestone for Chaka and could not have come this far without their users, partners, early investors, and a talented, achieving team of Champions.

They see digital investments as a means to boost economic transformation in Africa, and we’re very keen to bring this vision to life.

 

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elmenus, Egypt’s Leading Food App Secures $10M Pre-Series C from Fawry, Luxor Capital and Marakez

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Co-Founders (Image: elmenus)

elmenus and Fawry to co-develop innovative solutions for restaurants and customers

Luxor Capital’s first investment in the MENA region, previous investments include the biggest food ordering platforms globally, such as Zomato, Deliveryhero and Glovo

elmenus, Egypt’s biggest food discovery and ordering platform, has secured new funding from three new investors, based in the MENA region and North America. Fawry Group, the renowned digital transformation and e-payment platform is leading the investment from Egypt. The investment follows Fawry’s new strategy to take minority stakes in fast-growing, Egyptian, technology businesses. As well as investing, Fawry will work closely with elmenus to develop innovative solutions to benefit restaurants and consumers. Also investing is Marakez, a leading Egyptian real estate developer.

Ashraf Sabry, CEO of Fawry, said: “Fawry is looking forward to its journey with elmenus, working closely with the executive team and entering many ventures together.  By this investment, we show our desire to not only be a payment catalyst but to be a strategic partner to elmenus, its customers, restaurants and their riders. The Egyptian food space has high growth potential, with technology disrupting the status quo, as customers’ needs in food service provision rapidly change.”

From North America, investment has also been received from New York-based hedge fund, Luxor Capital Group, which has $11 billion of assets under management. elmenus is its first investment in the MENA region testament to its’ growth track record and market opportunity in Egypt. Luxor has a long history of successfully investing in food technology companies around the world.

Amir Allam, CEO of elmenus, commented: “Attracting new investment from Fawry, Luxor Capital and Marakez – following the endorsement of industry veteran, David Buttress, earlier this year – validates elmenus’ unique strategy. We are accelerating the adoption of online ordering by users, while enabling restaurants with new verticals – to help them scale. This funding demonstrates the investors’ strong belief in our position in Egypt, and our capability to dominate the market.”

elmenus, which now has over 1.5 million monthly users, is the most comprehensive platform for restaurant information and food discovery in Egypt, and its aim is to personalize food recommendations at a dish level. elmenus continues to expand rapidly, and today’s announcement follows the investment and board appointment of David Buttress – the former CEO of global food ordering firm, JustEat – announced earlier this year.

By the end of 2021, elmenus expects to empower 12,000 restaurants with new data and tool offerings to help them scale their businesses, across 20 Egyptian cities. Its cutting-edge digital solutions will also drive its existing database of several million users, to switch to online ordering.

 

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MarketForce secures $2M Pre-Series A round, plans to launch in Nigeria and scale up RejaReja in East Africa

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MarketForce Co-founders, Tesh Mbaabu (Left) and Mesongo Sibuti (Right) (Image & Release: MarketForce)

Kenyan-based MarketForce, a B2B platform for retail distribution of consumer goods and digital financial services in Africa, announces a $2 million Pre-Series A round, bringing total funding to-date to $2.5 million. With this fresh round of funding, MarketForce has brought on V8 Capital, Future Africa, Greenhouse Capital, Launch Africa, Rebel Fund, Remapped Ventures, and a couple of strategic angel investors as new investors. They joined Y Combinator and existing investor P1 Ventures, who also participated in the oversubscribed round.

In sub-Saharan Africa, approximately 90% of household retail transactions are in cash, and delivered through a network of about 100 million MSMEs, with 42 million in Nigeria alone. Retail payments on the continent are expected to top $2.1 trillion by 2025, and MarketForce aims to digitize a large portion of these offline transactions.

Co-founded in 2018 by Tesh Mbaabu and Mesongo Sibuti, MarketForce uniquely combines a field sales automation SaaS solution with it’s “RejaReja” B2B marketplace to digitize how informal retail merchants buy and sell FMCGs and digital financial services. RejaReja helps these corner shops, commonly referred to as ‘dukas’ in Kenya, get better service, assortment, and access to new revenue opportunities, outfitting them with the technology and support they need to transform themselves from simple FMCG outlets to comprehensive financial service hubs for the continent’s last-mile communities. Currently available in Kenya, RejaReja offers informal retailers next-day delivery for hundreds of SKUs from the leading FMCG brands.

Last month, MarketForce announced the strategic acquisition of Digiduka, which was formed and funded during the inaugural cohort of the Antler programme in Nairobi. This was a huge fintech step forward as RejaReja now provides a wallet that allows retailers to collect mobile money and bank payments via mobile app, WhatsApp bot or USSD shortcode, eliminating the high mobile money transaction fees and enabling merchants accept digital payments, access working credit and earn more by acting as distribution agents for popular financial services such as airtime, bills, utilities, and even insurance.

With this round of funding, MarketForce plans to launch in Nigeria and to scale up RejaReja to more towns in East Africa.

“We are seeing significant demand for our radically improved way for companies to distribute their goods and services in Africa, and we’re thrilled to get a boost from returning and new investors at this crucial time,” said Tesh Mbaabu, Co-founder and CEO of MarketForce. “The combination of our technology with the offline distribution network that we are building is essential to creating maximum output and impact in African retail distribution. Our goal is to create income growth opportunities for a million retailers and independent sales agents across Africa within the next five years.” 

“Our clients and partners understand MarketForce’s power to increase sales performance and productivity across markets and industries,” said Co-founder and CTO Mesongo. “We are building the operating system for retail distribution in Africa, and we have the right combination of technology and team to make our Pan-African vision a reality.” 

Today, MarketForce clients are able to gain access to both our software and the RejaReja marketplace, which has garnered over 15,000 retail customers, processing thousands of orders daily, and we are experiencing double digit revenue growth month over month. The MarketForce SaaS product on the other hand has garnered over 10,000 monthly active users, with over 300,000 transactions worth over 500 Million USD processed to date through the platform in 3 key markets; Kenya, Uganda and Tanzania. Clients and partners include Safaricom, Pepsi, Grain Industries, Fort Beverages, Madison Insurance, Platinum Credit, Momentum Credit, Letshego, Pezesha and Lami.

A happy RejaReja customer in Nairobi (MarketForce)

“We are glad to be backing MarketForce in this round of funding, given their ability to build a differentiated, powerful and all-inclusive digital commerce platform for informal retailers in Africa. Similar to Paystack, another successful African YC company who targets merchants selling online, RejaReja targets the millions of underserved informal merchants who are still offline when it comes to business automation and payments,” said Tobi Oke, Managing Partner at V8 Capital Partners. 

“We are proud to back MarketForce to build the future of retail in Africa and help catalyze the digitization of the African retail market, which is highly informal, fragmented and undigitized, but holds a lot of untapped potential to improve incomes and enable millions of African retailers to grow their businesses. MarketForce sits in a place that enables them to generate a lot of value and empower every single participant in the massive retail industry,” said Adenike Sheriff, Principal at Future Africa. 

“We are excited to strengthen our partnership with MarketForce,” said Mikael Hajjar, Managing Partner at P1 Ventures. “MarketForce is one of the fastest-growing African leaders in sales and distribution automation technology. We’ve witnessed the pain point that MarketForce’s product addresses and how its customers realize major productivity gains over substitutes.” 

“I have known Mesongo and Tesh for over two years and MarketForce has proven that they know how to leverage the entire retail supply chain as a gateway for digital payments. Their organic as well as acquisition-driven growth & expansion strategy thus far has proven that their understanding of unit economics and marginal customer acquisition costs is solid. As a pan-African fintech company, they are very well positioned to tap into the $700 billion that gets transacted in this space every year,” said Zachariah George, Managing Partner at Launch Africa. 

 

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