A Roundup of Unscripted Innovative Finance Models for Africa’s Development Agenda by, Amb. Alhaji Dr. Al Hussein O.E. Banao.
In order to comply with the new international economic order, the sixteenth (16th) Ordinary Session of the Heads of State and Government of the then Organization of African Unity (OAU) adopted in July, 1979 in Liberia the “Monrovia Declaration of Commitment on the guidelines and measures for national and collective self-reliance in economic and social development of the continent”, in an attempt to achieve the goals of rapid self-reliance and self-sustaining development and economic growth, paving as such the way for Lagos Plan of Action for the Economic Development of Africa, 1980 – 2000.
When the global economic crisis began unfolding in 2009 – 2010, the weak integration of Africa into the global economy in many ways insulated the progress achieved through the globalization driven by technology, and ironically, the global economy crashed, then Africa has been positioned to catch up while West was recovering slowly.
During the thirty-seventh (37th) session of the Assembly of Heads of State and Government in July, 2001 in Lusaka, Zambia an economic development programme of the African Union has been adopted: The New Partnership for Africa’s Development (NEPAD), which aims to provide an overarching vision and policy framework for accelerating economic cooperation and integration among Africa countries, as result of a merger of two plans for the economic regeneration of Africa: the Millennium partnership for the Africa Recovery Programme (MAP) led by former President Thabo Mbeki of South Africa in conjunction with former President Olusegun Obasanjo of Nigeria and then President Abdelaziz Bouteflika of Algeria, and the Omega Plan for Africa developed by then President Abdoulaye Wade of Senegal, thus at a summit in Sirte, Libya in march 2001.
Following an evaluation report submitted to Heads of State and Government’s summit held in Egypt in 2008, NEPAD has been fully integrated into African Union through the United Nations Economic Commission for Africa (UNECA), prompting as such many individual African States to establish their national NEPAD structure responsible for liaison with the continental initiatives on Economic Reforms and Development Programmes. That restructuration opened African countries to new ties with emerging markets with the following impacts:
- Sub-Saharan Africa increasingly traded old friends like the United States (US) and the European Union for new ones as the region’s exports to US have declined by sixty-six percent (66%) while exports to countries such as Russia and Turkey have doubled and tripled respectively.
- Between 2014 and 2018, the United Arab Emirates (UAE) injected more than 25.3 billion US dollars worth of capital into the continent and the volume of non-oil trade between Dubai and Africa rose to 37.2 billion US dollars in 2018.
- Owing to its close geographic proximity, the UAE has positioned itself as a gateway to Africa in more ways than one: Emirates, one of the country’s flagship airline carriers, now boasts one of the largest networks of African destinations in the world while its logistics operator DP World operates, develops, and manages more than seven marine and inland terminals in Africa, including Senegal’s busiest container terminal and facilities in Egypt, Mozambique, Rwanda and Somaliland.
In recent years, Africa has caught the imagination of the world as a potentially prosperous market pushing global economic experts to conceptualize Africa as the last frontier in the growth of world economy. This idea gains momentum every year, however the reality of this narrative should not be accepted without looking into innovative financial mechanisms and close inspection of the extent of the massive investments needed for the realisation of its great economic potential, even though Africa’s greatest economic opportunity is to trade with itself.
In effect, AGIC is of the opinion that paradigm shift must occur in order for Africa to reach a competitive position in the global economy and to sustain the decade-long growth rates it has been seen in so far. And the first and most important paradigm shift that have to take place is the ultimate adaptation to global digital economy’s new financial tools and products that drives financial inclusion and massive infrastructural investments thus for massive employment generation and a runaway inflation.
Therefore, and in order to successfully achieve such shift of paradigm, mainly, alternative investments and non-conventional finance are to be strongly considered unequivocally for the continent to take advantage of new opportunities by undergoing a structural transformation to engender economic diversification for an incremental change that will profoundly modified Africa’s economic landscape at a time and for everlasting prosperity.
Indeed, an alternative investment is a financial asset that does not fall into one of the conventional investments categories whilst these conventional categories are known to be those common ones that include Stocks, Bonds, and Cash. As innovative finance scheme, alternative investment include Private Equity or Venture Capital, Hedge Funds, Managed Futures, Art and Antiques, Commodities, and Derivatives Contracts, as well as Real Estate. By then, Alternative Investment typically do not correlate to the stock markets, which means they can be used to add diversification to a portfolio and help mitigate volatility. Some of them can also offer tax benefits not available in traditional investments. As such alternative investments are more complex than traditional investment vehicles and often have higher fees associated with them. As with any investment, it is well known that the POTENTIAL FOR A HIGHER RETURN MEANS HIGHER RISKS.
As key takeaways, one can authoritatively outlooked that:
- An Alternative Investment is the most fastest and secured innovative finance vehicle that drove any severe financial crises.
- Most Alternative Investment remain unregulated by Securities Exchange Commissions (SEC) as they tend to be somewhat illiquid.
- Alternative Investment have become feasible to retail investors via ALT funds, ETFs and Mutual Funds while traditionally for institutional investors and accredited investors, retail investment fall on tertiary priority.
- Proponents of Alternatives in the portfolios of individual investors maintained that they now have access to sophisticated investments and potentially higher returns that until relatively recently were only available to institutions such as Pension Fund and Foundation.
In conclusion, AGIC outlook for alternative investment reflects that the overall market for Alternatives could grow to more than fourteen trillion United States Dollars by the year 2023, and part of the reason for this may be that investment firms have lowered the entry requirements for mutual funds that oriented towards Alternatives. And also, investors themselves have developed a taste for some besides the usual mix of Bonds, Mutual Funds, and Exchange-traded Funds.
To materialise AGIC’s stance for this optional funding approach in nowadays global economic uncertainty and within an unpredictable behavioural society, it is worthy to finally note that for example, as of January 2020, the SPDR Dow Jones Global Real Estate ETFs had an annualised five-year return of 5.2%, while in contrast, the SPDR S&P Oil and Gas Exploration and Production ETFs posted a negative 15.87% for the same period. Bearing in mind that in economics, demand is defined as the ability and the desire to purchase Goods and Services, it is imperative that together, concerned parties teamed with opened mindset and awareness for this CHANGE that require massive infusion and injection of Capital for this awaited fundamental transformative investments for social and economic prosperity thus in an inclusive manner.