CGD Podcast: Unlocking Private Investment in Africa with Nick O’Donohoe and Frank Aswani

GYUDE MOORE:
Hello and welcome to the CGD podcast. I'm your host, Gyude Moore. I'm a senior policy fellow here at the Center for Global Development, and my focus is exclusively on Africa, financing Africa's development. Today, we're privileged to have a conversation with two guests, Nick O’Donohoe, who is the CEO of British International Investment, and Frank Aswani, he's the CEO of Africa Venture Philanthropy Alliance. This conversation is important because all of this work we do about development is to improve lives and livelihoods across the continent. And there's just not enough development financing that will allow us to do this. There needs to be significantly more private capital, but what are the channels through which we can attract private capital? Today, Nick and Frank are gonna have a conversation with us about why this is important, especially because of the times in which we find ourselves and uneven and incomplete recovery from the pandemic, the war in Ukraine, wars across Ethiopia, Sudan, and now in Gaza.

All of this has impact on development financing, creating an even more heightened need for private capital. First, I will start with Nick. It's been written a lot now about this idea that there is a funding winter, that startups, small businesses looking for funding are facing a very difficult time in raising capital. Because you're active in this space, I wanna begin with you. Is this true? Is it difficult now, much more difficult? Is there something you're observing globally?

NICK O’DONOHOE:
We've gone from a period in the world where if you go back a couple of years ago, where I think investors were very happy to take high levels of risk to one today where they're much more circumspect. And I think to some extent that was due to evaluations getting somewhat out of whack. And to some extent, of course, it's been due to particularly the war in Ukraine, which led to higher food prices, higher energy prices, and the rise in interest rates, particularly led by the United States. All of those things, I think, have caused investors to take risk off. When they take risk off, they take money. It's harder for companies to raise money, and the harder that's gonna have its greatest impact on small companies.

GYUDE MOORE:
Thank you, Nick. I thought to begin with that because it sort of drives home the point for why an institution like BII is important and this other sources of financing outside just simply private capital. But before we get to that, Frank, I wanted to come to you on this perception, of course, of risk in Africa means that if there's a heightened perception of risk, then any changes elsewhere in the world will have a disproportionate impact in terms of financing available in Africa. From your vantage point, are you seeing the difficulty of African corporates and businesses to raise financing?

FRANK ASWANI:
Yeah, Gyude, thank you so much. Yes, indeed it's become harder. It's definitely become harder for African entrepreneurs, African funds to raise money and this has its repercussions and impact. I think for the first time in almost seven, eight years, we've seen less money coming to Africa or a decline in the money coming to the startup space on the continent. So, yes, when global risk continue to grow, it's magnified on the continent. And we as Africans have to start thinking creatively about how we navigate this space, how we learn from what has happened in the past to make sure that we don't waste this crisis that give rise to these situations where capital becomes more expensive. And we've gotta try to find more homegrown solutions to address some of these shocks and gaps so we can provide more consistent and culturally sensitive capital to address our needs locally.

GYUDE MOORE:
Nick, I wanna come back to you because, first, some of the people listening to this may know what BII is some of them do not know what BII is. Some of them might remember, like you said, the CDC group, but could you talk a little bit more about what BII is, what its goals are, and what do you do?

NICK O’DONOHOE:
Yeah. So, BII is the UK's development finance institution. And indeed most of the developed countries have their own bilateral development finance institutions. And our role is really to invest in support of development in countries in emerging markets. And for us, that particularly means two regions of the world, one is Africa and particularly sub-Saharan Africa, and the other one is Asia, and particularly South Asia. Across the capital structure, we invest in equity. We invest in debt. We provide guarantees. We have investments in Africa, specifically in about 34 different countries. We invest in total about $2 billion a year. Typically about 60% of that goes to Africa. We invest in infrastructure, big projects, small projects. We invest through financial institutions. We invest in food and agriculture and manufacturing. So, it's a very broad investment portfolio, but it's focused specifically on doing things that we think will have a development impact in the countries in which we're investing.

GYUDE MOORE:
This is good. I just wanna follow up on that. Is that investment shaped by, say, larger forces in the market? For example, we started a conversation talking about perceived heightened risk in the market and because of that, investors are sort of careful about how to weigh their portfolio in terms of risk. How does a change like that affect your investments in Africa?

NICK O’DONOHOE:
Well, I think to be honest and I always say about development finance institutions, our job is obviously to take risks in difficult markets and difficult countries at difficult times. And our job is to sort of step forward when others are stepping back. And I agree with Frank, if you look at Africa today and if you look at what's happened, well, really over the last decade or more, but really particularly in the last couple of years since the Ukrainian war and the impact that that had on Africa, on food prices, on energy prices, I think what you've seen is more traditional investment firms, nondevelopment focused investment organizations, including banks and other sort of emerging market funds, I think what you've seen is them stepping back from Africa. And of course, we've had significant macroeconomic issues in many countries in Africa, largely as a result of those global developments. And so, when that happens and when others are stepping back, our role as a development finance institution is really to step in and try to fill some of that funding gap.

GYUDE MOORE:
Thank you. And so, Frank, I wanna come to you on that question in terms of AVPA. In this space then what is AVPA? What do you do? What is the value proposition? How do you contribute in this space?

FRANK ASWANI:
So, Gyude, let me start with the problem we're trying to solve 'cause I'm a big believer in falling in love with the problem, not your solution. Solutions are many, they come and go, they evolve, they get iterated but the problems tend to linger for a lot longer. So, the problem we're trying to solve is how do we help Africa address its SDG financing gap? And I'm using the SDGs'cause there are framework upon which many of us truly understand and we basically build a lot of our solutions, work, and energy around. And we are facing, depending on who you talk to, about a 1.2 trillion annual dollar SDG financing gap on the continent. And the backdrop of that that's very important to understand is that traditionally, we've been a continent that's been funded in terms of social investments through aid and government funding. Both of those pots of capital are declining. We've seen aid being cut by both the UK and US governments. We've seen the public debt growing. So, our governments have less to spend on social investments.

To add insult to injury, our population is growing quite aggressively at about almost a million people a month. And those factors are not a good combination when you're trying to drive sustainable growth. So, where do we get money to finance Africa's sustainable growth and address our social issues? You inevitably have to look at the private capital and financial markets. And so, what AVPA tries to do is how do we increase the flow of capital, especially private capital, into the impact space. And in so doing, how do we think differently in trying to find ways that are more sustainable, testing new approaches, and creating unusual partnerships to make this happen? So, we try and break down silos between traditional grantmakers or philanthropists and private capital players, because we believe that the sweet spot is in the middle, blending philanthropy and private capital in this middle innovative finance impact investing space. So, we are a Pan-African network of investors bringing together people, deploying grants, debt, or equity to the impact space.

And we work around supporting our investors to be better at mobilizing and deploying capital towards impact.

GYUDE MOORE:
Thank you. This is really important. Nick, I wanna come back to you about the investment appetite of BII. What kinds of companies do you invest in? Are you restricted by size? Where do you deploy capital and how?

NICK O’DONOHOE:
Yes. Well, as I said, we deploy typically about $2 billion a year. We concentrate on, principally, Africa and South Asia, more recently Southeast Asia. Every time we make an investment we're asking ourselves two questions, are we investing or lending to a sustainable business? Because we do have a requirement to make a return on our money. And the second thing we're asking ourselves is what sort of development impact is this investment gonna have? If we put this money into this project, how's it gonna change people's lives? How much is it gonna change their lives? Whose lives is it gonna change? So, that's sort of the investment process that we adopted. It leads us to certain obviously important sectors like infrastructure. So, a lot of what we do is helping to develop areas like power infrastructure or ports infrastructure in Africa. It leads us because we're investing quite large amounts, and we want to probably have a minimum investment size of around 15 to $20 billion. So, that's gonna take us above most of the SME market and most of the countries which we're investing.

So, we invest through banks. We use banks to help intermediate our capital to reach SMEs. We invest through funds. We do the same thing, they intermediate our capital. So, a lot of our investment activities are through banks. And then we invest in the critically important sectors like agriculture, which obviously again particularly in Africa is 70 or 80% of people in Africa broadly are employed in the agriculture sector. We invest in manufacturing to help create jobs, provide critical commodities, and so on. So, that's sort of a broad range of what we do.

GYUDE MOORE:
I tried to be an entrepreneur at one point and develop the project. This is the problem I ran into, and I'm assuming I'm not the only person who ran into the problem. When I presented the problem, I was told that the ticket size was too small because the amount of due diligence going into that project would be the similar due diligence going into a project bigger. But then when I tried to increase the size of the project, I was told it was way too much risk for a first-time thing. So, basically, you're stuck in here where the project is too small in its current form, and if you try to make it any bigger, the project is too risky. And so, then who funds these? And I'm assuming this isn't unique to me. I'm assuming that this is a problem that a lot of companies and corporates seeking funding in the market face. How does BII sort of respond to this if it does?

NICK O’DONOHOE:
Well, I think we like to try obviously to fund both small projects, smaller entrepreneurs, SMEs, as well as larger companies and larger projects. But the way that we fund smaller projects is not directly because you're absolutely right. Look, an organization of our size, given our resources, we have significant due diligence requirements because we're investing taxpayers' money and we're expected to earn a return on that money. We'll also have significant due diligence around all sorts of environmental and social and governance. So, it is quite expensive to make investments. So, what we do in order to try and reach those... And I think you're right to say, I mean, it's critically important that we support local entrepreneurs, particularly in Africa, and we see actually an increasing number of opportunities to do that. But for us to be able to do that, we have to do that through intermediaries. We have to do it through venture capital funds that are typically located on the ground in places like Lagos or Nairobi.

So, yeah, BII has been one of the biggest backers of local venture capital funds in those markets. And the reason we do that is to provide so that our money can be sort of subdivided and be delivered in smaller amounts.

GYUDE MOORE:
Thank you. And, Frank, I wanna come back to that question to you. Here in the United States, almost 50% of employees work for small businesses. I imagine in the African market where you don't have these large corporates like you do here in the United States, that number is probably even higher. But these are the companies that are gonna face the problem I just described. So, what does your organization do to try to address this problem in terms of ticket size?

FRANK ASWANI:
So, first of all Gyude, well done for trying to become an entrepreneur. It's a tough decision to make. But we need more of you. We need more people like you going into set up businesses. And one of the challenges we face on the continent is, in many cases, entrepreneurship is a fallback plan. It's not a deliberate choice that many young Africans have to make because we are brought up to think, oh, you must go to school to get a job. But there is huge value in being an entrepreneur. So, we are actually very deliberately trying to focus on that investor who's playing in your space. The small ticket size has invested. In any case, that's where most of the Africans play because they don't have that much capital, to be honest with you. But also the demand for capital from most African entrepreneurs are relatively small ticket sizes. So, Nick is certainly right to say that where BII plays is not at the coalface of interacting with the entrepreneurs. So, we support a lot of entrepreneurs who are deploying smaller ticket sizes.

So, majority, not all, majority of our investors have argued 78% are doing under $5 million with sweet spots of 250 to $2 million thereabouts. And we have almost entirely been supporting the investors and working with the investors to help them get at understanding what it takes to deploy capital to entrepreneurs, improve the toolkits that they go out with when they're going to make investments beyond just debt and equity because we've got to think about what are some of the unique things the African entrepreneur faces. So, for example, you look at an African female entrepreneur who's trying to get credit, will probably be told you must bring collateral. And in many cases, your African woman is not allowed to own things like land. But the joy about the space you are in today that there's a lot of innovative financing models that allow you to create structures that can still allow you to lend money to a woman. So, things like revenue share models that negate the need of having collateral.

So, that's the exciting stuff about where we're at, is that we're able to play around with different instruments, different financial innovative models. And the good thing about being in Africa is that we have so many problems that were 20 years ago embarrassing to talk about. Today they're exciting impact opportunities. And if you invent anything in Africa, it's globally scalable because we give you the extremes of conditions to test your innovation. And so, that's a lot of the work that we do. And the reality also in this impact space, we're not really short of money. Money is not really the problem, the problem is risk capital, capital to fund that risky entrepreneur, to test new markets, new models, new products, and scale proven models. So, a lot of the other work that we do is also to try and build large pools of risk capital that can invest alongside mainstream capital to the risk social investments and enable private capital to come into this space so we can build more SMEs, create jobs, so on and so forth.

GYUDE MOORE:
I don't know how true this is because I don't have any personal experience, but I remember hearing that the CDC group its appetite for risk was slightly higher than its contemporaries. And CDC group and your organization, BII, was doing equity investment before others. For example, when OPEC became DFC, we saw new language and new authorizations introduced that allow it to do equity. So, come back to this question of risk, how is BII different other than just being British and not being American and German? But how is it different from its contemporaries, especially on this question of risk?

NICK O’DONOHOE:
You still look different in two ways. First of all, I think we genuinely do have a larger risk appetite than many of the other development finance institutions. There are lots of reasons for that, but a critical one is the way that we're funded by our own government. We are 100% equity funded. Most of our contemporaries are much more like banks. They're leveraged, they're borrowing in the capital markets. For that reason, they have to be more conservative and they have to have greater risk controls. We don't have that issue. So, that has given us an opportunity to take more risk. And the way that we illustrate that is, first of all, through equity investment rather than debt. So, 75% of our assets are invested roughly in equity, 25 in debt, most of our peer organizations would be the other way around. I think within that equity bucket, we've also been willing to really do sort of start ups effectively start a company, own 100% of it, and hopefully over time bring in other capital. Our contemporaries would not do that.

I think we've always been more focused, frankly, on Africa - 60% of our portfolio is there. That is a higher percentage than any other DFI. I think most of us would accept that Africa is probably the riskiest and certainly most difficult from an investment perspective. I think you asked earlier about venture capital. We were very early among the other DFIs in actually committing a substantial portion of our portfolio to startups and venture capitalists, and most of that's done through funds and through co-investments of those funds. So, I think all of those things, I think, we feel that we can sort of confidently say that we work with our other peer organizations all the time, and they all do wonderful work, and they do it in different ways. But I think what makes BII special is our ability to probably take on more risk and accept more volatility, frankly, in our earnings.

GYUDE MOORE:
Yeah. And Frank on that question, how important then is it to have access to funding or to have players like BII in the market?

FRANK ASWANI:
It's very important, there's no question about it because the quantum of capital that comes from outside is much more than we can find locally. That doesn't necessarily mean that there's more money locally, it's just from an impact perspective. And this is something we all have to change as Africans. There's a general perception that impact capital is foreign capital. And we've got to start thinking about how does foreign capital supplement our own local capital in the impact space. And one of the things we are trying to do at AVPA is trying to unlock more local capital. Like we strongly believe we should have more institutional funders like pension funds and insurance companies funding SMEs on the continent. We strongly believe that we need to be thinking about unique course of capital, like Africans give a lot of money to churches and mosques. How can faith-based giving drive some of that early-stage risk financing of SMEs? We strongly believe that the government could probably be a bit more efficient in how they use their money to especially stimulate and unlock private capital for impact.

So, we've got to be a lot more deliberate as Africans in unlocking more local capital because the other thing as well is when Nick or BII or another DFI comes to Africa, they need their money to be paid back in foreign currency. And we are facing some huge devaluation challenges on the continent. So, nothing beats when you have local capital that is more aware about the local risks, local challenges and can be probably a lot more patient as well in the process of investing in our local entrepreneurs. So, I think we really appreciate what the staff that people like BII are doing but I think the onus is on Africans to do a lot more for ourselves, to be honest.

GYUDE MOORE:
That makes sense. And Nick, I wanna come back to you to this question because your exposure in Africa is probably larger than some of your counterparts and contemporaries, does that give you then, say, a better insight into the market that you might be able to bring others along with you? And what I'm targeting here is to core and joint financing. How much of that is a part of what BII does?

NICK O’DONOHOE:
So, I think that idea of mobilizing outside capital is becoming an ever more important part of what any development finance institution is responsible for. And it's indeed when you listen to the narratives around reform of the World Bank Group and so on, a lot of it is directed at how can we use the organizations like multilaterals but also the development finance institutions to mobilize more capital. And the truth is that we do bring a lot to the party. We have some forms of concessionary capital which can often provide some sort of subsidy to various finance structures. We obviously have deep knowledge of the markets - we've been investing in Africa for 75 years. Very good understanding of the sort of environmental and the social and the governance challenges that comes with investing in Africa. So, what we're finding is particularly, I think, more recently on the climate side as the need for any appetite for capital to address climate change. It's a huge potential opportunity, frankly, for investors.

And I think that's the sort of area where I think they look to firms like BII to be their partners, work alongside them, and they feel like they're aligned from a value perspective, and they trust our knowledge of these markets.

GYUDE MOORE:
In terms of the diversity of financing, one of the issues... I'm actually just doing a piece now on how, during China's boom, commodity exporters in Africa did not develop other markets, they simply focused on China. So, that slowdown in China carries significant risk to them because they're exposed. So, obviously BII is an important player in the market but what other players are you attracting to the market? I know there's significant money coming out of the Middle East now. Are you targeting money from the Middle East? In terms of the mix of diversity of financing, what does that look like from your perspective?

FRANK ASWANI:
So, the biggest cost of capital we're trying to build right now is really risk capital. So, large catalytic funds, especially around pooled funding, how we can aggregate risk capital in large pools and trying to see how we can de-risk and unlock more local capital in the process. So, we're working with a couple of organizations to build what we're calling pooled or collaborative funds to provide that risk capital, because as I mentioned before, we strongly believe there's a lot of money in Africa that is safer, especially in the space we operate at the SME financing space, there's a lot of money in the continent. There's money sitting in family offices, there's money sitting in pension funds that we need to be a lot more deliberate about unlocking. So, but how do we find the de-risking facilities to help those kind of vehicles feel comfortable about putting money into this space? And actually, hopefully, in being catalytic, they will realize that the perceived risk is not as bad. So, the amount of concessional capital that needs to stimulate that segment is not as high as we think it should be.

But at the same time, it's not so much Gyude, in terms of the amount of money coming in but also the types of vehicles we're designing for this kind of space and other support structures that we're putting in place for the African entrepreneurs. So, for example, to your question earlier about you went and you were told this about your startup is too small and whatever. There's a lot of unconscious incompetence around African entrepreneurs with regards to when is the right time for you to chase what type of money. So, at an early stage, you need to be, if possible, going after grants and only go for commercial capital once you've got a proof of concept, you've got kind of revenue model, so on and so forth. But there's a lot of education around investor readiness that needs to happen to our entrepreneurs and our fund managers as well. But as I said, also, there's need for us to be very experimental in the different types of instruments we deploy in solving Africa's financial flows to impact on the projects and SMEs.

We need to get a lot more creative with innovative financing, blending finance. We need to look at trying different types of models, and that will got to be deliberate about. And the challenge right now also is to create a large pool of fund managers. There isn't a deliberate process at the moment to do that. So, I sit on a fund of funds, the Mastercard Foundation Africa Growth Fund as an investment committee, and there not that many female fund managers on the continent. And these are not gonna emerge by chance. We've got to be a lot more deliberate in designing interventions that actually increase the pipeline. So, how do we make sure that there are programs in universities that support women who wanna go into investments to learn about that, get experience, so on and so forth? And lastly, even stuff like entrepreneurship. I think we've got to be a lot more deliberate about embedding entrepreneurship in education curriculum because our education curriculum assume that there are jobs for young Africans and we're struggling for jobs.

But how can we help young Africans get early exposure to entrepreneurship as an example?

GYUDE MOORE:
So, thank you very much, Frank. Nick, because you are fully funded by the government, there are hard limits to how much money is ultimately available. And even if the government put up as much money as they possibly could, the scale of the problems we're trying to address means that we have to seek money elsewhere, and one of the biggest parts and pools of capital is from the private sector. But what would encourage the private sector to come into a market would be at least the pace of exits. So, you want to see some exits, you want to see that you can deliver something to investors. So, you've been in Africa seven to five years, and so what does that look like for private capital coming in, especially around the question of exits? Or have you had enough success that might be attractive to private capital?

NICK O’DONOHOE:
So, look, I think the lack of end is the consequence, a whole lot of other things rather than it's sort of an end in itself. And Frank made this point earlier on, I think we have to recognize that we in the development finance community, we don't have a magic wand that we can wave to suddenly create super returns in Africa. The biggest challenge in earning returns in Africa today has been actually not, in my view, the lack of interest, it's been the performance of the currency markets, particularly when we're talking about equity here. And we've seen it, especially in the last couple of years in Nigeria and Ethiopia and Kenya and Egypt and a whole range of different countries, really significant devaluation that the currency. You're not going to get commercial investors investing in a country if they have a parallel exchange rate as an official exchange rate (CROSSTALK), 'cause everybody knows they have to come in at the official exchange rate and they're immediately sort of discounting their money.

You're not gonna get a commercial investment in economies where inflation rates are running at 20 or 30 or 40% or more, where interest rates are 20% plus. You're not gonna get investments in countries unless people have confidence in governance structures. So, I think these are all issues that cannot be solved by development finance organizations sort of waving a magic wand, and we have to address those first. You're right to say that when investments are made, it's very difficult to hold them for five or six or seven, or ten years. It's very difficult to find an exit. That reflects the fact that commercial investors aren't allocating significant parts of their assets to Africa. Why are they not become sort of circular? Why they're not allocating those assets? Because they don't believe the underlying investment climate is sufficiently attractive. In some cases, development finance institutions can provide some risk mitigation. Particularly where organizations that have regulatory requirements around capital or solvency, we can help address occasionally some of those problems.

So, there are some things we can do, but we're not gonna solve the whole problem.

GYUDE MOORE:
Frank, I wanna come to you on this. Maybe part of the solution to that is what you're doing, sort of raising the capital locally, and they're sensitive to the conditions locally. That might help, but I think eventually it's gonna come back to this issue of governance in this space. Because even African entrepreneurs and African investors, they too want dividends. Just because they are patriotic, just because they are local, doesn't mean that they don't wanna make money. How is AVPA addressing this question when it comes to the fundamentals of governance?

FRANK ASWANI:
Yeah, and that's a major problem. So, one of the things we decided very early in our journey was to make sure we never leave governments behind. So, in all the programs we do, we make sure we create, whether they're training programs, capacity building programs, convenings, we make sure we create space for governments so they can understand the space, how it's evolving, the opportunity cost of them not coming along, so on and so forth. And it's very important to showcase to governments and policymakers how embracing these new paradigms is actually gonna help them and make them look better to their people. So, a lot of the stuff that we do is really trying to showcase to governments the possibilities of these new paradigms and new approaches, what they can do, how they can help them solve problems, and where it works, for example, how it can even deal with some of the things around corruption. So, for example, we're talking to some people now about testing outcome-based financing models on government tenders.

And could that help address some of the corruption practices that we've seen around government tenders? So, that kind of stuff. We're talking to governments around creating changes in laws and policies that allow foundations to be investors in models that they can make money and not be taxed hugely for that, especially if the money is gonna be put back in the foundation. So, there is needs for that to happen. And one of the joys that we are able to do as AVPA because we have sister networks in Asia and Latin America, is to connect our African policymakers to their peers in the other global south countries so they can see how this has been done in other countries with very similar economies solving very similar problems. So, it's a journey. Dealing with governments can be a challenge, but one that we have to commit to stay in the course and one that we shall continue to seek innovative ways to help create awareness in governments around the need for us to be thinking differently and doing things differently in this current space, if we're gonna meet our development agendas and objectives.

GYUDE MOORE:
BII is such a big player in Africa, and its footprint means that it can also bring along with it from the private sector and other development finance agencies. So, for an African business or big-size African business looking for investment and wanting to engage BII, what is the entry point? How does it happen? How did they find you? How did they come to you?

NICK O’DONOHOE:
So, look, I think... Well, first of all, we have offices in regional offices in Johannesburg, in Lagos, in Nairobi, in Cairo. We have other offices or representatives in Accra and in Zambia. So, we have local people around the continent, and obviously, a big part of their job is originating transactions. People can always contact us directly through our website if they've got business ideas, but I think I have to be realistic when I say that our typical investment size is gonna be 15 to $20 million. So, that's quite a large number for most businesses in Africa. And a lot of the time what we'll end up doing is referring the businesses to some of the funds we back, for example, some of the banks we finance, 'cause that actually is a better place for them to sort of access our capital indirectly rather than directly.

GYUDE MOORE:
Man, that makes sense. And Frank, for a budding entrepreneur or investor who wants to benefit from what you offer, how do they access the service and the value that you provide?

FRANK ASWANI:
First of all, our website is the easiest place for them to find us. Secondly, because we tend to work mainly with the investors, is for them to encourage anyone who's investing in them, whether they're friends or family, whether it's a foundation, whether it's someone giving them non-financial services to join our network and then bring them into the network. We tend to work with investors rather than the entrepreneurs, just because we think our leverage is higher that way. But eventually, we indirectly get to them through other opportunities. But the most important thing we're available on our social media, we have offices in Nairobi, Johannesburg, and Lagos. But the easiest way for them to come to us for help is by encouraging the people who are supporting them to plug into our network, and that will be easier for us to reach the entrepreneurs eventually.

GYUDE MOORE:
As we come to the close of our podcast, we have these two questions. One is something memorable or weird or interesting from your work in investing. And then, of course, if you could change one policy about this space in which you work, what would that be?

NICK O’DONOHOE:
So, look, I'd be very fortunate. I'd be the chief executive of this wonderful organization now for seven years. And the greatest part of my job is I get to go and see so many different places and so many different people. So, it's been an extraordinary experience. I suppose the most memorable, I'm not sure that this... It's not more memorable probably than funny was quite early on when I joined the firm and we had an investment right in the middle of the DRC, and I was told, look, if you wanna show that you're tough enough to be the chief executive of this organization, you've got to go visit this investment. And you can't do what your predecessor did, which is to sort of fly in the company plane, stay for two hours, and then fly. (CROSSTALK). You had to actually go the hard way, which was basically to fly to Kisangani and then get on a boat. And this was a 1950s small motorboat that was with five other people. And we went down the Congo River for six hours to reach this place. But I say it was sort of funny in a way 'cause it wasn't how I expected life as a chief executive to be.

But on the other hand, it was a fantastic introduction to the challenges of what we were trying to do, which was to try and help and support and build businesses in some of the most remote places in the world. In terms of what would I change and I don't wanna be too technical here, but I think there are things that we are doing in our sort of policy environment that are making it more difficult. We know it's risky to go and invest in Africa but some of the things we do make it more difficult in particular, I think two things I'd mentioned. One is the way we calculate capital ratios for banks. We make it very disadvantageous to move your money to the more difficult countries. Today in Africa, there's only one country that has investment grade and that is Botswana. Everything else is subinvestment grade. It's very difficult for banks, very expensive for banks to invest in those countries. And I think we could have a system that reflected somewhat more, well, obviously risk, but also the impact that moving more capital there could have.

And I think the other thing is we have databases. Frank made the point earlier that the perception of risk is often higher than the real risk. We have databases within the development finance community that we're not making it available as we could be. So, I would also wanna change that.

GYUDE MOORE:
Thank you, Nick. And then Frank, something memorable and what would you change?

FRANK ASWANI:
So, something memorable is every time I traverse this continent, I'm encouraged by the passion of Africans to want to create a better life for themselves. We are not short of good entrepreneurs. Our support structures for these entrepreneurs is letting them down. The biggest thing I think we need to do as Africans is really not to waste the crisis that we've been through in the last couple of years, from Covid to the Russia-Ukraine war to Black Lives Matter. We've got to emerge from this crisis a lot better than we went in. But what we need to do is take ownership for ourselves. We need to own a lot more of our solutions. We need to drive a lot more so that others coming into Africa are not coming to lead, they're coming to work with us on our own solutions. So, that's why the things like unlocking local capital and those kind of things, we've got to take leadership for solving a lot of our problems rather than sit back and let people from outside kind of shape our solutions. So, I think that's something I'd like to see more of just our own mindset shift, exactly.

But we've got brilliant solution providers on the continent, a lot of entrepreneurs doing some really excellent stuff and cool stuff that I think we need to piggyback on to really scale and grow African solutions. So, that's the first thing that really keeps me going is there's so much opportunity for us to do better by ourselves. From a policy perspective, I think two things. One, I'd love to, and talking to Nick specifically and other DFIs, I love DFIs. Pretty much piggyback on (INAUDIBLE). Take a bit more risk in Africa. I think DFIs haven't taken enough risk, and their expectations of returns have also been almost close to market rates. I think they need to be a bit more closer to the middle. That will allow them to offer more patient capital, more risk capital. So, that's one thing. The second thing is that I'd love to see DFis and other foreign investors coming to Africa being deliberate about collaborating with African partners. There's too many times when we've seen a DFI collaborating with their own agency to do a project, and when they exit, there's no knowledge left behind.

I think we need to see a lot more deliberate around that. And thirdly, from an African perspective, I'd love African governments to change their role in this space. I'd love them to think of themselves more as catalytic investors. They're the biggest holders of grants and risk capital in any country. And if they thought differently about for every dollar they're deploying, how much are they unlocking of private capital? We could move volumes in terms of money into impact space in Africa, and that would totally transform how we mobilize and the space at which we transform the content in addressing some of our social issues.

GYUDE MOORE:
Gentlemen, thank you for being on the CGD podcast. It's been a pleasure having you and having this conversation with you. Remember to subscribe to the CGT podcast on Apple, Spotify, or wherever you listen to podcasts. Thank you and have a great day. On behalf of the Center for Global Development, I would like to thank our podcast team, Stephanie Donohoe, Jeremy Gaines, Jubilee Ahazie, Kia Muleta and Sound Easy our producers. Join us again on this podcast and many other podcasts that we do here at CGD. (UPBEAT MUSIC PLAYS)

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