Good morning, everyone.  

Thank you Donna, for the introduction and for bringing together this Africa Summit.  Thanks to everyone at National Association for Securities Professionals (NASP) for inviting me to speak today.  For investors, this is an interesting time to be thinking about sub-Saharan Africa, so I’m thrilled to see so many of you in the room.  I’m sure some you are wondering what some “government guy” is doing at a conference for investment professionals – maybe you’re wondering if I got lost, or if I thought a securities conference would be focused on national security.  But, in fact I wanted to be here because I think there are some opportunities for us to work together.  And hopefully, I can do some framing of the historical context in Africa, describe our modest role in this ecosystem, and highlight some of those opportunities for you over the next twenty minutes. Other sessions today will then get into much deeper discussions about many aspects of African capital markets.

For those of you who don’t know, my Agency – the United States Agency for International Development (USAID) – works in more than 80 countries around the world to foster development progress across sectors like energy, agriculture, and education.  Partnerships have always been a key part of our approach, because we know we can get more done when we join forces with others.  So we work closely with other donors, governments of developing nations, multilateral organizations, NGOS and civil society groups.

And, very importantly, we also partner with the private sector.  In fact, private sector engagement has been an important component of USAID’s work since our founding in 1961.  Of course, the nature and breadth of that work has deepened over time, evolving from a strategy focused on enabling the conditions of a robust market economy to one of mutually beneficial opportunities.

For example, today we work with private investors not simply because of the strategic capital they can deploy, but also because of the skills, knowledge, and experience investment brings to help developing countries grow.  And investors are increasingly seeing opportunities in emerging markets such as those found across sub-Saharan Africa, and with good reason.  It’s at this nexus of business and development opportunities that we can help achieve transformative progress

But before getting into how we can work together at this nexus, I think it’s useful to get a better sense of the context and history.  Because that really demonstrates how USAID’s heightened engagement with private investors is the result of a natural progression.

In the 1980s and 90s, financial sector development was a major element in our programming.  Our work was aimed at improving enabling environments for robust market economies, supporting host country economic reforms, and accelerating development of financial markets in evolving democracies.  Some of you will remember the huge economic challenges following the Soviet Union’s collapse.  Suddenly, 29 countries in the former Eastern bloc were beginning a transition from centrally-planned economies to market-based ones, without anywhere near to the financial sector capacity required to support the transition.  That’s where USAID’s Europe and Eurasia Enterprise Funds came in, ten new investment funds supporting enterprise development across 19 countries.  The funds proved that such approaches could yield sustainable economic development impacts while also generating income.

Of course, not all of our efforts were equally successful.  But our focus on financial sector development also led to new securities markets standing up across the globe.  Indeed, everybody investing in emerging markets can thank a handful of development agencies around the world, including USAID, for supporting the creation and/or modernization of a huge proportion of all the securities markets around the developing world.  

At the same time as the collapse of the Soviet Union, sub-Saharan African countries were also shifting from state-controlled to market-driven economies. With support from USAID and other donors, these countries were embarking upon structural reform programs – including efforts to modernize and diversify their financial sectors.  

In most of these African countries the banking sectors were already open and partially liberalized, so efforts focused on improving the banking sectors and building securities markets as a financing alternative to the banking sectors.  USAID, on behalf of American taxpayers, was there to support the development of such markets, as well as the development of the laws and commissions to oversee them.  Just to give a few examples, we supported securities markets development in Cote d’ Ivoire, Uganda and Swaziland, and developed venture capital funds and capacity in Ghana, Tanzania, Uganda, Senegal and Malawi.

Other countries, like Kenya, actually had existing securities exchanges, but they were in need of modernization.  Thus, for example, USAID supported the Kenyan Capital Markets Authority (CMA) in the 1990s to rewrite regulations and transition into a self-sustaining regulatory body.  

In the late 1990s and 2000s, USAID undertook a big shift as we expanded our engagement with the private sector by introducing new tools to the mix. With the establishment of our Development Credit Authority, we were able to partner with local finance institutions and other investors to unlock financing for development priorities through the use of partial credit guarantees, loans, and in a few cases, bonds. We also began partnering with businesses in new, more robust ways. So far, USAID’s partnerships with the private sector have resulted in 1,500 alliances – made up of 3,500 partners – and leveraged more than $20 billion in public and private funds.  

As we continue to work to spur investment to drive progress across key sectors, we are always looking for new tools and entry points. For example, more recently we have been working with local pension funds.  In Kenya, where pension funds achieved compound annual growth of 10.29 percent from 2010 to 2015 and reached a total of $8.1 billion at the end of 2015, we provided training to trustees and regulators on investing in private equity, a new asset class emerging in that region. I think the growth in this arena will provide new investment or business opportunities for those of you who might be interested.

So there’s no question that USAID is eager to partner on the investment side. We have learned over time how to do it with impact, too, but we’re always open to new ideas and suggestions from the investment community on how to do better.

That’s where you all come into the equation. We know we have the greatest impact when business interests coincide with development objectives, so we need to find those points of connection.

And we’re all here today because Africa is a good place to look for them.  

One of the reasons for that is sub-Saharan Africa has a pretty strong economic outlook as a region. There are variations depending on the country, of course. For example, the declines in oil and commodity prices have impacted exporters like Nigeria, Zambia, and Gabon. And the El Nino-fueled drought is having severe ramifications on some economies in eastern and southern Africa.

But at the same time, the economies of non-oil exporters like Senegal and Mozambique are growing. These countries are using funds from previous bond issuances, public-private partnerships, and loans to invest in their infrastructure and strengthen their country’s business environment. And it’s paying off. The IMF’s April estimates of 2016 GDP growth for non-oil exporting countries – which also includes Cote D’Ivoire, Kenya, and Ethiopia – far surpass the anemic growth rates facing much of the globe.

And, even with commodity fluctuations posing challenges for many countries, the demographics of the region remain promising. As the youngest and fastest-growing continent, with its population expected to double to some two billion people in the coming decades, Africa has enormous potential for growth. By 2030, more than 500 million Africans are projected to be middle class. By 2060, we’re looking at 1.1 billion African members of the middle class. That’s 42 percent of the continent’s population – exceeding the middle class in China today. Those are people who can support and build a thriving economy.

Additionally, Africa has experienced tremendous growth in pension assets over the last five years.  Throughout southern Africa, where pension systems are older and more established, growth rates have been somewhat lower, ranging between 8 percent and 18 percent over the previous five years.  Assets in East Africa have grown in excess of 20 percent on a consistent basis only overshadowed by Nigeria, which has seen growth between 25 percent and 30 percent.  These trends are set to continue as the continent moves towards increased coverage, and more inclusive and comprehensive systems. 

All of this is to say that if investors and fund managers want to be successful in achieving growth targets over the next few decades, they may want to get adventurous and look at Africa.  While the capital markets are modest-sized, they now seem to moving up to the next level even though the numbers are still small by global standards.  Over the past five years, there have been 66 initial public offerings on sub-Saharan African equity exchanges, raising $4.14 billion.  

Of course, if it were easy to invest in Africa, all of you would be there already.  One challenge is that sub-Saharan African stock markets, with the exception of South Africa, are still characterized by a high degree of illiquidity.  Shares are rarely traded and turnover ratios are low by international standards.  Looking at debt capital markets, a large portion of lending in sub-Saharan Africa still occurs outside of the capital markets.  However, there have been 489 debt issuances over the same time period, raising $110 billion, 72 percent in U.S. dollars.  

Investors are realizing that adding this regional exposure into portfolios leads to diversification and the benefits that come with it.  While the majority of emerging markets are increasingly correlated with U.S. and European benchmarks, the equity markets of sub-Saharan Africa have exhibited consistently low correlation to U.S. and European performance.  Correlations are generally low among individual African markets, too, underscoring the additional benefits of diversification within the African region.  As these markets continue to develop scale and liquidity, diversification across the region can mitigate currency and political risks.  In order to reap the benefits of diversification and favorable growth rates, large investors need to engage directly in transactions or look for reputable intermediaries – especially local ones, with local knowledge.

In some cases, that’s where USAID can help.  We have extensive knowledge and expertise in the region, and the tools to help drive investment to the best places.  As I mentioned earlier, the Agency is increasingly working to mobilize private, commercial capital and know-how to address development priorities at a scale not achievable through public sector funding alone.  To do that, we need to first demonstrate the bankability of investments to the private sector. That’s why I want to share with you a few examples of how USAID is actively working to encourage investment in sub-Saharan Africa.

Where possible, one of the ways we’re doing this is through risk mitigation.  Investors regularly reference the need to minimize risk and volatility in new, emerging sectors, like clean energy or health care. In some cases, making use of innovative capital structures, we have offered guarantees and provided subordinated capital to do just that.

For example, USAID recently awarded a first-loss tranche of capital to catalyze additional private investment in CrossBoundary Energy (CBE).  CBE pools capital for investment in solar energy assets that serve commercial enterprises in Kenya, Rwanda and other countries in sub-Saharan Africa.  CBE provides standardized financing to a network of solar energy developers and installers, increasing access to electricity, introducing cleaner technologies to the market, and cutting energy costs for African enterprises.  On the back end, the CBE fund aggregates its ownership of these medium-scale energy assets, creating a new asset class in Africa that could attract investment capital at scale.

Guarantees have proved a useful tool to increase investment in the power sector across the region.  In 2015 alone, Power Africa – President Obama’s initiative to increase electricity access on the continent – provided U.S. government guarantees to more than $150 million of investments in Ghana, Kenya, Nigeria, Tanzania, and Zambia.   These funds increased access to power through distribution companies, generation companies, and off-grid sources, at a cost to American taxpayers of only $12.8 million.  That’s a leverage ratio of 11 to 1.  

But the risk of suffering a loss isn’t the only barrier to investment on the continent.  Investors also cite the high transaction costs of the region’s infrastructure projects, along with other difficulties at the transaction level.  Power Africa has tackled this challenge in a few different ways, for example, the U.S. is deploying experts to the region who will connect stakeholders and work to remove the barriers slowing down individual transactions.  And, by drawing on the combined expertise and capabilities of 120 public and private sector partners, Power Africa has helped facilitate more transactions, and at a lower cost.

I hope this leaves you with a sense of the possibilities for investment in Africa, and how we might help break down some of the barriers.  For us, increased investment in Africa is an exciting prospect because it can help us build on the progress we have made and rise to the development challenges of the 21st century – but doing so will require working with you and others to get there.  For you, I hope you’re beginning to recognize the increasing nexus between our development priorities, and your interests and opportunities.

As the asset managers, investment bankers, and financiers actively working in this space, you, as members of NASP, are strongly positioned to identify investment opportunities while also simultaneously sharing your skills, knowledge and experience with institutional investors on the continent who are also looking to diversify and find new opportunities.  

I want to thank all of you for your participation in today’s events, and many thanks again to NASP for inviting USAID to participate.  USAID’s commitment to partnering with private capital to end extreme poverty is strongly aligned with NASP’s mission of connecting its members to opportunities and promoting the importance of inclusion in the financial services sector.  As a result, NASP and USAID are working on a partnership to connect US and African pension funds to catalyze investment into projects on the continent.

Thank you again for your leadership and partnership.