Our summer note arrives as many clients settle their plans for the second half of the year. The questions we hear most are about money: which currency to borrow in, who will lend, and on what terms. Below are the themes that have shaped our work this quarter across energy, trade, market entry and public-private partnerships, with a short list of what we expect to watch through the autumn.
Local-currency finance moves up the agenda
Many of the projects we advise on earn revenue in cedi, naira or Rwandan franc, while most of the debt offered to them is still in dollars or euros. The mismatch is tolerable until a devaluation, when a sound project can become a distressed one within a year. In the CFA franc zone the euro peg changes the calculation, but elsewhere it is the first risk lenders and sponsors should discuss. More sponsors now raise it at the start, before the term sheets arrive. The options are known, if not cheap: local-currency tranches from DFIs, hedging through specialist providers, local bank debt for shorter tenors and, in a few markets, pension funds able to hold longer-dated infrastructure paper. Our view is that a higher headline rate in local currency is often the better trade for an asset with local revenue and no natural dollar hedge.
Mini-grids and commercial solar are maturing
Two parts of the distributed energy market have grown up quickly. Mini-grids now operate under clearer rules in several markets, with regulators setting tariff methodologies and results-based grants paying per connection. Mission 300, the World Bank Group and African Development Bank initiative to connect 300 million people by 2030, now has national energy compacts with more than 30 countries, and distributed renewables feature in many of them. Commercial and industrial solar has a simpler driver: businesses tired of paying for diesel when the grid fails. Kwame Asante’s team in Accra has worked with factory owners and a cold-storage operator on lease and power purchase structures this year. The lesson is consistent. The engineering is straightforward. The credit of the offtaker is not, and a solar provider lending against one factory’s cash flows needs the same diligence a bank would do.
The engineering is straightforward. The credit of the offtaker is not.
The Guided Trade Initiative keeps growing
When the AfCFTA Guided Trade Initiative began in 2022, eight countries took part and a short list of products moved under it. Since then the number of State Parties that have completed the procedures to trade under it has passed 35, and it has become an important proving ground for AfCFTA preferences in practice. For our trade clients its value lies in the route it opens: a documented path through certificates of origin, customs valuation and preferential duty that later shipments can follow. Fatou Sarr’s team in Dakar has been helping exporters work out which of their products already meet the rules of origin and which would need a change in sourcing. Our advice is to start with a product that clearly qualifies, prove the route once, then widen the range.
Special economic zones: read the incentives closely
Special economic zones remain one of the most common entry routes we discuss with manufacturers. The appeal is clear: serviced land, faster permits, customs facilitation and tax incentives in one place. The value is won or lost in the detail. Incentives under a zone law may differ from those in the general investment code, may be time-limited, and may depend on export ratios that become hard to meet once a regional market opens up. How goods made in a zone are treated under AfCFTA preferences is also worth confirming for each market before relying on it. David Habimana’s team in Kigali begins every zone assessment by mapping the incentives against the client’s own sales plan, year by year. Where the two do not match, a site outside the zone is sometimes the better choice.
DFIs are selective, and clear about why
Appetite among development finance institutions remains strong, though it is focused. In our recent mandates, DFIs have responded fastest to projects with a clear development case, credible local partners, and environmental and social work done to their standards before the first meeting. They have been slower with projects that arrive with a financial model but no land rights, no grid connection agreement or no evidence of offtaker credit. Blended structures, where concessional money takes first loss or a guarantee covers a specific risk, are more common in the deals we see, though they take time to assemble. Abena Owusu’s advice to sponsors is to bring the DFI in early, as a co-developer of the structure, rather than approach it as a lender at the end.
What we are watching next quarter
- Storage requirements in upcoming solar tenders, and how they are paid for.
- The next annual round of AfCFTA tariff cuts, and the customs notices that put them into effect.
- Port and logistics concessions in West and Central Africa, and what they mean for inland trade routes.
- Local-currency bond issuance by infrastructure sponsors in our markets.
- The pace of disbursement under Mission 300 national energy compacts.