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Thursday, September 28, 2023

AFC Solid Earnings in Stark Contrast to NSIA’s Poor Performance

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… earns superior risk-adjusted returns on infrastructure deals


The Africa Finance Corporation (AFC) has delivered stellar results for the 2022 financial year, in sharp contrast to the  Nigeria Sovereign Investment Authority (NSIA), which runs Nigeria’s sovereign wealth fund (SWF).

Both are government owned/controlled entities with the Lagos based AFC more suited to delivering shareholder value with its professional workforce and skilled talent, as opposed the NSIA, ensconced with bureaucrats in Abuja, with often politically tainted hiring.

Founded in 2007 as a multilateral financial institution created by sovereign African states, the AFC provides pragmatic solutions to Africa’s infrastructure requirements by financing and developing infrastructure, natural resources and industrial assets.

AFC’s total comprehensive income closed the year at $285.3 million, up by 52% from $188.2 million in 2021.

Profit for the year 2022 for the NSIA however fell 33.3% to N102.35 billion ($220 million), compared to N153.56 billion ($331 million) in 2021.

While the AFC’s total assets grew by 23% from $8.6 billion to US$10.5 billion, realising the Corporation’s 2018 five-year growth target one year early, NSIA total assets (Group) slumped to N1.032 trillion or $2.22 billion, from N1.227 trillion ($2.64 billion) in 2021.

AFC’s key prudential ratios closed the year as follows: Return on Equity at 12.1%, up from 9.7% in 2021; Capital Adequacy Ratio at 31.5%, up from 30% in 2021 excluding the Tier II capital borrowings; Cost to-Income Ratio at 22.5%, down from 22.7% in 2021; and the leverage ratio at 2.8x, unchanged from 2021.

As at 31 December 2022, the Corporation (AFC) recorded Liquidity Coverage Ratios of 202% and 157% under normal circumstances and stress scenario respectively.

“This strong financial performance reflected tactical balance sheet positioning going into the current rising yield environment which led to an increase in the net interest margin,” the AFC said.

Net Interest Income (NII) was up by 48.5% from 2021 and ahead of the budget by 1.8% on a straight-line basis, reflecting a higher yield on interest earning assets (7.4% compared to 5.9% recorded in 2021).

This exceeded the increase in funding costs, as rising global interest rates affected both sides of the balance sheet.

AFC’s Interest income for the period grew by 39% for the 2022 financial year, while interest expense grew by 26.8%.

In addition, key strategic transactions, helped to drive robust 50.4% growth in income from fees and commissions, from project development transactions such as West African Energy and FG Gold Ltd and innovative structuring products such as the guarantee on the Bank of Industry transaction.

The management of the NSIA which has an infrastructure fund where it allocated 50% of its assets in 2022, equivalent to $921 million​, can learn major lessons from the AFC about how to structure profitable infrastructure deals.

AFC’s investment footprint spans 36 countries across Africa, with cumulative disbursements of $11.5 billion since inception, driven by a pipeline of projects that blend development impact with superior risk-adjusted returns.

Key priority sectors include power, transport, heavy industries, natural resources, telecommunications and technology.

Highlights of AFC’s infrastructure investments include: Acquisition of 100% of Lekela Power, with a combined installed capacity of over 1 gigawatt (GW) and 1.8 GW pipeline of greenfield projects.

Mandated lead arranger on a total financing package of €650 million for the turnaround and capacity upgrade of Senegal’s only petroleum refinery(SAR), unlocking a 25% increase in production capacity.

Expansion of the Integrated Industrial Platform (IIP), AFC’s industrial platform focused on agro-processing, notably cocoa, cotton and cashew, extending the partnership with the Ivoirian government.

Co-developer and early-stage investor in Nyanza Light Metals’ 80,000 tpa titanium dioxide pigment (TiO2) plant in South Africa.

AFC is also facilitating follow-on investments of up to US$500 million, acting as a co-Mandated Lead Arranger, and construction of the 300-MW Cap des Biches project, a dual fuel (natural gas and naphtha), combined cycle power project which will reduce CO₂ emissions by close to 1,000 tons pa.

AFC’s stellar performance is also bolstered by a strong governance structure in place, which is comprised of AFC’s Member States, Shareholders, Board of Directors, Board Committees, Executive Management, Management Committees and Employees.

An evaluation of the performance of the Board is conducted every two years.

In 2020 the Board engaged the Sirdar Global Group (SIRDAR) to conduct the performance assessment of Directors, individually and collectively. SIRDAR also assessed the corporate governance practices, procedures and policies of the Board.

SIRDAR presented its report in 2021. The results from the evaluation process indicate that Board performance, governance and compliance are in good health, with no major areas of concern.

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