How Equity Group Is Providing African Solutions To African Problems

Africa is a great continent with great opportunities. Africa is among the few continents in the world where all natural resources are found. It is also the only continent that is often referred to as a “youthful continent” given that many people are young and energetic.

Despite the amazing potential, Africa is still poor with the majority of the population still going to bed without a single meal. The majority of African youth are also without jobs. The Covid-19 pandemic just made matters worse and many people were thrown deep into poverty.

It is time to realize that Africa needs its own African solutions from the African people. Nobody from outside the continent will come to liberate the continent from the shackles of poverty, unemployment, and diseases.

Entrepreneurship is increasingly seen as a key to growth in Africa. This is one of the generators of employment opportunities in the continent, employing about 86 percent and contributing about 45 percent to GDP in most countries across Africa.

In Sub-Saharan Africa, SMEs are one of the biggest formal employers. According to the African Development Bank, 22 percent of Africa’s working population are starting businesses. In as much as this potential is promising, entrepreneurs in Africa continue to face immense challenges.

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Some of the challenges facing the SME sector in Africa include lack of capital, market access, skills training, as well as administrative barriers. The key to African economic power is in the hands of the private sector and needs to be tapped as soon as possible.

At the same time, in the Sub-Saharan region, about 40 percent of the population is under the age of 15 years. This makes Africa the “youngest” continent in the world. With a youthful and energetic population, Africa’s potential is unmatched.

The launch of the Eastern and Central Africa Recovery and Resilience Plan by Equity Group could not have come at a better time. This is a private sector-focused stimulus package to accelerate economic recovery and resilience in the   Eastern and Central Africa region as it recovers from the devastating health, social, humanitarian, and economic impacts of the COVID-19 pandemic.

The Eastern and Central Africa Recovery and Resilience Plan is envisaged to provide financing of up to 2 percent of the combined GDP of the six economies, in which the Group operates, to the private sector in the form of blended financing of short-term overdrafts, medium-term loans, and credit facilities which require long-term project and development financing.

“A total of 678 billion shillings will be available to 5 million MSMEs and 25 million individual borrowers for the next 5 years.

The plan conceives that the 5 million businesses largely comprising MSMEs will create 50 million jobs, 25 million jobs directly and an equal number of jobs indirectly as the ecosystems of business become more cohesive, connected, and ultimately synergize and grow,” said Dr. James Mwangi, Equity Group Managing Director and CEO.

The recovery plan will have a special focus on youth and women, supporting them to be the primary drivers of creating and expanding opportunities in the real economy.

Under the Young Africa Works Initiative in partnership and collaboration with the Mastercard Foundation, the plan will build capacity in young people through financial literacy, entrepreneurship training, and digital literacy.

To ensure that no one will be left behind, lending to young people will be complemented with credit guarantee facilities to mitigate default through our credit risk pricing model that has opened inclusive credit access to all.

Risk-based credit pricing has enabled us to adopt a transparent, all-inclusive interest rate, at the current average central bank rate that ranges from 13% to 18.5% for the lowest risk and the highest risk categories respectively.

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The Regional Development Plan through recovery and resilience initiatives focuses on five thematic areas:

• Primary sectors of Food and Agriculture, and extractive sectors

• Manufacturing and Logistics

• Trade and Investments

• Micro small and medium enterprises

• Social impact and Environmental investments

Under the primary sectors, principally Food and Agriculture, the focus will be on unlocking productivity gains and value addition ecosystems to achieve food security for the region while increasing value creation in the primary sectors, which are the highest employers, highest foreign exchange earners, and the highest contributors of export goods.

The plan targets agricultural transformation by enhancing value chain coordination, capacity building of smallholder farmers-anchoring them better to formal value chains, financing mechanization, and credible inputs.

A significant plank of the plan is agro-processing which adds and enhances the value of agricultural exports while processing food for easy access by an urbanizing population and production of building materials to support construction and housing development.

The recovery and resilience plan seeks to leverage on productive capacities and comparative advantages to transform the region into a manufacturing hub that converts agricultural raw materials into finished products for export and national use.

The plan covers value addition for all primary products including retaining value in mineral processing to export semi-finished and finished products. The plan targets financing of in-country manufacturing and regional supply chains to replace broken global supply chains following COVID-19 disruptions.

This will build regional resilience against global supply chain shocks while contributing to economic recovery and growth of the region, creating employment opportunities for young people and markets for local producers.

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“We learned and developed a lot of knowledge while setting up PPE production and manufacturing in Kenya during the early days of the COVID-19 pandemic,” said Dr. Mwangi.

In order to replace the broken global PPE supply chains, Equity Group Foundation donated 1.1 billion shillings jointly with its partners to protect doctors and medical staff of 116 national referral, county, and faith-based hospitals for the last two years.

Through the initiative to establish and strengthen local production and manufacturing, Kenya has become self-sufficient in PPE and a leading African exporter of PPE. Our current plans include supporting the manufacturing and production of COVID-19 drugs, anti-infectives, and vaccines in the region.

Focus on trade and investments will enable the expansion of markets for the primary sectors of Food and Agriculture and manufactured products, along with the realization of investments to support the growth of the two sectors.

The East African Community, following the inclusion of the DRC (the Democratic Republic of the Congo), will provide an expanded regional market with similar characteristics and requirements.

The African Continental Free Trade Area Agreement (AfCFTA) presents, with its opportunities that the Plan seeks to fully utilize by signing an implementation and collaboration partnership with the AfCFTA Secretariat to position Equity Group as an implementation partner.

The plan also seeks to fully utilize existing Trade and Investment Agreements such as the European Union Trade Agreement, the United States of America’s AGOA (African Growth and Opportunity Act) framework, and the capacities of the Commonwealth community. -Pilot testing of these initiatives was undertaken with the December 2021 Kenya DRC Trade Mission between the Governments of the DRC and the Government of Kenya with the support of Equity Group.

The mission which has generated a sizeable deal pipe provided us invaluable lessons on how to mobilize, organize and support the private sector in stimulating cross-border trade and investment for purposes of scaling,” said Dr. Mwangi.

Micro, Small, and Medium Enterprises (MSMEs) are the largest vehicles for indigenous capital and entrepreneurship and will contribute significantly to local capital formation and employment.

Mass market and MSME financing is a key strength of Equity Group with 72 percent of its loan and credit portfolio held in this segment.

The Group has rolled out a plan to lend and advance loans to 5 million MSMEs and 25 million individuals to stimulate the participation of the local community and population, with a bias to young people and women.

To enhance the success rate among MSMEs and young people, the plan involves credit risk-sharing mechanisms and capacity building through financial literacy and entrepreneurship training.

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“The Group has pilot-tested lending to young people under the Young Africa Works in partnership with Mastercard Foundation with a resounding success rate of 436,000 MSMEs trained and funded to the tune of 136 billion shillings, and 1.2 million jobs created by the enterprises as they expand and grow on the access of financing,” said Dr. Mwangi.

The objective of the plan is to formalize the informal sector of MSMEs by linking them with formal manufacturing and primary food and agriculture sectors and by populating their value chains and ecosystems to achieve growth and resilience while accelerating the recovery of the MSME sector.

The Regional Recovery and Resilience Plan seeks to enhance the social contract with society while targeting sustainability on the basis of resilience by including environmental and climate change considerations.

The plan strives to achieve a social-economic transformation of the region in a socially ethical and environmentally sustainable manner. Being a purpose-driven plan, inclusion is at the center of consideration to ensure nobody is left behind and the plan is fully anchored on sustainability.

“We seek to use our AAA+ rated finance brand to ensure the plan enhances its social contract with society by seeking partnership and collaboration with local communities to ensure their participation and involvement. The plan incorporates strong principles and practices to assure all stakeholders of transparency and openness, under ESG (Environmental Social Governance) considerations,” said Dr. Mwangi.

Equity Group recognizes that it cannot single-handedly deliver the development of Africa. Cognisant of this fact, the Group has chosen to champion the socio-economic transformation of Africa jointly with like-minded partners and to seek their collaboration and partnership to synergize the combined capabilities and competencies of public-private partnerships, which will help mobilize the requisite strength to execute the Plan.

The Group has socialized and negotiated partnerships with the United Nations Resident Coordinators in the 6 countries in which it operates for collaboration and participation of all the UN agencies operating in the region under the auspices and delivery of the Sustainable Development Goals (SDGs) collaboration framework.

The Plan has won the support and participation of IFC, AfDB, European Development Banks (Team Europe), the Commonwealth Secretariat, the African Continental Free Trade Area Agreement Secretariat, and the European Union, as well as support from the national governments of the six countries the Group, operates in.