Can Acre's 'Big Idea' close the African infra finance gap?

Hussein Sefian, the founding partner of Acre Impact Capital, has a ‘big idea’: leveraging export credit finance to mobilise capital that can help solve Africa’s lack of critical infrastructure, from clean water to energy.

Acre Impact Capital intends to launch private debt funds that will fund small deals providing equipment and machinery, as well as larger infrastructure projects in African markets. The construction workers, photographed along the Trans-Sahara Highway in Mauritania, are not connected to this story. Nic Bothma / ANP

CV

  • Founding Partner, Acre Impact Capital 2019-present.
  • Head of Strategy BNP Paribas 2013-18.
  • Director, Deutsche Bank 2011-13.
  • Principal, Booz & Co. 2004-10.
  • Senior Consultant, Accenture 1999-2002.
  • NYU Stern Business School, 2002-04.
  • Commerce, Finance & IT, McGill University Montreal 1995-99.

Hussein Sefian describes himself as a ‘concept originator’. He certainly has what he calls a ‘big idea’. He straddles three different worlds, which he is bringing together: sustainability, African development, and export finance.

His concept is to exploit a gap in export credit finance to achieve sustainable development in Africa. This task he says is “made easier by the fact that export finance is badly misunderstood, despite it being such an important sector, turning over more than $200bn a year.”

Sefian founded Acre Impact Capital in 2019 to invest in growth-stage, climate-aligned infrastructure projects in emerging markets. It co-invests alongside leading commercial lenders and export credit agencies.

Until now, Acre has been a boutique impact advisor, but it will soon launch its own series of private debt impact investment funds focused on infrastructure sectors ranging from water & sanitation and education, to renewable power and digital infrastructure.

Hussein Sefian was born in Lebanon, a fact which he says has made him “well aware of the potential to rebuild a country”. Acre Impact Capital
“I hope these funds will eventually be worth several billions of dollars,” he tells Impact Investor. His firm recently secured so-called ‘catalytic capital’ from two key partners who support his ‘big idea’: The Rockefeller Foundation and GuarantCo, part of PIDG (the Private Infrastructure Development Group, funded by the British, Swiss, Australian and Swedish governments). “Their investment will fund plans to build up a team of fifty senior experts,” Sefian says.

The ‘big idea’

Sefian trained as a consultant at Booz & Co, a background that helped him master a lot of different financial concepts simultaneously. To help others understand his ‘big idea’ he says he must be “an investor educator”. He’s written a major white paper to “bring people onboard to this unique structure.”

In this paper, he states that “while export finance is a commonly-used mechanism for unlocking trade in goods and services in emerging markets, its potential to channel impact investments for essential infrastructure has been underappreciated – until now.”

Export finance is indeed a complex area that has evolved since the UK launched the first Export Credit Agency (ECA) in 1918. The World Trade Organisation estimates that now up to 90% of world trade is facilitated by the guarantees and insurance ECA offers.

It has a very particular application for the sponsors of new infrastructure projects, normally a government ministry, or a combination of ministries, in the country involved. According to rules established by the OECD, they are able to benefit from reduced borrowing costs on 85% of the cost of a project if they attract investment from an ECA.

Sefian: “We typically see a 30-40% reduction on that tranche of the debt compared to the equivalent Eurobonds for the same tenor.”

New private debt funds

The remaining 15% of costs must be fulfilled privately and, to add to developers’ difficulties, this capital must be provided upfront.

“Banks have been increasingly reluctant to get involved, given the political risks in many developing countries,” Sefian says. They have become more cautious since the financial crisis in 2008 and this has now been exacerbated by the Covid pandemic.

It is this 15% tranche that is attracting Acre’s attention. Sefian intends to launch a range of private debt funds that will step in to fund small deals providing equipment and machinery, and larger infrastructure projects. Sefian believes “there is a wall of impact capital that could be deployed.” The 15% will take the form of a loan. The ECA does not guarantee that tranche, which is why there is a gap in the market.

What’s the attraction for investors?

For investors looking for yield and impact, there are many attractions. Acre is targeting a wide range of investors: DFIs, Foundation Endowments, Impact allocations of Insurance Companies and pension funds, family offices.

The loans will be priced at a worthwhile premium to Euribor, and there is the clear attraction that every dollar spent is effectively being matched by an ECA, which means their investment is being multiplied at a rate of 5.6 times, according to Acre Impact Capital. That number is derived from the 15 cents in the dollar, being matched by 85 cents from an ECA.

The impact of every dollar spent is effectively ‘leveraged’ in this manner.

And thanks to Sefian’s background in sustainability, investors will have what he assures us “will be best-in-class impact reporting with a detailed impact framework.”

He says he is committed “to invest with a focus on four of the United Nations Sustainable Development Goals (SDGs): zero hunger (SDG 2), clean water (SDG 6), affordable and clean energy (SDG 7) and industry innovation and infrastructure (SDG 9).”

Sefian was born in Lebanon, a fact which he says has made him “well aware of the potential to rebuild a country.” His career as a consultant took him to many countries working on projects with social impact, including a stint in South Africa where his interest in Africa’s potential began.

By the time he reached BNP Paribas in 2013 as Head of Strategy, his motivating forces were sustainability and impact. When asked to come up with the biggest trends that would affect banking in the coming years, these two were naturally top of his agenda.

He helped build a major green bond business at BNP Paribas, taking the bank to global leadership in this market.

The African infrastructure crisis

The importance of what Sefian is seeking to achieve is brought home by considering the extent of the African infrastructure crisis, which is blocking the continent’s economic growth and development.

One of the most pressing needs is access to energy. Nearly half of Africans have no access to power. In order to meet the UN SDGs, $165bn a year of financing will be needed, according to estimates of the Global Infrastructure Hub.

A report from Rand Merchant Bank suggests that the cost of transportation in Africa is around 50% to 175% higher on average than in other parts of the world due to poor road, rail, and port transportation infrastructure.

Twelve new healthcare facilities

Acre Impact Capital is actively addressing this issue. They recently advised Investec, the Anglo-African wealth management group, on their investment in the Ghana Western Railway project.

This advice was offered on a fee basis and covered both the financial structuring and impact measurement. “This project is particularly impactful in reducing greenhouse gas emissions as the new 100km of rail track will move a lot of trucks off the road,” Sefian says.

He is also working in West Africa on developing some twelve healthcare facilities along with the UK’s ECA.

Sefian is developing a pipeline for the first fund which he will be launching next year. He’s actively talking to impact investors globally. He notices, in particular, that there are two elements of his ‘big idea’ that are gaining traction: “the risk/reward ratio, and the ‘multiplier effect’ allowing capital deployed to have a bigger impact” as it ‘piggybacks’ on ECA financing.