Long term partnerships and mutual understanding are key to growth in Africa – Michael Fischer

Michael Fischer, Director and Southern Africa’s Regional Head of the DEG (a German government DFI — Development Financial Institution) gives an exclusive interview to Capital Markets in Africa and elaborates on aspects of investing in Africa he is extremely familiar with. Michael has more than 23 years’ experience in international finance ranging from project finance to private equity in more than 150 finance transaction on the African continent alone.  

To start off, please can you explain to our readers, what led to the creation of the DEG and what are its core mandates?

Michael Fischer: DEG was founded in 1962 with the mandate to promote business initiative in developing and emerging market countries as a contribution to sustainable growth and improved living conditions of the local population. To this end, we make long-term financing and advice available to private enterprises investing in these countries. 

To add a bit more:

• We finance direct investments in our partner countries in order to make a sustainable contribution towards their economic development.
• We make long-term investment capital available as a means to share the risks arising from the investments and to make them less vulnerable to crises.
• We give advice to companies on questions related to risk analysis and product development.
• We invest in undertakings in all sectors of the economy, ranging from agribusiness to the manufacturing industry and services to infrastructure.
• And we promote the development of the financial sector while strengthening local capital markets in order to facilitate reliable access to investment financing on the ground, especially for small and medium-sized enterprises. By doing so, we contribute to additional growth effects.
• We operate along commercial sound principles as we use almost exclusively our own funds.
• We are guided by international standards for environmental and social sustainability. 
• We pay particular attention to, ensuring that our investments generate positive development impacts in our partner countries.

Looking back, in Africa where has the DEG’s investment focus been in terms of countries and sectors? Are there any particular sectors that you would consider growth areas?

Michael Fischer: Africa has been one of DEG’s focal regions for many decades, particularly Sub-Saharan Africa, and accounts for 22% – 25% of our portfolio. Three representative offices facilitate direct contact to markets and customers: in Accra for West Africa, in Johannesburg for Southern Africa and in Nairobi for East Africa.

Key sectors are the manufacturing and service industries as well as financing solutions for agribusiness and infrastructure projects. In the last two business years alone, DEG committed more than USD 800 Mio for investments in Africa. Our African portfolio is currently about USD 2 billion.

DEG provides direct loans and equity capital to facilitate reliable access to long-term capital for companies investing in Africa. Moreover we provide funds at market-orientated conditions to African banks and investment companies to safeguard finance for investments of local companies.

Looking forward, in addition to the continued support of the financial sector on the continent, there seems to be substantial focus on infrastructure investments and related industries. Investment in electricity generation and distribution is wide-spread across all the regions including investments for port, rail and road infrastructure.

In view of the changing dynamics of growth on the African continent, do you envisage a shift in the DEG’s strategy and focus in the next five years? If yes, in what ways?

Michael Fischer: Not necessarily. Our strategy always centres on our partners and customers; we see customer-centricity as a key to mutual success. Identifying and addressing the needs and expansion requirements of our customers is an ongoing process. However, our main focus will remain to provide finance and advice for entrepreneurs investing in infrastructure development, financial institutions, as well as agribusiness, the manufacturing or services sector. Enterprises benefit from our long-term experience and DEG’s 14 offices worldwide. This is in particular important in Africa with its dynamic development. Our three African offices help DEG to be closer to the markets and to better understand our customer’s needs. Furthermore, our partners have access to DEG’s global network via our offices.

In investing in Africa, what are the key conditions that a Fund Manager/Private Equity would need to have in order to attract DEG’s investment?

Michael Fischer: In short: Motivation and an investment strategy and “execution philosophy” which is aligned to DEG. As a DFI and as a member of KfW banking group, DEG adheres to best international practices on Environmental and Social Guidelines and standards, and our fund managers will have to adhere to them as well. Furthermore, DEG provides growth capital or funding for expansion, we require our managers to follow such focus, invest in countries which are within DEG’s investment criteria and last but not least, prove their motivation and long-term approach to us.

Does DEG also invest directly in a company? If yes, can you give one or two examples, please?

Michael Fischer: Risk capital and hence direct equity investments are important elements of DEG’s service range. We invest directly, and with or as co-investor, alongside selected fund managers. For example, DEG holds a share in the South African solar project “ACWA Power Solafrica Bokpoort CSP Power Plant”, which is the solar energy system with the world’s longest thermal energy storage capacity.

DEG is also very active in the renewable energy sector in South Africa. At the moment we are involved with Debt and Equity in eight different renewable energy projects. We have been involved with projects in all rounds of the South African Renewable Energy Program to date and across all technologies, being wind, PV and CSP. According to a study last year by the Public Private Infrastructure Advisory Facility (PPIAF) we are the 3rd biggest investor in terms of number of Renewable Projects involved in behind Old Mutual and Industrial Development Corporation (IDC).

The capabilities of SMEs need to be strengthened. How do you think the decision-makers and political authorities can help those businesses seeking to increase productivity through innovation?

Michael Fischer: Providing funding to SME is the core strategy driving our business with financial institutions. In addition to our long-term finance, which is mostly dedicated to foster SME lending, DEG offers technical assistance to our partnering banks to provide better services to their SME clients. As a development finance institution for the private sector, we know that SME in developing countries often do not have appropriate access to capital which is needed for their investments. We are working on different levels to contribute to solving this problem.

What are your views on the role of PPP’s?

Michael Fischer: PPP’s can be a good way of getting infrastructure projects off the ground. Good examples are Airports, Ports, and power plants. Road infrastructure projects fall into the responsibility of the state as there are as well macro-economic effects that need to be considered.

What do you think is the importance of developing Capital Markets in Africa?

Michael Fischer: Capital Markets play a vital role in Africa in that they bring together various players to facilitate the growth in Africa for example financial institutions, investor communities, SME’s and those seeking long term capital.

I believe that Capital Markets allow for constant dialogue, information sharing and discussion. It is important to nurture Capital Markets in order to have long term sustainable growth. They provide a universal accounting standard especially from an International point of view. This helps for mutual understanding and for the benefit of sustainable growth.

On a final note, as an Africa Finance & Investment Forum (AFIF) 2015 sponsor, what key message would you like to tell Africa’s finance communities on innovative solutions to finance Africa’s growth?

Michael Fischer: As a DFI we remain committed to finance long term growth on the African continent. As such we always encourage other financial institutions, being international or local, to work together in order to provide the best funding solutions for businesses on the continent. This is not only just a matter of pricing, but of long term partnership and mutual understanding between financial institutions and their clients. 

Michael Fischer is a key speaker at the Africa Finance and Investment Forum AFIF 2015 organised by EMRC, for more information on this event click here.

Profile:

In 2000 Michael joined DEG – German Investment and Development Company as Vice President New Business Africa. In this function he was responsible for DEG’s new business in predominantly East Africa. In addition he was DEG’s key account manager for the company’s telecom projects. Before joining DEG in Germany, Michael worked for over 8 years at Dresdner Bank Group in Germany and Southern Africa, predominantly in credit and corporate banking.

Michael holds an engineering and business administration degree from Karlsruhe Technical University, Germany and is currently a director of Global Credit Rating, Brandcorp Holdings as well as Advisory board member of Ethos Private Equity Fund V and Vantage Mezzanine Fund.

Michael was born on 8 March 1967 and has 3 children.