Business between the US and Africa just took a step forward. The US Senate passed the Better Utilization of Investments Leading to Development (BUILD) Act, and it was signed into law Oct 5.
For at least thirty years, the US’s commercial relationship with Africa has been dominated by resources underground. Oil, gas and minerals account for about half of all US direct investment in Africa.
There has been growth in almost every sector of Africa’s economy, but commercial relations with the US have been dominated by US engagement in natural resources.
The BUILD Act establishes a new entity, new financing and new authorities designed to support Africa and other emerging markets as they build critical infrastructure.
The Act brings American competitiveness above ground. It authorizes the US government to activate up to Sh6 trillion in US financing for emerging market infrastructure projects. It allows that funding to be invested in equity, not just debt instruments and in local currency, not just dollars. And it creates the US International Development Finance Corporation (IDFC) to do it, consolidating the previously diffuse development finance activities of the US government into one better-resourced organization.
Broadening the reach of the BUID Act to additional sectors will require active management from the new IDFC. In Africa, the digital sector holds particular potential for sustained returns, impact and US interests.
While growth rates on the continent fluctuate steeply with political and economic cycles, connectivity in Africa – the number of people connected to the internet – has grown by 29 percent, annually since 2000, 2.5 times the rate of the rest of the world. Two potential African digital unicorns—Interswitch and Jumia—are reported to plan listings next year on international exchanges. There is a gap between those two and most other digital ventures emerging on the continent, in part due to a lack of capital. It is IDFC’s explicit mandate to fill such gaps.
The IDFC is also mandated to deliver development impact and the human and economic impact of digital innovation is hard to overstate. The majority of the world’s unbanked are in Africa, where the mobile banking adoption rate is already over 12 percent, six times the world average. The future of access to finance is on the phone.
Much of the future of access to power is there as well. About 360 million people have acquired mobile-enabled off grid power to date. Another 380 million (about a third of all those without power today) are expected to get it via mobile-enabled solar units in the next four years. It’s simply non-controversial that the social impact of investing in digital technology rivals the social impact of infrastructure.
The Act has several vehicles that could deepen US engagement in the African digital economy. First, it authorizes the creation of investment funds. One or more funds designed to foster financial inclusion or digital innovation in a high-impact sector like health, power or education would be well within the mandate.
Second, the IDFC will be absorbing and adapting the program previously run as USAID’s Development Credit Authority, a credit guarantee window intended to expand access to finance. The new agency should take the opportunity to redesign the DCA for a mobile-first future.
At a time when US engagement abroad and bipartisanship at home are in short supply, the BUILD Act is an example of both. With some creativity, it can also expand the US’s role in African markets. (Quartz) (