African governments from Nigeria to Uganda have lured foreign funders ranging from export credit agencies and private investors to the Gulf as years of painful reforms have a beneficial impact, Standard Chartered’s Africa chief executive, told Reuters.

The shift could offset shrinking international aid as rich countries divert spending to defence and domestic priorities, reducing the amount available for African states.

Reforms have included streamlined regulations, ensuring reliable central bank policies, improved transparency and, in the case of countries such as Nigeria, removing costly fuel subsidies.

Dalu Ajene, the chief executive and head of coverage in Africa for Standard Chartered, one of the largest international banks operating across Africa, said the reforms were attracting concessional funding and also market-rate cash, including from hedge funds and asset managers.

He said that the financial challenges after the Covid-19 pandemic were "quite deep, and hence there was a risk-off mindset". That has changed.

"It's now attracting both concessionary funding, but also real money investors to be able to now look at Africa in a much more serious way than they otherwise would have three years ago when a lot of African balance sheets were in a mess," he said.

ROLE OF DEVELOPMENT FINANCE INSTITUTIONS

Export credit agencies and development finance institutions drove part of that trend, he said, citing deals such as the UK Export ​Finance's backing of a $1-billion refurbishment of the ​Tin Can Island Port in Nigeria's commercial capital Lagos. 

Asset managers and hedge funds - particularly those investing in local-currency sovereign debt - have also returned to Africa, notably in Egypt, Nigeria, Zambia, Uganda and Ghana. 

Gulf investment, particularly from the UAE, is likely to scale up, Ajene said, as comprehensive economic partnership agreements between the UAE and African governments - including Mauritius, Kenya, Morocco and Nigeria - come into force. 

While Gulf governments will likely prioritise domestic spending given the war with Iran, investments in sectors including mining, energy and food security are likely to continue.

"Once you have the cooperation frameworks, then you can now start seeing the kind of chunky investments that matter," Ajene said, adding the frameworks could unlock "sizeable, meaningful" deals that previously had often been capped at around $100-million. 

Ajene also defended African governments' use of financial instruments such as total return swaps, typically with a government on one side, and a bank on the other, which Angola, Nigeria and Senegal launched in recent years.   

The IMF and others have said TRS can be opaque, but Ajene defended their role.

"It's actually unfair to say they're not transparent, and I think it's also unfair to classify them as more or less risky," he said. 

He said they can be more flexible and quicker to execute, offering alternative funding when markets are tight or shut, alongside structures such as private placements, and that corporates are beginning to use the instruments.

More governments are also likely to use them, he said. 

Standard Chartered does TRS transactions, a spokesperson said, but said the details were confidential.