African Guarantee Fund for Small and Medium-sized Enterprises (AGF) has signed an equity guarantee agreement with Empower New Energy (Empower) paving the way for long-term renewable energy investments for commercial and industrial businesses across Africa.
The Norwegian Agency for Development Cooperation (Norad) has also provided partial support to the costs of the guarantee, with the instrument expected to be the first of many as Empower scales up its African renewable energy investments this year. This first guarantee will cover part of Empower’s investment into Ghana’s Solarplast Project Company Limited and has enabled the financing of a rooftop solar PV facility at the factory premises of Miniplast Limited in Accra, Ghana.
Bank lending represents by far the largest source of external finance for Small and Medium-sized Enterprises (SMEs) in Africa. As a result, SMEs rely heavily on traditional debt to fulfill their cash flow and investment needs which sometimes leads to inappropriate use of short-term funds to finance long-term projects. Consequently, financial distress increases on these SMEs as their debt-to-equity ratio increases. To avoid this, equity finance is crucial for SMEs seeking long-term investments, in order to sustain innovation, value creation and growth.
Commenting on the partnership, AGF Group CEO Jules Ngankam stated, “The low level of capitalisation of SMEs and excessive reliance on debt financing compared to equity imposes costs and increases the risk of financial distress and bankruptcy. While bank financing will continue to be crucial for the SME sector, more diversified options for SME financing are needed to support long-term investments and reduce the vulnerability of SMEs to changes in the credit market. Through this equity guarantee agreement with “Empower New Energy”, AGF is indeed broadening the range of financing instruments available to SMEs in Africa, to enable them to continue playing their role in growth, innovation and job creation. We are also particularly glad that our equity guarantee has enabled financing of renewable energy thereby contributing to meeting Africa’s fast-growing demand for power.”
Terje Osmundsen Empower CEO & Founder stated, “We are delighted to enter into a new partnership with AGF, and to be the recipient of their first equity guarantee. The potential of the commercial and industrial renewable energy market in Africa is significant, but requires highly tailored solutions that reflect the specific needs of companies. As Empower scales up this year, combining our unique investment model with AGF’s equity guarantees will reduce risks and help to provide cheaper, more reliable energy for even more businesses across Africa”.
Empower New Energy is a renewable energy investment company investing in small and medium-sized clean energy projects, with a main focus on Commercial and Industrial clients in Africa. The investment vehicle, Empower Invest, is financed by private and public Norwegian and European investors, including Norfund (Norway’s development fund) and ElectriFI (the European Union).