Coffee With: Sherine Shohdy (LinkedIn), Head of British International Investment’s (BII) Egypt Office and Coverage Director North Africa: Shohdy has served as BII’s Egypt Office and North Africa Coverage Director since July 2020, joining with a wealth of experience in Egypt and across the Middle East and North Africa working in development finance and the private sector. Prior to joining BII, she served as a senior consultant to the International Finance Corporation (IFC) for over a decade working on infrastructure and natural resource projects in Egypt, Jordan, Iraq and Pakistan.

BII launched the Africa Water Infrastructure Development (AWID) — an investment platform targeting water infrastructure and provision in Africa — with the UAE’s water and wastewater treatment company Metito in March. The JV will target sustainable water projects at scale to address funding gaps in water security and has been seeded with a desalination project in Egypt’s Sharm El Sheikh and a water treatment facility in Kigali, Rwanda.

We sat down with Shohdy to discuss climate finance in MENA and Africa, green hydrogen and agritech investment prospects, and GCC’s foreign direct investment drive towards Africa. Edited excerpts from our conversation:

Enterprise: You’ve previously said that BII has a 30% climate finance target over the next five years. Which sectors or regions are you focused on in Africa?

Sherine Shohdy: Climate finance touches all sectors and it mandates innovation in terms of how we fund and how we tailor offerings to specific markets. So it comes down to what kind of risks we’re willing to take and how to identify these risks in order to structure products accordingly. We want to take unbankable projects and turn them into bankable projects to mobilize funding from BII, private sector investors or other DFIs. The quantum of financing needed to address this challenge is significant and is growing by the day, and the more innovation we can bring to our markets, the more impactful and effective we can be.

Our climate finance target is based on our five year business plan and strategy which runs between 2023-2027. 30% of new commitments that we make will be climate finance in all the countries that we operate in across Africa and South Asia. We try to tailor our climate finance approach in individual countries to meet the unique requirements, specifications, opportunities and dynamics of each country.

E: What are the risks associated with climate finance, especially in Africa?

SS: There is the market-specific risk and there’s also embedded, sector-specific risks. Because climate solutions are innovative and do not always have proven concepts, the novelty of climate tech makes it more risky compared to other investments. So there’s the question of how to capture that risk and take it into consideration and what sort of returns to expect and when.

There is a lot of appetite for innovation and climate finance, but it comes with its challenges. It’s not one-size-fits-all — opportunities have to be tailored to markets based on their needs and requirements.

E: Which cleantech and climate tech sub-sectors are seeing the most investment in Africa?

SS: There are a lot of opportunities in renewable energy and green hydrogen, Morocco and Egypt have potential to become hubs in the region. BII is currently looking at innovative financing structures for green hydrogen. Because it is new, we have to be innovative in how something like green hydrogen should be priced and how to take the risk on board so that it doesn't distort the market. This process is key because you want to make it so that similar projects become eligible for normal financing in the future so they don’t always rely on subsidized funding or concessional financing.

E: You’ve previously invested with VCs in Egypt, particularly in climate and clean tech. Are you looking at other VCs in North Africa?

SS: We think very highly of the VC space because it is able to address and capture a lot of innovation and, even though the amounts deployed are small, it is very impactful. We’ve been watching North African VCs closely over the past couple of years, and we’re trying to support as many as we can. In Egypt, we’ve closed on three VC fund investments with Sawari Ventures, Endure Capital and Algebra Ventures. We also have our own VC scale-up program, which allows us to invest in VC funds as well as to invest directly into the asset alongside them, and our investment in MoneyFellows is one example of that. Right now, we want to help Egypt-based VCs expand their footprint to North Africa and vice versa.

E: Do you expect to see more DFIs partnering with GCC-based funds and companies to invest in Africa’s energy transition in the short- to medium-term?

These collaborations are a way to explore how to bring more funding together, as opposed to each player working independently. Every single player in the market has a role to play. Over the past ten years, GCC FDI interest in Africa has mainly been concentrated in Egypt, which has attracted USD 70 bn, followed by Morocco, which has attracted USD 4.6-5 bn, according to data from White & Case. In totality, the GCC has made around 64 investments in Africa's clean and climate tech sectors over the past ten years. Agribusiness is dominating that funding as climate change and supply chain disruptions drive the GCC to diversify food imports and trade links. Given that Africa has 60% of the world’s arable land and could add around 20% of the world’s cereals and grains output, there is huge potential.

E: There’s some anxiety around rising emissions in Africa as it ramps up development efforts. Do you expect that we’ll see more deregulation and decentralization to accelerate access in Africa?

SS: I think the progress of each country is different but the direction of travel is the same. So far, the pace of change is slower than the rise in climate change challenges. Investments in climate tech will help African communities because they have a multiplier effect and can help position Africa as a key player in the global energy transition. Some of the most important points to address are the regulatory and legal regimes, including helping companies set up and scale faster and establishing kickstarter investments. There’s also the question of how do we encourage more investments from Europe and the rest of the world, because making it easier for external investors can open doors for more innovation.

E: Can you tell us more about BII’s Climate Adaptation and Renewable Energy (CARE) blueprint?

SS: With CARE, we are trying to approach water more efficiently and exploring ways to mobilize climate financing for it. It’s a partnership that we will approach the Egyptian government with in order to develop a sustainable blueprint for powering energy-intensive water infrastructure and support investors to integrate climate risks and accelerate planning and capital inflows. We are looking at ways of producing and desalinating more sustainably in order to make water qualify for climate financing, as well as to capture and mobilize private sector capital. Our first roll-out is a case study for Egypt, but CARE is a blueprint that we will tailor and implement across Africa.