Hirschhofer is the Senior Advisor, The Currency Exchange Fund (TCX), The Netherlands. He is organising a TCX Risk Mitigation workshop during the F&I Forum at African Utility Week and will address attendees on "Understanding of risks and their pricing – how can the supply of long-term local currency financing and hedging be improved?"
1) Let’s start with some background about your respective organisations and your role there?
TCX is a unique global provider of innovative currency hedging solutions. We have a very strong development focus and over the past 10 years we have protected millions of borrowers in frontier and emerging markets from the horrible financial consequences on their firm and household budgets from sudden exchange rate depreciations. I am working very closely with our CEO to develop new strategic initiatives to promote local currency financing, both within the domestic financial system as well as cross border from DFIs or private investors.
2) What is the most exciting project you have worked on in Africa so far?
The solar off-grid grid space is fascinating. Like telecom it is an example where development and private interests are fully compatible. Mobile banking applications have created new credit channels and even the poorest can now build a credit history and gradually accumulate assets. However, the gap between the local currency receivables and the hard-currency funding of the sector are still an Achilles heel. TCX is working with the leading firms, such as M-KOPA, and industry associations like GOGLA to reduce such systemic risks. These firms should be financed in local currencies, or if that is not possible, reduce the fx mismatch.
3) What did you learn from the investments that did not do so well?
Well, TCX does not provide funding. We are providing risk management tools like swaps and forwards to all kind of investment projects around the world. Like with any other type of insurance provider, having losses is part of our business. Our losses protect our clients. For example, we lost more than US$40m in one day when the Central Bank of Azerbaijan could not defend its peg anymore, but that probably saved thousands of local firms and borrowers from heavy financial difficulties.
4) What in your view is the biggest misconception that people have about investing in Africa? And about renewable energy?
I think there is too much fear about the uncertainty of some renewable business models which drive up credit spreads. For example, solar technology is well tested now, project implementation risks are low in many countries, and pay as you go schemes work with low default rates. Bankers do not yet fully appreciate this. More needs to be done to share performance information of existing firms and train bankers and investment officers. An industry association like GOGLA is well placed to make progress in this and we at TCX would certainly like to contribute.
5) Which countries on the continent are doing the right things? Where are the opportunities?
Many countries have understood that a stable and modern regulatory, legal, and judiciary environment combined with stable macro-economic policies are critical for development, especially for capital intensive sectors. We must do more in standardization of contracts and processes across Africa, learning from more advanced countries. Africa is in the unique position to leapfrog, or as some of my African friends say, to jump like an antelope across older technologies. Let us mobilize the solar and fintec entrepreneurs and empower then to find new solutions for the benefits of all. I hope that vested interests and stranded assets will not be allowed to stand in the way of new and better technologies.
6) You are organising the TCX Risk Mitigation workshop in the F&I Forum at African Utility Week this year. What will be your message to attendees and what can they expect of this workshop?
Do not speculate! Entrepreneurs should strive to only accept those risks in their business model which they are able to somehow control and manage. For example, project implementation risks, supply risks. Risks which they cannot influence should be insured and the insurance costs made part of the cost envelop. FX risk, which manly consists of market fluctuation and in-convertibility risks, is one of those risks, which should be eliminated from the business model. Otherwise, an otherwise healthy firm and its customers and funders can suffer huge losses, because of events which lie completely out of their control. Think of the copper price in Zambia, or the Tuna bonds in Mozambique. We still need to make a lot of efforts in awareness building and deepen the understanding how modern financial instruments like those offered by TCX can help. The Risk Mitigation workshop at African Utility Week is an opportunity to make progress.