Fi­nanc­ing in­fra­struc­ture

Africa Renewal - - Opinion - By Ab­doul Salam Bello

For nearly a decade, Africa has re­ported an im­pres­sive economic growth rate av­er­ag­ing 5% per year. To sus­tain this growth, the con­ti­nent will need to sig­nif­i­cantly in­crease in­vest­ment in in­fra­struc­ture.

High on the list, African lead­ers say, are joint cross-bor­der pro­jects, par­tic­u­larly in a re­gion with 16 land­locked and of­ten strug­gling economies. Joint re­gional pro­jects can also ben­e­fit from the economies of scale aris­ing from well-man­aged trade cor­ri­dors.

An ex­am­ple of one such cross-bor­der project is the Trans-Sa­ha­ran high­way that con­nects the Al­ge­rian cap­i­tal Algiers to La­gos in Nige­ria. Once com­pleted, the 4,500 km high­way will fa­cil­i­tate trade and so­cial ex­changes between North African coun­tries and sub-Sa­ha­ran Africa, thus over­com­ing the ge­o­graphic bar­rier of the Sa­hara Desert. An­other project is the $25 bil­lion in­fra­struc­ture devel­op­ment pro­gramme launched last year by Kenya, Ethiopia and South Su­dan, which in­cludes the con­struc­tion of a high­way link­ing the three coun­tries.

Strate­gic part­ners

In June 2013, US Pres­i­dent Barack Obama an­nounced a five-year $7 bil­lion Power Africa ini­tia­tive which aims to pro­vide ac­cess to elec­tric­ity to about 50 mil­lion peo­ple in Africa in both ru­ral and ur­ban ar­eas. As en­vi­sioned, the ini­tia­tive would gen­er­ate 20,000 megawatts of en­ergy ca­pac­ity in sub-Sa­ha­ran Africa by 2020. The ini­tial phase will fo­cus on Ethiopia, Ghana, Kenya, Liberia, Nige­ria and Tan­za­nia, which have al­ready im­ple­mented am­bi­tious en­ergy pro­duc­tion tar­gets. Pres­i­dent Obama’s ini­tia­tive has al­ready at­tracted in­ter­est from the African Devel­op­ment Bank (AfDB) and pri­vate cor­po­ra­tions in Africa. One such com­pany is Heirs Hold­ings, an in­vest­ment firm run by Nige­rian busi­ness­man Tony Elumelu, who in­tends to con­trib­ute $2.5 bil­lion to the Power Africa ini­tia­tive as part of the $9 bil­lion ex­pected to come from the pri­vate sec­tor.

Chi­nese com­pa­nies have shown strong in­ter­est in in­vest­ing in in­fra­struc­ture pro­jects in Africa as ev­i­denced by a 2013 study ti­tled, “Africa Gear­ing Up,” by Price wa­ter house Coop­ers, a global fi­nance com­pany. China re­cently signed a $5 bil­lion in­vest­ment agree­ment with Kenya to con­struct a 952 km rail­way con­nect­ing the East African port city of Mom­basa to the Ugan­dan bor­der. The rail line is ex­pected to be ex­tended to Rwanda, Uganda and Tan­za­nia by 2018.

Do­mes­tic re­sources for in­fra­struc­ture fi­nance

In re­cent years, sev­eral African coun­tries have em­ployed dif­fer­ent strate­gies for rais­ing cap­i­tal to fi­nance in­fra­struc­ture, in­clud­ing is­su­ing bonds. Ac­cord­ing to Moody’s, a US credit rat­ing agency, Gabon, Sene­gal and Zam­bia, among oth­ers, raised nearly $8.1 bil­lion in bonds in 2012. Kenya is now in­vest­ing $25 bil­lion in bonds to build a sec­ond port at Lamu, a crude oil pipe­line and roads that will open op­por­tu­ni­ties for ex­ports in East­ern Africa.

Re­mit­tances are an­other sig­nif­i­cant source of fund­ing from Africans in the di­as­pora. They to­talled nearly $40 bil­lion in 2012, com­pared to $28.9 bil­lion in of­fi­cial devel­op­ment as­sis­tance dur­ing the same pe­riod. It is es­ti­mated that Africa could re­ceive bil­lions of dol­lars ev­ery year in re­mit­tances. For ex­am­ple, over the past years, Ethiopia has is­sued two in­fra­struc­ture bonds to the di­as­pora: for the Ethiopian Elec­tric­ity Com­pany and for the Grand Ethiopian Re­nais­sance Dam. The dam, which will be the largest hy­dro­elec­tric power plant in Africa, will have the ca­pac­ity to gen­er­ate 6,000 megawatts of elec­tric­ity when com­pleted.

Africa is also pur­su­ing fur­ther in­no­va­tive in­sti­tu­tional fi­nance pro­jects. The AfDB has launched the $3 bil­lion Africa50 Fund ded­i­cated to in­fra­struc­ture fi­nance, while the World Bank is de­vel­op­ing a new in­vest­ment plat­form called the Global In­fra­struc­ture Fa­cil­ity.

The Dakar Agenda for Ac­tion

De­spite th­ese ini­tia­tives, the money for in­fra­struc­ture in­vest­ment in Africa is still in­suf­fi­cient. Rec­og­niz­ing that public fund­ing alone will not be enough, pol­icy mak­ers want the pri­vate sec­tor to pro­vide ad­di­tional fi­nance for in­fra­struc­ture devel­op­ment. The deficit in pri­vate fund­ing is of­ten at­trib­uted to a lack of aware­ness among in­vestors, par­tic­u­larly those who are able and will­ing to take longterm in­vest­ment risks as­so­ci­ated with huge and com­plex pro­jects. Strong le­gal and in­sti­tu­tional frame­works are there­fore needed to pro­tect pri­vate in­vestors.

To ad­dress th­ese is­sues, African lead­ers and their pri­vate sec­tor coun­ter­parts met in June in Dakar, Sene­gal, to agree on how to fi­nance 16 re­gional in­fra­struc­ture pro­jects con­sid­ered as pri­or­i­ties for the con­ti­nent. They adopted the Dakar Agenda for Ac­tion to pro­mote public-pri­vate part­ner­ships that will mo­bi­lize fi­nance for in­fra­struc­ture devel­op­ment. They also agreed to pro­vide the fund­ing required dur­ing the prepara­tory phase of pro­jects, en­act laws de­signed to at­tract pri­vate in­vest­ments to cross­bor­der pro­jects and har­monise re­gional rules and reg­u­la­tions. The sum­mit tasked the AfDB, un­der the su­per­vi­sion of the New Part­ner­ship for Africa’s Devel­op­ment ( NEPAD), the African Union’s devel­op­ment arm, to carry out fea­si­bil­ity stud­ies and prepara­tory work on the 16 in­fra­struc­ture pro­jects.

The hope is that the ac­tion plan will open a new era of in­no­va­tion and devel­op­ment of Africa’s in­fra­struc­ture. Ab­doul Salam Bello is the se­nior co­or­di­na­tor at NEPAD.

World Bank / Dana Smillie

Ther­mal power sta­tion in Tako­radi, Ghana.

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