Infrastructure development ‘made sustainable’

(Part 8 of a 24-part weekly series)

INFRASTRUCTURE Needs of Zimbabwe — Zimbabwe, like many other developing countries, suffers infrastructure development lags, not to mention maintenance backlogs in housing, water, sewer, road, telecoms, power and other infrastructure. Public sources of infrastructure

financing — Resources from national budgets have historically been a major source of funds and finance for infrastructure investments, and will remain so in the future, particularly for assets that deliver public services.

The major public revenue source in Zimbabwe is taxation in its various forms, although infrastructure has also been funded through bonds and loans, and in some cases through development finance institutions. In developing and emerging economies, 60–65 percent of the cost of infrastructure projects is financed by public resources.

Private finance for sustainable infrastructure comes from many sources, but predominantly from corporate finance — companies’ balance sheets — and from project finance. Institutions like the IDBZ and RBZ, working with Government have structured a variety of instruments, some of which were used to blend public and private finance to invest in sustainable infrastructure.

Financial instruments — The most common instruments used in raising infrastructure financing include public finance, development finance, corporate finance and project finance which rely largely on debt financing.

In all instances, cost recovery is key to making a project bankable, and creditworthiness will make or break access to debt financing. Grants from international and multi-lateral arrangements including debts swaps and incentives have also served emerging economies in funding infrastructure development.

Other financial instruments include; Treasury bonds, Green bonds, Revenue anticipated bills, bonds (municipal or enterprise), and other forms of debt; supported by political & operational risk coverage including export insurance credits; and equity contributions from sovereign wealth funds. (The issue of sovereign wealth funds is another story of delayed implementation in the case of Zimbabwe — watch this space for our opinion). Financial Structures for Infrastructure finance — In project finance we would typically create an off-balance sheet or limited-recourse financial structure, designed as a “special purpose vehicle” (SPV) to raise debt or equity for a project, and “own” the project cash flows.

Major Players in funding — The main actors in infrastructure financing whether they are PPP arrangements driven by private or public sector enterprises, or by local government, may include: ◆ State Actors — Government as the facilitator and sometimes regulator, provides land rights, water rights, concessions, licenses and exemptions necessary to support the mobilisation of capital. Government may also allocate public revenues and proceeds from infrastructure levies and other specific “green” taxes for the development of sustainable infrastructure. No one wants higher taxes, but green taxes and emission levies remain a gaping tax opportunity for the Zimbabwe Revenue Authority to consider. Institutional & private sector investors — Bank savings and deposits, insurance premiums, and pension contributions constitute a significant proportion of the pool of funds from institutional investors. A lot of considerable achievements by such actors as IPEC, NSSA and other institutional investors have been made towards the financing of infrastructure development especially in respect of prescribed assets. ◆ Development Finance Institutions — Local and regional players like DBSA, AfDB and our own IDBZ are typical drivers of large infrastructure projects. More activity is expected in Zimbabwe as international relations improve.

Preparing for infrastructure

—What is essential for the institutional leader, as we have mentioned in previous articles in this series, is to prepare the enterprise for successful mobilisation of funding to support infrastructure development. Identification of suitable projects is as critical as the fundraising itself. The entity must also show strong historical performance and sound leadership, as evidenced by annual reports and audit reviews.

Therefore, maintaining current audit reviews, as well as instituting legal and financial due diligence reviews on the driving enterprise, municipal entity or the underlying project, will save time and enhance confidence when the investor engagement phase begins. So it is well worth your while to start the preparations in advance.

This article was compiled by Felix Kumirai a transformational strategist and resource mobilisation consultant at Genesis Global Finance. The contents herein are for information purposes only, and GGF does not accept responsibility for any loss arising from the use of materials or opinions contained in this article. Call us on: +2638644131515 or +263777352828; Like us facebook: genesisglobalfinance/privatelimited Follow us on Twitter: @ggfafrica LinkedIn: /in/ genesis-global-finance-166908a3/