New and adapted financing sources will bolster Africa’s growing transport demand

01/12/2015
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“Innovative financing to meet Africa’s growing infrastructure demand” was the topic discussed during a plenary session on Day 2 of the African Development Bank (AfDB) Transport Forum, on Friday, November 27 in Abidjan. Panelists shared experience on AfDB Group financial products as well as innovative ways of structuring transactions to finance the continent’s development needs.

The four panelists concurred that adapting new financing sources will efficiently help bridge Africa’s infrastructure gap.

Opuiyo Oforikuma of ARM-Harith Infrastructure Investment Limited, Nigeria, covered government policies in his presentation. Building on international experience, he argued that the continent needs public private partnerships with massive involvement of the private sector. For him, “Capital markets, infrastructure bonds, pension funds, risk profile and private equity can effectively drive projects. But government policies should be clear and the contributions of end users should also count.”

He noted that more challenges remain in providing appropriate transport infrastructure in rural areas. To date, multinationals have done good work in Africa, he said. “If a government raises capital for transport infrastructure, it should use it for the purpose. We need to take new steps and do things differently through joint efforts. Everyone has a role to play: policy-makers, the private sector, as well as civil society organizations,” Oforikuma said.

Japan International Cooperation Agency (JICA) representative in Côte d’Ivoire, Eiro Yonezaki, presented his organization’s operations in West Africa, with specific examples in Côte d’Ivoire, Ghana, Burkina Faso and Togo, where corridors were developed. He also highlighted JICA’s intervention through the private sector development and capacity building.

Asked to shed light on the African Development Bank Group’s recent innovative financing, Chief Financial Analyst, Kwaku Richard Ofori-Mante explained that African Development Fund Partial Risk Guarantee (PRG) and Partial Credit Guarantee (PCG) have been introduced under ADF 12th and 13th replenishments, respectively. These instruments are designed to leverage resources from the private sector and other co-financiers for ADF countries, and offer a four-fold leverage factor to a country’s performance based allocation (PBA) utilized to support a guarantee transaction. “They are structured as leveraged instruments that consume only a fraction of a country’s PBA,” he said.

Ofori-Mante said the Bank offers an attractive and diversified menu of financial product options that allows borrowers to tailor their financing requirements to their circumstances.  He also noted that the institution’s financial products include loans (those denominated in local currency, and syndicated loans), lines of credit (including for trade finance), guarantees, equity and quasi-equity, trade finance, and risk management products. “In addition, the Bank provides technical assistance to its clients through grant funds. The diversity of the Bank’s financial products allow for innovate ways of structuring transactions to finance the continent’s development needs.”

To what extent does AfDB look into Islamic finance as innovative source of finance? Ofori-Mante observed that the Bank Group is constantly in discussions with sister institutions, particularly the Islamic Development Bank, on how best the Bank’s Partial Credit Guarantee instruments can be structured to complement a sukuk issuance or other forms of Islamic financing structures.

Neil Valentine of the European Investment Bank, for his part, shared perspectives on risks, regulations and mechanisms to help governments, as well as procurement policies, which he says should be harmonized. He also highlighted instruments and policies to attract institutional investors.

Participants said the various presentations have provided a wealth of relevant information and knowledge on the Bank’s leading role alongside other international development institutions in supporting African countries.

Africa’s infrastructure deficit is estimate at US $90 billion yearly for the next decade, including transport which accounts for 41% of its current investments.