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Increased private sector engagement is critical to move the needle on Africa’s infrastructure financing: Pierre Guislain, Vice-President for Private Sector, Infrastructure and Industrialisation, African Development Bank
The numbers tell the story. Africa’s infrastructure needs currently amount to a whopping $130 to $170 billion per year with a financing gap of $68 million to $108 billion. While this may sound insurmountable, it also presents an opportunity to foster innovative financial solutions and partnerships that have the potential to unlock funding.
The African Development Bank has long recognized that infrastructure investment, and in particular cross-border infrastructure, plays a central role in Africa’s development agenda and is critical for supporting the continent’s economic integration and growth. Deepening market integration for goods, infrastructure services and key factors of production is especially important for a continent comprised of 54 countries, 16 of them landlocked, and characterised by mostly small and fragmented markets.
What’s more, investing in cross-border infrastructure comes at a watershed moment for the region. With the official launch of the African Continental Free Trade Area (AfCFTA) and trade negotiations well under way, boosting public and private investment in the continent’s transport, energy and ICT infrastructure will help lay the foundation for stronger economic integration.
Cross-border infrastructure projects typically require multiple sources of funding in view of the large investment needed. The coordination required for project preparation and infrastructure implementation ups the complexity of cross-border projects. Despite these challenges, investors and the Bank alike recognize the benefits of priority regional infrastructure: access to larger markets, potentially reduced demand risk, increased trade and economic growth and greater investment opportunities in the region.
The past 5 years have seen the Bank invest over $17 billion in infrastructure development on the continent, spanning road, rail, air, and ports, as well as water supply, energy and ICT infrastructure. We have also been instrumental in structuring innovative financing solutions and currently hold a portfolio of infrastructure Public-Private Partnerships (PPP) valued at $1.5 billion.
Leveraging partner institutions is key. The Pillar Assessed Grant or Delegation Agreement (PAGODA) between the Bank and the European Commission (EC) is one such partnership that supports cross- border infrastructure through the use of blended finance instruments. To date, the EC has helped fund 20 cross-border transport, energy, ICT and water projects worth approximately EUR 460 million.
The Bank, together with the African Union Commission, the United Nations Economic Commission for Africa and the NEPAD Secretariat, is sponsoring the Programme for Infrastructure Development in Africa (PIDA), which serves as a blueprint for integrating and interconnecting Africa through regional infrastructure projects in the transport, energy, water and ICT sectors. To date, PIDA has helped mobilize investments in 51 transport, ICT, energy and water cross-border infrastructure projects.
The results are commendable. PIDA has supported the construction of 16,066 km of roads throughout the continent, 4,077 km of railway lines, 3,506 km of energy transmission lines, and the connection of 17 countries with regional fibre-optic cables.
Mobilisation through innovation
Encouraging greater private sector investment is fundamental to accelerating sustainable infrastructure development in Africa and attracting private capital to the region requires that investors be presented with bankable and investment-ready projects.
As an example, the Bank hosts the NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF), a multi-donor special fund providing expertise and grants to transform early stage projects into bankable projects and viable investment opportunities for public and private investors. Since its inception, the fund has contributed $61.23 million in support of transformative continental infrastructure projects, catalyzing downstream financing to the tune of $24.6 billion across energy, ICT and transport sectors.
The Africa50 Infrastructure Investment Platform is another example of an innovative infrastructure investment fund that is using equity investments to catalyze public and private sector capital into bankable infrastructure projects across the continent. By placing greater focus on project development and leveraging a larger pool of capital to fund investment-ready projects, Africa50 has a significant role to play in supporting inclusive economic growth on the continent.
The Africa Investment Forum (AIF) is emerging as the premier platform to drive private capital into infrastructure projects and facilitate public-private partnerships. For the second year in a row, the forum will bring together pension funds, sovereign wealth funds, private investors, African and international companies, policy makers, private equity firms, and heads of government in a transaction-based marketplace that has the potential to scale up and push forward transformative projects across the region.
A number of projects discussed in last year’s boardrooms, such as the African Infrastructure Investment Fund (AIIF3) and the Lomé New Thermal Power Plant have since reached financial close, and others are well on track. This year’s boardrooms will include projects in search of financing in energy, transport, industry and agriculture sectors, among others.
The Bank is committed to supporting partnerships and innovation that can help spur a virtuous cycle of investment in Africa. Indeed, private sector investment in infrastructure has a central role to play in triggering economic and social development, and its potential must be harnessed as Africa accelerates its regional integration agenda.
Pierre Guislain, Vice-President for Private Sector, Infrastructure and Industrialisation, African Development Bank