Closing Africa’s infrastructure financing gap – its not just about more money
13 November 2018
Funds for Africa’s infrastructure development are available – but the challenges are finding bankable projects and putting in place effective institutional arrangements.
The challenges are highlighted in this year’s annual report from the Infrastructure Consortium for Africa (ICA) – Infrastructure Financing Trends in Africa 2017. As well as reporting on financial commitments to Africa’s infrastructure development, the report examines the extent to which limited bankable projects and, in particular, ineffective institutional arrangements, rather than a shortage of funds, are contributing to the continuation of the infrastructure financing gap.
The ICA’s report was launched on the first day of the Africa Investment Forum, which flags up the dearth of bankable projects, and regulatory and institutional arrangements that are unfriendly to business, as two major barriers holding back private sector investment on the continent.
The report indicates that experience in several countries – notably in the ports, energy and telecommunications sectors – shows private sector finance is available for projects that present conducive political, regulatory, legislative and financial environments.
Examples in the report include South Africa, where the Renewable Energy Independent Power Producer Programme (REIPPP) has attracted private sector investment by developing a sound procurement policy, while the government has shown its ability to manage an effective bidding process that stimulates competitive bidding.
And in Egypt, the creation of conducive investment conditions for public and private investors in the Benban Solar Park project, one of the most complex energy projects under development on the continent, has helped secure funding of $1.98bn in 2017, of which $513m was private investment.
There are also now several successful private energy investments across the continent – including in Senegal, Ghana, Kenya and Mozambique – where independent power producer frameworks are well understood, and there is an increasing amount of installed private capacity.
The 2017 report also shows a high level of interest in new types of funding, including the demand for blended finance, in which concessional seeks to leverage non-concessional finance. The report also indicates that organisations are increasingly deploying development capital which, because it is not a grant, creates an asset for the investor that can provide modest financial returns alongside significant development impact. The ICA’s report suggests the challenge is to continue expanding the range of financial tools available, integrating these with conventional tools such as grants and loans that will continue to play a key role in infrastructure financing.