Financing infrastructure

From Africa Renewal: 
page 27
Thermal power station in Takoradi, Ghana. Photo: World Bank / Dana Smillie
Thermal power station in Takoradi, Ghana. Photo: World Bank / Dana Smillie

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 PricewaterhouseCoopers, 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 long-term 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 cross-border 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.