The African Development Bank (AfDB) and Standard Bank South Africa (SBSA) on Monday signed a loan agreement for a long-term foreign currency line of credit of $220-million, to support SBSA’s project finance initiatives on the African continent.

The AfDB said the line of credit would enable SBSA, in partnership with AfDB, to make longer-term infrastructure finance available to eligible borrowers and projects on the continent.

AfDB said that the line of credit fits within its private sector development strategy, which viewed the private sector as an engine for poverty-reducing economic growth.

SBSA was involved with a number of infrastructure projects in Africa, such as having recently closed the financing for the Lagos toll road.

“We are moving ahead with the Nairobi bypass project, which is part of the northern corridor project, ultimately a highway between, Mombasa, Nairobi, and into Uganda in the north. That deal has been working for about a year and a half now, we are advising the preferred bidder. We believe there is still a big appetite for the funding of that project, and our original lenders are still very keen to participate, so we would hope that the project would close in the middle of next year,” SBSA head of project finance Jonathan Wood told Engineering News Online.

In South Africa, the group was working on some of the public-private partnership (PPP) projects.

“We are expecting the Prisons PPP to go into the second stage, we are working with one of the shortlisted bidders, we are seeing some of the accommodation projects moving ahead, albeit slowly, and obviously the big power tenders that the DME [Department of Minerals and Energy] and Eskom are running - that’s where much of the focus is,” said Wood.

GLOBAL EFFECTS ON AFRICA
Wood, along with many of the speakers at the Africa infrastructure projects summit held in Sandton this week,, felt that the global credit crisis would have an impact on infrastructure projects in Africa.

“I think it is going to have quite an impact over the next six to 12 months. The projects that are in financing are already seeing their pricing blowing out, and the terms tighten. I think some of the particularly large projects that require dollar financing are really going to struggle to close out,” Wood explained.

On a more upbeat note, he added that there were some smaller projects that were supported by development financing institutions, or were already committed to by commercial banks, that would probably go ahead. “It's important to remember there are some quite deep pockets of local liquidity in markets like Nigeria, like Kenya and South Africa, that will continue to lend in those currencies, so it’s a mixed story,” he said.

Another positive aspect was that some input prices would be lowered, and materials such as steel, cement and fuel have been decreasing.
“But even though the costs may come down for some of these deals, they will struggle to find finance for a good six to twelve months,” he emphasised.

“It is a very difficult market, it would be extremely brave for anyone to say that they will get financial close on a big infrastructure project in the next few months, possibly even next year,” reiterated International Power regional manager: South Africa Peter Levy in his presentation to delegates at the Africa infrastructure projects summit in Sandton.

Wood said that despite global markets, there were still “pockets of finance, and I think there are credit lines coming out of development banks, and there are areas of domestic liquidity that are available”.

“So we will be pressing ahead with our pipeline, and I think projects, particularly supported by government, big infrastructure projects will probably move ahead, they may just be delayed in financial close,” Wood noted.

Wood felt that the incoming government in South Africa was as focused on service delivery as ever, however, a single approach needed to be agreed on. “I would like to see a senior level workshop where we basically get agreement on the philosophical and ideological aspects of PPPs, because there are some mixed emotions and mixed views in government, as to whether the private sector should be building and operating infrastructure at all, nevermind social infrastructure. I think that’s the first point. There is certainly no lack of appetite in the private sector for these deals,” he said.

The lack of infrastructure was causing delays and increasing the cost of doing business in Africa, while decreasing productivity and holding back economic growth in general.

“It is important that we deal with these things quickly,” affirmed Wood, and gave an example of port logistics costs, which were 230% in Africa, of what they were in Europe and North America. “So any exporting business is immediately saddled with that kind of cost, and that is echoed in a number of other infrastructure costs, from broadband to rail, to ports,” he concluded.