Development finance institutions, banks and private investors are collectively sitting on trillions of dollars in capital that could be invested into African infrastructure projects if they were offered returns commensurate with the perceived higher risk environment, Africa50 CEO Alain Ebobisse told delegates at the African Investor Infrastructure Project Developers Summit, in Durban.
This annual gathering of project developers, co-developers, infrastructure investors, private sector decision-makers, international financial institutions and other key stakeholders is a platform to discuss the many challenges and possible solutions to unlocking private investment in infrastructure in Africa.
Africa50 is an infrastructure investment platform owned by African governments and the African Development Bank (AfDB). So far, 23 countries, the AfDB and two central banks have committed over $800-million in capital.
Ebobisse said that, with more countries expected to join soon, Africa50’s capital was expected to grow to over $1-billion in the short term and $3-billion in the longer term.
Operating like a commercial firm, Africa50 focuses on medium-sized to large-scale infrastructure projects that are commercially sustainable, offer an appropriate return to investors, and have a significant economic development impact. Priorities are energy and transportation.
Ebobisse quoted the World Bank’s estimate that as little as a 1% increase in physical infrastructure stock could raise gross domestic product (GDP) growth by as much as 1% to 2%.
He noted that infrastructure development in Africa had not kept pace with the needs of the continent’s rapidly growing population.
Electrification remains very low with two out of three people in sub-Saharan Africa living without electricity.
Transportation is often slow and unsafe with few regional linkages and intermodal hubs and millions lack access to clean water and adequate sanitation.
He said this not only affected individuals but also impeded regional integration and, thus, Africa’s ability to fully participate in a globalised economy.
While some countries have made progress, many remain in a downward negative cycle with businesses struggling to elevate themselves into the formal sector and governments struggling to collect the necessary tax revenue to fund meaningful infrastructure improvements.
Ebobisse said that while actual spending on infrastructure had doubled from an average of $36-billion a year from 2001 to 2006 to $80-billion in 2015, as a share of GDP, it had remained at around 3.5%. This was not enough to close the estimated $50-billion a year funding gap.
He pointed out that spending levels were terribly uneven with North and Southern Africa spending more than 5% of GDP a year, but the rest of Africa averaging only 1.3%.
“Most African governments need outside investment, especially from the private sector. However, to attract this investment they must be able to compete on a global stage, which, in turn, means they must take steps to mitigate both the real and perceived risks associated with investing in Africa, specifically improving the regulatory environment and encouraging transparency and efficiency,” he said.
Ebobisse added that this also meant they must substantially improve their business climates and establish and enforce the types of regulations that attract investors.
In 2016, only nine African countries finished in the top 100 of the World Bank’s Doing Business report, while over half of the lowest ranking 40 countries were African.
Yet, despite regulatory and fiscal constraints in many countries, access to finance was neither the major, nor the only, obstacle, he noted.
One important obstacle was the limited number of bankable projects in Africa that are ready to be financed.
He said it was particularly challenging to attract investment for projects in Africa at the project development stage.
“My hope is that, by prioritising project development finance, we can help remove the barrier to private investment in infrastructure in Africa and catalyze more transactions overall,” he concluded.