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Funding African Infrastructure

Funding African Infrastructure

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Published by Kofikoduah
an article on funding issues affecting development of african infrastructure
an article on funding issues affecting development of african infrastructure

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Published by: Kofikoduah on Jul 23, 2014
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144
 | 
The Banker 
 | 
May 2010
Cli Cobtt
Economics edito at
The  Banker 
 and chai of the ond table
Ti d Logm
 Vice-pesident fo nance,  Afican Development Bank
 aloi Od
 Vice-pesident fo opeations, Afican Development Bank 
nic ro
Managing diecto fo fontie makets fnds, Standad Bank
Cli To
Patne at vente capital m, Mais Capital
nicol Pitiot
 Vice-pesident fo  banking, MediCapital Bank 
Tobjo C
Patne and co-head of infastcte, Actis
 ad adol 
Head of poject nance,  Afica, Standad Chateed Bank
The PaneL
Funding AFricAn inFrAstructure
 Leadership series round table
The parlous state of infrastructure in Africa is one of the main reasons the continent has never achieved its immense potential.
The Banke
’s roundtable attempts to nd out how this situation can be rectied and where the money will come from to fund it.
 writer 
 
Charlie Corbett 
Cli Cobtt, coomic dito t
The  Banker 
, opd t Ldip i od tbl b qotig  ct pot b  t aic Itct CotDig-otic tt od tt bd itct i 24 lctd aic coti ct tiol coomic got b to pct-g poit d dcd bi podc- tiit b 40%. T m  od tt i od to big itct o t cotit p to  tdd b t cici cold b gid,  tggig $31b p  dd to b pmpd i. Ti pomptd M Cobtt to  t qtio: i itct i o citicl to  t dlopmt o aic coomi,    it b glctd o o log d   ill t mo com om to pt  ti igt? h d t pl t t  t biggt obtcl to bildig d dig itct i aic.
 Ade Adeola, head of poject nance, Afica, fo Standad Chateed Bank, said the big-gest obstacles wee affodability and nding eliable off-takes. “O analysis acoss the maket indicates vey clealy that thee is a mismatch between the need fo infastc-te and the ability to get a stong off-take to be able to sppot the financing of pojects.” Aloysis Od, vice-pesident of opeations at the Afican Development Bank (ADB), said access to nance was by fa the most impotant handicap to infastcte in Afica. “When we think of Afica, we think in tems of 53 conties in a $1100bn econ-omy, and if we had the ight amonts of money to fnd infastcte in this conti-nent, yo cold gow that $1100bn economy to $5000bn,” he said. M Cobett then asked Tobjon Caesa, a patne and co-head of infastcte at pivate eqity company Actis, what moe the  banks cold do to help nance citical infa-stcte pojects. He said that pivate capi-tal shold play a mch bigge ole than it does today, bt then allded to M Adeola’s point that the poblem was nding eliable and cedit-wothy off-takes. “Longe-tem,  yo need to have deeglation take away [ntageted] sbsidies and yo have to have a tanspaent secto with cost-eective ta-iffs,” he said. Nicolas Pitiot, a vice-pesident fo bank-ing at MediCapital Bank, the Eopean sb-sidiay of BMC of Moocco, said the key to impoving the state of Afican infastc-te was access to long-tem nancing: “The pivate secto has a hge contibtion to make bt, with the cedit cnch, a lot of instittions ae having difclties enanc-ing on vey long-tem matities.” M Pitiot also lamented the fact that in many Afican conties, the legal famewok eqied to pt sch pojects into action was not p to scatch. “If we want to see moe pblic- pivate patneships, the legal famewok has to be stengthened in these conties,” he said. Anothe difclty highlighted by M Pitiot was hman esoces, which he said,
 A 
nAlysis
 
 Across
 
the
 
mArket
 
indicAtes
 
 very 
 
cleArly 
 
thAt
 
there
 
is
 
 A 
 
mismAtch
 
between 
 
the
 
need
 
for
 
infrAstructure
 
 And
 
the
 
 Ability 
 
to
 
get
 
 A 
 
strong 
 
off
-
tAker
 
to
 
be
 
 Able
 
to
 
support
 
the
 
finAncing 
 
of
 
projects
 Aloysius Ordu 
 
infrastructure
  afrICa 
 | rOuND TABLE
 
 
rOuND TABLE | 
 afrICa 
May 2010
 | 
The Banker 
 | 
145
infrastructure
 was wanting. “The pool of talent [in Afica] exists, bt it is too little now to be able to cope with a hge pipeline of infastcte pojects.” Nick rose, managing diecto fo fon-tie makets fnds at Standad Bank, stck a moe optimistic note: “I think thee is case to believe things have got bette ecently,” he said. “Thee has been economic gowth in  Afica and the nmbe of pojects we’ve been ndetaking has gown.” Howeve, he said that the big isse was nding qality spon-sos fo pojects o, in M rose’s wods, “people who can make these things happen”. M Cobett then asked Thiey de Longema, vice-pesident fo nance at the  Afican Development Bank (ADB), what moe his bank cold do to change the c-ent sitation in tems of pan-Afican infa-stcte. M Longema said the ADB was in the pocess of tipling the bank’s esoces and was in discssions with shaeholdes. Howeve, he added that one of the most citi-cal aspects was local cency fnding. “Local cency is an aea whee we ae doing a lot, bt whee we cold do mch moe, becase most of o pojects geneate evene in local cency and they need to avoid cency mismatches,” he said. Chalie Tyon is a patne at a vente capital fnd Mais Capital, which invests in small and medim-sized entepises in fon-tie and post-conict Afican makets. M Cobett asked him what moe the commecial banks and othes cold do to help him get his bsinesses off the gond and into potability. He said one of the aeas of infastcte most neglected is the oads. “We wok in soth Sdan and it is land-locked. The neaest pot to the capital of soth Sdan, Jba, is in Mombasa, which is 1500 miles [2414 kilometes] away. The cost of moving goods fom thee to Jba is $10,000 fo one 40-foot [12-mete] con-taine, which woks ot as $4 a mile [$6.4 a kilomete],” he said. M Tyon added that anothe poblem  was that often the lage banks tended not to  bothe with smalle pojects sch as oad and ail bilding in hashe envionments. “It is a less attactive infastcte invest-ment fo a lot of the development banks and thee’s a lot moe isk, a lot moe cency isk and the cost of bsiness in these ma-kets is that mch highe,” he said.
MOBILe MODeL
The panel all ageed that the most sccessfl model fo pan-Afican infastcte inte-gation was the evoltion in mobile phone technology acoss the continent. M Cobett asked what lessons cold be leaned fom this. “Thee was light-toch eglation, little govenment intefeence and some vey committed sponsos,” said M Pitiot. M Cobett made the point that not all infastcte investment was going to be a good commecial oppotnity, as mobile phones have been, so how cold investos be convinced to pt money into the less com-mecially viable, bt eqally citical, infa-stcte? M Pitiot sed the example of toll oads. He said that otside Soth Afica, thee was  jst one fnctioning toll oad in sb-Sahaan  Afica, the Lekki Toll road in Lagos, Nigeia, and even that was not yet flly opeational. “Thee ae othe toll oad pojects aond – thee’s the tolling of the Daka-Kmasi road  between Senegal and Ghana and thee’s the Naiobi ing oad – bt all these ae npoven,” he said. “It is the affodability isse. Does it actally make sense fo the sot of tolls that need to be paid to make these pojects economic?” M de Longema esponded that npopla pojects will always emain npopla with some pivate investos so it  was citical that govenments took the lead. “Thee ae some pojects that eqie gov-enment involvement and this is the only pactical esponse,” he said. “Thee is a esponsibility they have to take. Some ae  willing, some less.
GOvernMenT InfLuenCe
M Cobett asked the panel what moe Afi-can govenments cold do to tansfom  Afica’s infastcte. M Tyon said that one of the biggest challenges facing goven-ments in fontie makets was capacity and expeience. “They may be govenments who ae in place fo vey shot peiods of time and lack long-tem pespective. Thee is also the isse of coption,” he said. “I have seen it in a nmbe of conties we wok in whee the inteplay between the govenment
 MOBILe MODeL
GOvernMenT InfLuenCe
CO-OPeraTIOn The key
enTer The CaPITaL MarkeTs
IMPaCT Of The DOwnTurn
One MOre ThInG... The Issues
Watch Now
Watch the debate or individual chapters – visit thebanker.com/media
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 we
 
 wAnt
 
to
 
see
 
more
 
public
-
privAte
 
pArtnerships
,
the
 
legAl
 
frAmework 
 
hAs
 
to
 
be
 
strengthened
 
 Nicolas Pitiot 
 
 
146
 | 
The Banker 
 | 
May 2010
infrastructure
  afrICa 
 | rOuND TABLE
helping these conties to make se that the pocement pactices ae back p to scatch, making se that thei bdgets ae tanspa-ent. We ae helping these conties in state  bilding,” he said.M Cobett asked how Actis balanced its elationships with Afican govenments, in paticla when thee wee qestions abot tanspaency and ethics. M Caesa esponded that thee wee “mltitdes of  ways” of managing elationships bt that it  was impotant that development agencies sch as the ADB, the Intenational Finance Copoation (IFC), the Wold Bank and oth-es wee also involved. “If yo ae looking fom a tanspaency point of view, instit-tions [sch as these] make se that thee is a pope pocess [to stcting infastcte nance],” he said.M Caesa added that it was citical that pivate investos, who ae committing fnds fo a lengthy peiod of time, cold be eas-sed that the next govenment o eglato  was not simply going to evese all the deci-sions of its pedecesso.
CO-OPeraTIOn Is key
M Cobett qestioned how Afican states cold be encoaged to co-opeate moe togethe in ode to impove the continent’s infastcte. M de Longema said he eally believed that the stongest potential fo gowth in Afica was thogh inta-  Afican tade, bt that this was hindeed by poo infastcte, in paticla oads and coss-ing points. “Some conties have aleady eal-ised that, and yo have got oganisations sch as SADC [the Sothen Afican Development and the pivate secto is pooly managed and yo get contactos bilding oads and powe o tility podces who ae qite fankly iesponsible and they ae not p to the task to delive the infastcte that they ae paid to delive.” Fo M Od, the key to developing good infastcte is in developing good instit-tional famewoks. “We have seen this in a nmbe of conties, especially Lagos state in Nigeia, whee they have pt togethe a eglatoy commission. What that does is to ceate a moe standad model [with] a standadised pocement pocess and a tende pocess that allows stong sponsos to emege,” he said. M de Longema said that one of the most impotant oles fo the ADB was to act as a boke between govenments in Afica and pivate nance. “We mitigate the isk of having to deal with govenments and offe a  bidge between the pblic secto and the pivate secto. It is not o expetise, not o money, nothing else. It is the isk-mitigation aspect,” he said.M Od added that the ADB also woks in tandem with govenments to ceate moe sond legal and eglatoy famewoks. “The second point, of cose, is the bsiness envi-onment. In rwanda, fo example, now it takes mch less time to open a bsiness,  wheeas 10 yeas ago it sed to take yeas,” he said. M Od also allded to poblems of political instability on the continent. He said thee wee 14 conties in Afica officially temed fagile states. These states wee mov-ing ot of peiods of civil wa o nest and towads political stability. “[The ADB is] Commnity] that ae vey mch awae and meet [to discss] mattes of how to make the lines of commnication between states in this egion mch bette,” he said. M Adeola said it was p to people sch as M de Longema at the ADB to kick stat sch co-opeation. “The ADB [exists] as a fai and honest boke that helps to povide a famewok fo potecting ceato ights acoss both sides [of the bode]. When yo look at conty isk, it gets amplied once  yo coss the bode – we need the ADB to take a lead ole.” M Adeola added that it was not so mch the money that development agencies sch as the ADB povided, bt the isk mitigation. “When I look at the difclty in getting a lot of these pojects bankable, it is not eally money. It is abot being able to get a cedit annoncement that will enable pivate banks sch as os to deploy capital,” he said. “So, even if today the ADB stopped deploying any fom of debt in tems of cash and all it did  was to povide conty isk mitigation and cedit annoncements, it wold pobably have as mch impact as it does in tems of  witing the cheqes. When I look at how mch we cold deploy if we didn’t have to  woy abot conty isk, we wold pobably  be able to doble that,” he said. M de Longema mentioned yet anothe challenge to pomoting inta-Afican tade,  which was to hamonise egional economic commnities in Afica. “Thee ae, I don’t know how many – nine o maybe moe [eco-nomic commnities] – bt the poblem is that thee ae ovelaps eveywhee. Many conties ae membes of diffeent egional economic commnities,” he said.
enTer The CaPITaL MarkeTs
M Cobett asked how otside-investos cold be bette eassed that thei invest-ments in Afica wee safe, given the conti-nent’s widespead political and economic ncetainties. M Tyon said that it was pos-sible to inse investments thogh oganisa-tions sch as the Wold Bank, bt that his fnd had taken the view that sch insance mechanisms wee not necessaily appopi-ate to smalle investos sch as Mais Capital. He sggested that each deal was individal,  bt that the long-tem pospects fo the con-tinent wee good. “Goldman Sachs pblished a pape sggesting that the pan-Afican gowth ate ntil 2050 cold be as mch as 6% goss domestic podct gowth pe annm and I think that’s a vey eassing point fo investos,” he said.M rose said that said that Standad Bank managed fnds that an fo 15 yeas

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