‘African institutions should lead on infrastructure finance’, says bank chief

Out-Law News | 09 Jul 2014 | 2:10 pm | 2 min. read

The African Development Bank (AfDB) has called on African institutions to take the lead in funding infrastructure projects to “accelerate the implementation of priority regional infrastructure projects”.

AfDB president Donald Kaberuka said the continent had “relied on external funding to finance our infrastructure for a long time”.

Kaberuka said: “It is now time for the AfDB to mobilise African sovereign savings, currently estimated at $1,000 billion, to build the Africa of tomorrow.”

However, the AfDB said action is needed to address the “lack of well-prepared projects to meet growing demand by investors in the infrastructure sector”. Last weekend’s ‘Dakar Financing Summit’, organised by the African Union and its New Partnership for Africa’s Development, aimed to “define in detail a series of infrastructure projects”.

The summit entitled ‘Unleashing Africa’s infrastructure potential’, which ended on 15 June, brought together government agencies, business leaders, finance and development institutions, private investors, commercial banks, pension fund representatives, bond market operators and insurance companies.

Pilot infrastructure projects discussed at the summit covered energy, transport, information and communication technologies and ‘trans-boundary water resources’, all of which are included as priority sectors for development up to 2030 in the bank’s ‘Programme for Infrastructure Development in Africa’ (PIDA).

AfDB is responsible for PIDA’s contractual, financial, technical and administrative management, including responsibility for procurement procedures. According to the bank PIDA, which is supported by the UK’s Department for International Development and the European Union, requires more than $11 million in total to administer the programme. Studies into potential sectors for development require some $7.5m, with support organisations including the African Water Facility and the Islamic Development Bank.

Following the Dakar summit, it is now expected there will be “top-level political support” from African countries and regional economic communities to be “the main project owners”, the AfDB said. In addition, the bank said it hopes for “a commitment from the private sector to finance selected specific regional projects as a first phase”, before PIDA’s priority projects are updated by 2020.

Kaberuka told the bank’s annual meeting in Rwanda last month (7-page / 320 KB PDF) that taking Africa’s development “to the next level will require a much bigger role for the private sector, which generates jobs and more wealth”. He said: “As governments, it is crucial to consistently invest in and strengthen our efforts to create environments that nurture and promote innovation and entrepreneurship. The first to take advantage of an improved business environment should be African companies.”

Kaberuka said that since 2007, intra-African investment had grown at a rate of 32%, “more than double that of non-African emerging markets, and almost four times faster than foreign direct investment from developed markets... but there is still a lot of potential to be realised and we can do more to encourage this trend”.

According to the AfDB, the accessibility to roads across Africa is only around 34% (4-page / 512 KB PDF), compared with 50% in other parts of the developing world, while transport costs are 100% higher. Only 30% of Africa’s population has access to electricity, compared to 70-90% in other parts of the developing world. Water resources are “under-used”, with only 5% of agriculture under irrigation. The internet penetration rate is around 6%, “compared to an average of 40% elsewhere in the developing world”.

The bank said: “The costs of closing Africa’s infrastructure gap are vast. PIDA will cost around $360bn between 2011 and 2040, with significant investments required by 2020. Such costs are beyond the financing capacities of governments or even donors. Attracting private sector participation through public-private partnerships is therefore essential for the delivery of various infrastructure projects envisioned under PIDA.”