New ‘Africa50’ fund to target ‘non-traditional funders, accelerate development’

Out-Law News | 20 Mar 2014 | 10:03 am | 1 min. read

A new infrastructure fund launched by the African Development Bank (AfDB) aims to focus on “high-impact national and regional projects “ and cut the time taken between project ideas and financial close by more than half.

AfDB said the ‘Africa50’ fund, which is set to become operational in the first quarter of this year, aims to attract “non-traditional funders” such as institutional investors and “mobilise private financing to accelerate infrastructure delivery” on the continent.

AfDB president Donald Kaberuka told the annual meeting of the Africa CEO Forum in Geneva this week: “Africa50’s critical objective is to shorten the time between project idea and financial close – from a current average of 7 years to under three years, thereby delivering a critical mass of infrastructure in Africa in the short-to-medium term.”´

AfDB said Africa50 is to be structured as a “developmentally-oriented yet commercially operated entity” that is complementary to and legally independent of existing development finance bodies in Africa. Operational decisions will be made by a management team “selected solely on technical merit and demonstrated managerial competence”, AfDB said.

The fund will have “three broad groups of investors” – the African nations, institutional investors such as sovereign wealth and pension funds, the AfDB and other major development financiers.

Africa50 aims to make skilled legal, technical and financial experts available to projects from an early stage of development, sharing costs with member governments and developers and recovering its funding at financial close or through a carried interest in the project. Bridge equity, senior secured loans, refinancing and risk mitigation will be used to encourage investment in infrastructure financing.

According to AfDB, Africa50 will need an equity investment of $10 billion to attract $100bn worth of local and global capital. To start operations, the fund targets raising $3bn in equity capital “to establish credibility with governments, private developers and financial markets”.

AfDB said that, depending on funding needs and the project pipeline, Africa50 will augment its financial capacity by raising debt in the international capital markets.

Consulting firm De Charles has estimated that around $55bn or roughly 57% of capital allocated for financing African infrastructure projects was unspent in 2009 and 2010 alone, “due to a lack of acceptable projects”. De Charles said: “This highlights the issue the Africa50 fund seeks to address... rather than financing pre-packaged projects, it will seek to back feasibility studies and the early-stage tasks required for entirely new ones.”