There is considerable interest in and opportunities for investment in infrastructure across the African continent, and efforts are accelerating to get public-private partnerships over the line
Investment is Africa’s infrastructure has become “obligatory” to meet the demands of demographic growth, economic transformation. So says the US think-tank The Wilson Centre, adding that funding opportunities are on the horizon with international investors showing “considerable interest”. This is more than timely as, according to the African Development Bank, the continent will need up to $170 billion a year by 2024 to overhaul its infrastructure.
Closing Africa’s infrastructure gap matters greatly for the continent’s economic development, says international consultants McKinsey, so “the good news is that infrastructure investment in Africa has been increasing steadily…and that international investors have both the appetite and the funds to spend much more across the continent.”
McKinsey sees an “Africa’s infrastructure paradox” – that there is a need and a large pipeline of potential projects for which funds are available, but “not enough money is being spent”. The challenge is that work is needed to bring proposed infrastructure projects past the crucial “feasibility and business-plan stage”.
The projects are certainly there. In energy alone, while Africa has the potential of generating 11 terawatts of solar power, 350 gigawatts of hydroelectricity, 110 gigawatts of wind power, and 15 gigawatts of geothermal power, these being the last numbers from the International Energy Agency (IEA).
As will be discussed at the 13th Africa Public Private Partnership (PPP) Conference, to be held this coming October in Morocco and themed “Accelerating Project Delivery and Partnerships”, several African countries have been leading the way and successfully launching PPP projects. These include Morocco, Egypt, South Africa, Nigeria and Ghana.
The demand for private finance comes because public funds are not sufficient for funding the much needed transport, electricity, water, and internet connection projects at a time when the continent is facing economic strife due to the war in Ukraine, global inflation and an acute dollar shortage. Whereas Sub-Saharan Africa, for example, shouldered 90% of its expenditure financing from its own resources in 2015-2018, debt levels are now too high and governments have run out of fiscal space.
The chair of the board of Africa50 (a financing accelerator fund) and CEO of the African Development Bank (AfDB), Akinwumi Adesina, said speaking in Morocco last year: “We have to look for additional capital from development partners, the private sector and institutional investors.” The organisations, which he heads up, have raised over $50 billion on PPP projects for African infrastructure in recent years.
Highly aware that private money does not come easily, African governments are seeking to enhance their attractions for investors, strengthening their institutions and forming new investment ones. Africa50 is one of these – its infrastructure investment platform contributes to the continent’s growth by developing and investing in bankable projects, catalysing public sector capital, and mobilising private sector funding with differentiated financial returns and impact. Africa50 currently has 32 shareholders, comprised of 29 African countries, the African Development Bank, the Central Bank of West African States (BCEAO), and Bank Al-Magh.
Among its successes is the Kenya Transmission PPP, which entails the development, financing, construction, and operation of the 400kV Lessos – Loosuk and 220kV Kisumu – Musaga transmission lines under a public-private partnership framework in partnership with the Power Grid Corporation of India. Another project has brought in PAIX Data Centers to help develop and operate a growing pan-African platform of carrier-neutral colocation data centres with operating assets currently in Ghana and Kenya. AfDB’s Alliance for Green Infrastructure in Africa has collaborated with Africa 50, seeking to raise $500 million of early-stage capital for project development targeting to generate $10 billion worth of business opportunities.
Attracting capital to Africa, too, is the work of the Public Private Infrastructure Advisory Facility (PPIAF). This program has successfully implemented PPP institution-building activities to enhance the capacity of government officials across the globe and catalyse the adoption of PPP laws, regulations, and guidelines, said the World Bank in a report “Building Stronger Intuitions to Mobilize Private Capital in Infrastructure, published in the spring. It adds: “As a result, there has been a marked improvement in the robustness and bankability of PPP project pipelines in numerous countries, including Ethiopia, Guinea Bissau, Kenya, Lao PDR, Lesotho, Panama, Peru, Senegal, South Africa and Tanzania, and Vietnam. These efforts have led to the launch of several groundbreaking PPP projects and support PPP programs and projects together with World Bank Group engagement in various infrastructure sectors.”
Morocco has its own successful strategies, having invested massively in infrastructure projects, spending at times nearly 40% of GDP, according to the World Bank, one of the highest rates globally. The investments have created more reliable supply chains, improved access to markets and basic services, and increased productivity, it comments. Recently these have ranged from the expansion of the Tan-Tan desalination plant PPP project, in which Spanish multinational water and energy group Abengoa partnered local Atlas Energie, to a project for UK-based Helios Investment Partners to acquire a majority stake in Maroc data center (MDC). A Moroccan Infrastructure Fund (“MIF”) was established in 2006, focusing on infrastructure investments, either in new projects or improvements/extensions of existing projects or companies. This is a joint venture between US-based Emerging Capital Partners and Morocco-based Attijari Invest.
Hugely instrumental in the development of African PPPs has been the PPIAF Trust Fund, a multi-donor initiative administered by the World Bank Group, and providing money for the PPP Institutions Building Program. Besides the World Bank Group, the governments of Australia, France, Germany, Netherlands, Norway, Sweden, Switzerland, the United Kingdom, and the United States support PPIAF.
Kenya’s PPP mission is in the hands of its Kenya Public-Private Partnership Unit, a specialist unit within the National Treasury, with projects in education, energy, health, housing industry, manufacturing and water. Years of working with PPIAF have enormously increased Kenya’s experience and capacity, developing a legal and institutional foundation – 80 PPP projects were approved by the time support closed in 2020. PPIAF supported the development of the framework for managing fiscal commitments and contingent liabilities to enable national and local institutions to managing and report on government fiscal obligations under PPP effectively and transparently.
Institutional reforms are a must, states the International Finance Corporation, the finance arm of the World Bank. In its report earlier this year on Infrastructure in Africa, How Institutional Reforms Can Attract More Private Capital. Institutions are “a strong positive driver of private participation in infrastructure financing” its study found, and their quality is all important. Robustness checks suggested, it says “that governance is indeed a positive driver” of private participation in infrastructure.
“Improvements in areas like strengthening the rule of law and lowering corruption levels would boost private investment by up to 0.8% of GDP over four years—or $20 billion, “ it adds.
South Africa has considerable experience in establishing successful PPPs, with a sound regulatory framework in place to ensure transparency, manage risk and secure returns for the private investor, comments The Southern African Development Community – Development Finance Resource Centre. “The discipline and rigorous planning associated with PPPs has benefited the procurement of the largest public-sector infrastructure projects in the Renewable Energy Independent Power Producer Procurement Programme and of rolling stock for the Passenger Rail Agency of South Africa,” it states.
A huge source of infrastructure finance in past years, Chinese companies are now among the new players taking private stakes in mega-projects, such as ports, through PPP models. Domestic debt concerns brought a fall in 2022 in funding under the Belt-and-Road programme to a historical low, according to The South China Morning Post. “Observers say Chinese firms are shifting from a model that limited them to engineering, procurement, construction plus finance to now taking stakes in running the infrastructure once it is built in a model known as integrated investment, construction, and operation (IICO).
“IICO is now commonly used in Chinese discussions on public-private partnerships (PPPs). It refers to a long-term contract which usually entails the design, financing, construction, operation and, in certain cases, toll collection of an asset,” states the newspaper.
“It also comes in the form of build-operate-transfer (BOT), build, own, operate, transfer (BOOT) and build-own-operate (BOO) contracting. Projects were seen as most likely in the power sector, and some Chinese companies such as Sinohydro and PowerChina had already done business this way for a while.”
So, Africa is gearing up to gain a greater share of the global development pot, a trend which can be speeded up, says David Baxter, senior advisor to the UNECE-affiliated International Sustainable Resilience Center for PPPs (ISRC). In an interview with B2B market intelligence website Uxolo he said: “There is an increasing awareness that countries have to compete for international financing and make a compelling argument to attract investors and there are simple actions that countries can undertake to attract investment. They include the following – building long term project pipelines that give investor’s insights into projects that are bankable; ensuring that procurement processes are impeccably transparent and competitive; agreeing to the sharing on project risk in a way that parties are only allocated the risk that they can and should address; incentivizing investor performance; and agreeing to the inviolability of law.”
Investors are watching developments on all these fronts carefully as the list of exciting potential PPP projects across Africa expands.
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