Hope rises for Africa’s infrastructure financing

Leading infrastructure lawyers, bankers, policymakers as well as officials from the Economic Community of Africa (ECA) and NEPAD are holding a two-day meeting in Lagos to review a document seeking to enhance policy and regulatory environment for mobilising funds for Africa’s infrastructural development.

Held under the auspices of the United Nations, the expert group meeting is examining the report of a landmark study on how African countries can mobilise adequate domestic resources to own and finance the continent’s development, in particular financing regional and sub-regional infrastructural projects involving multiple countries.

The report, which was prepared by the Lagos-based law firm of Olaniwun Ajayi, was finalised and submitted to African heads of state in January this year, and it confirms that Africa has sufficient domestic resources to fund and own its own development.

“For instance, the study finds that Africa generates more than $520 billion annually from domestic taxes, $168 billion annually from minerals and mineral fuels, $400 billion in international reserves held by its central banks, about $40 billion annually in diaspora remittances and the potential to raise $10 billion annually from securitisation. Stock market capitalisation in Africa had reached $1.2 trillion by 2007 while banking revenues stand at about $60 billion,” the report further revealed.

According to the report, Africa could strengthen and enhance its domestic resource base through the African infrastructure development fund, African credit guarantee facility, African-owned private equity funds, securitisation of Africa’s diaspora remittances, deepening its bond markets, creation of sovereign wealth funds and exploring creative models for public-private partnerships that work.

At yesterday’s session, participants were keen to point out that a sustainable infrastructure development strategy was capable of mobilising and freeing huge development funds, as well as creating corridors of employment around the continent.

Various speakers pointed to possible bottlenecks in existing treaties, domestic registration requirements, limits imposed by language as well issues like corruption and reputational risks.

The participants also had views on what should be the appropriate definition of “bankability” of an infrastructure project. Whereas the bankers weighed towards commercial viability, others thought a broader definition was required to take on board projects with significant social benefits that may not in the immediate term be commercially viable.

Africa loses between 2-4 percent of GDP growth annually as a result of poor access to power and in countries like Nigeria, the impact could even be more.

Lawyers with direct experience in structuring infrastructure deals in the continent brought that experience to bear on the discussion, in the hope that African leaders could learn from what has worked and cases where better results would have been secured.

Many were of the view that political will was no longer sufficient and that the continent’s leaders, while accepting responsibility for pushing economic development, must demonstrate the desire and capacity to make things happen for their people.

It was, however, not just about how Africa has failed. In Nigeria, the case was made about projects which are now possible, simply on account of the intervention of the Nigerian Sovereign Wealth Fund, and in Ethiopia, a report was presented of how that nation’s $4 billion Great Millennium Dam project to produce 5,200 MW of power is being funded with proceeds of the $1 billion securitisation of Ethiopia’s Diaspora Fund.