The establishment of a regional information hub is being advocated by the NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF).
NEPAD believes this development should be used to advertise bankable projects in Africa, and has proposed that each country have a window, or channel, that is linked to its centralised information hub. They say this could help unlock bankable investment opportunities throughout the continent.
Addressing delegates at recent programming session, Shem Simuyemba, coordinator for NEPAD-IPPF, said: “It would be both a ‘project hub’ and a ‘help desk’ – a centralised IT platform for bankable projects which potential investors can access. Such a hub could be housed by the African Development Bank (AfDB) to ensure credibility and confidence by both project owners (governments) and potential investors.”
The assessment and programming session was held at the AfDB Headquarters in Abidjan, Cote d’Ivoire on last week.
Services and bankable opportunities
Simuyemba explained that the ‘one-stop-shop’ initiative would not just be a listing of projects, but a differentiation of the ‘financial-readiness’ of the projects in terms of all the key returns that investors look for. These include assurance of transparent procurement practices, tenure, risk, returns, availability of co-financing, depth of local capital markets, among others.
“The important point to remember is that projects need to be bankable from the point of view of the person who will provide the risk capital to make the project happen,” Simuyemba said. “While bankability is about figures, it is also about risk and reality and these factors all go together in making an investment decision.”
He stressed the need for bankable investment opportunities in Africa and said they needed to be unlocked in order to attract regional and international investors.
Unlike other regions such as North America, Europe, Asia and Latin America which have strong private sector project developers and sponsors, the emergence of an indigenous class of trans-continental investors such as Dangote was just the beginning for Africa.
This may be attributed to a number of factors, among which is a history of state monopoly companies which crowded out the private sector and stifled its growth, heavily controlled and regulated sectors, particularly in infrastructure.
Here, infrastructure did not have the necessary enabling environment and incentives for private sector participation, and also had weak capital markets.
Unlocking investment opportunities
Unlocking investment opportunities in Africa require a number of measures to be undertaken as a matter of policy priority, Simuyemba said. He outlined three other measures to achieve this.
The first is the liberalisation of sectors which are still dominated by government. He gave examples of the information, communications and technology (ICT) sector whose liberalisation a few decades ago opened massive investment opportunities for the private sector.
He observed how African countries which had recently opened up their energy-power sectors witnessed major investments by independent power producers (IPP) and even smaller players in off-grid green energy investments.
“The transport sector for both road freight and passengers is now vibrant because it is predominantly private sector driven,” he said. “However, the same cannot be said about railways where governments still need to provide clear guidelines on an ‘open access rules’ for railway operations. Equally, despite the Yamoussoukro Decision (of an open African air transport market), investments in airport infrastructure, safety and industry have remained relatively limited.”
Simuyemba said the key to unlocking investments in these sectors was clear market rules.
Scaling up capacity
The second measure was the need to scale-up capacity for project preparation and development as Simuyemba said this was the only means to assess, package and structure the projects in such a way that there is a ‘rolling pipeline’ of bankable projects.
Speaking at a NEPAD-IPPF Project Financing Roundtable in May, investors stressed the absence of bankable-investment-ready projects tailored to the needs of public financiers, concessionaires (public-private partnerships) and the private sector.
Investors noted that the appetite to invest depended on risk considerations which were very different depending on whether the investor was a Development Finance Institution (DFI), a project developer or a private investor.
“To achieve this requires considerable scaling-up of capacities and resources for project preparation and development,” Simuyemba said. “This is a space largely neglected in terms of resources even though it has been demonstrated that US$1 committed to project preparation and development unlocks between US$80-100 in investment financing. Thus, a project with US$10 million in preparation costs can unlock between US$800 million to US$1 billion in financing depending on the sector and project location,” he explained.
He also spoke on the importance of regional markets which he said need to be created through deliberate policy reforms, enabling environment, incentives and strengthened partnerships.
Most African countries are too small to be attractive markets for major infrastructure investments or even major industries. While there was a lot of debate related to the lack of political will in the past, African countries have more recently shown a new resolve by undertaking bold reforms and also reaching consensus on major African Union (AU) continental initiatives such as the Programme for Infrastructure Development in Africa (PIDA), the Continental Free Trade Area (CFTA) and the AfDB’s High 5’s.
For instance, major investments in power generation and transmission lines currently going on in Africa will achieve a greater economic impact if they are accompanied by policies to create a vibrant continental energy market whose elements are already in place through the regional power pools.
Simuyemba said that to spur industrialisation in Africa, there is need to create inter-connected trade and transport corridors to enhance efficiency and reduce transaction costs to make African industries, as well as imports and exports competitive within African, intra-regional markets and international-global markets.
While Africa has huge potential particularly in the infrastructure sector, bankable investment opportunities in Africa must be unlocked, Simuyemba stressed.
He said while there has been much talk about Sovereign Wealth Funds, Pension and Insurance Funds, and other institutional investors investing in infrastructure in Africa, this has not happened to the scale envisaged.
“These institutional investors have not been guided towards the right types of projects tailored to their specific profiles and financing needs and given the massive resources in these institutions,” Simuyemba said. “This gap needs to be bridged as a matter of urgency to unlock these funds for the much needed infrastructure investments on the continent.”