The New Partnership for Africa’s Development (NEPAD) has launched its five per cent agenda campaign for infrastructure financing in Africa. The aim is to close Africa’s huge infrastructure financing gap put at $68 billion.
The campaign highlights that only a collaborative public-private approach can efficiently tackle infrastructure financing in Africa. It also calls for institutional investors’ allocations to infrastructure to be increased to the declared five per cent mark.
The launch took place five years after a January 2012 African Union (AU) Summit adopted the Programme for Infrastructure Development in Africa (PIDA), which set out 51 cross-border infrastructure programmes and more than 400 actionable projects in four sectors.
According to the World Bank, the continent needs to spend $93 billion annually (44 per cent for energy; 23 per cent for water and sanitation; 20 per cent for transport; 10 per cent for ICTs; and three per cent for irrigation) until 2020 to bridge its infrastructure gap, which removes an estimated two per cent of Gross Domestic Product (GDP) growth every year.
On the other hand, Africa only managed to close 158 project finance deals with debts totalling $59 billion over the decade (2004-2013), which represented only five per cent of infrastructure investment needs, and 12 per cent of the actual financial flows.
At the launch in New York, NEPAD Chief Executive Officer Ibrahim Assane Mayaki, said: “Infrastructure plays a leading role in supporting growth on the continent. At the same time, it can represent an innovative and attractive asset class for institutional investors with long-term liabilities.
“By launching the five per cent campaign in New York today, we invite investors to take advantage of the wide-ranging opportunities Africa has to offer and move forward with what can only be a win-win partnership.”
The launch gathered high-level international investors and business leaders, including members of the PIDA Continental Business Network (CBN), which is spearheaded by NEPAD and constitutes a CEO-level private sector infrastructure leaders’ dialogue platform on PIDA.
The CBN is a NEPAD and AU initiative, which enables private sector members to communicate recommendations to high-level African policy makers on how to improve the investment climate for infrastructure.
One of Africa’s most prominent entrepreneurs and active participant in the CBN, Tony Elumelu, said: “Africa is getting stronger every day with new business opportunities and innovative ideas, but what is still crucially missing is project implementation.”
He said a coherent and co-ordinated approach was needed to mobilise institutional investors while limiting their risk exposure. “African governments need to work on creating conducive environments to attract these investments, which are so vital for the continent’s growth and development,” Elumelu said.
According to a 2016 McKinsey report, institutional investors and banks have $120 trillion in assets that could partially support infrastructural projects.
The report noted that as banks face additional regulatory challenges, and as governments have limited fiscal space, it is becoming increasingly urgent to unlock additional flows from long-term institutional investors such as insurers, pension funds, and sovereign wealth funds.
It, however, stated that for pension and sovereign wealth funds to be able to invest in large-scale infrastructure projects in Africa, a variety of issues needed to be addressed to strategically and intentionally facilitate long-term allocations.
One of the issues, according to the report, is the need to reform national and regional regulatory frameworks that guide institutional investment in Africa.
It also said new capital market products need to be developed that can effectively de-risk credit and hence, allow these African asset owners to allocate finance to African infrastructure as an investable asset class to their portfolio.
All these issues are at the heart of the 5 per cent Agenda roadmap, which is the backbone of NEPAD’s campaign and is foreseen to have many impacts, including unlocking notable and measurable pools of needed capital to implement regional and domestic infrastructure projects on the continent.
It will also broaden and deepen the currently very shallow African capital markets, whilst at the same time contributing significantly to regional integration and job creation.
The campaign is also expected to promote the development of innovative capital market products that are specific to the continent’s challenges and potential in regards to infrastructure development.