Development financial institutions (DFIs) invested around US$328bn in African infrastructure between 2009 and 2014, according to a new report from Baker & McKenzie and the Economist Corporate Network (ECN). At US$54bn invested annually, this is four times the amount of capital that the private sector pumps into the continent’s infrastructure deficit every year.
“Development capital is a crucial enabler to make projects bankable by taking risks (primarily political risks) which the private sector would not be able to accept,” reads a statement issued by Baker & McKenzie.
As part of research for the report, ECN analysed the infrastructure-related activities of 14 DFIs (including export credit agencies), assessing their funding approvals across 22 African countries over a six-year period (from 2009 to 2014).
The report, entitled “Spanning Africa’s infrastructure gap: How development capital is transforming Africa’s project build-out”, found that the World Bank takes the lead in funding commitments (contributing US$20.8bn over the last six years), followed by the Development Bank of Southern Africa (DBSA – at US$16.5bn), the African Development Bank (AfDB – at US$16.2bn) and Agence Française de Développement (AFD – at US$9.1bn).
Although they did not provide official numbers for the report, China-based DFIs are estimated to be the largest single source of funding, contributing over US$13.4bn in Africa in 2013 alone, and US$60bn over the period covered, according to the Infrastructure Consortium of Africa.
South Africa, Egypt, Nigeria, Morocco, Kenya, Ethiopia and Ghana received more than 70% of funding from the DFIs analysed in the report.
With regards to sectors, power and transportation projects were allocated about 67% of the funding approvals. “The sectorial allocation of funding indicates that Africa is far from a commodity play,” says the report. Approvals of the amounts of US$37bn and US$24.6bn were granted for power-related and transportation-related projects, respectively.
“Renewable energy and gas projects present viable opportunities across Sub-Saharan Africa. There isn’t a shortage of funding for good projects. We believe we can develop around 10 projects in the next five years,” says Orli Arav, chief investment officer at Impala Energy.
The report concedes in its conclusion that while development capital is catalysing private sector investment in African infrastructure projects, it is not yet reaching the scale needed. “However, as investors become more comfortable, perhaps the multiplier effect [bringing in tens of US dollars for every one US dollar in funding allocated by DFIs] will increase to a greater extent. If that happens, billions of US dollars will rapidly become trillions, and Africa will acquire the platform of infrastructure necessary to realise its potential,” it continues.
In 2009 the World Bank estimated that Sub-Saharan Africa needs over US$90bn annually to upgrade and maintain existing infrastructure and fund new projects. What is “surprising” says Gary Senior, chair of Baker & McKenzie in Emea, is the “apparent achievability of closing the funding gap over the next 10 years if development capital keeps flowing”.
Speaking at The Global African Investment Summit (TGAIS) in London last week, Paramount Group executive chairman Ivor Ichikowitz probed the scope of DFIs operating in Africa and, with reference to their onerous conditions, questioned “how many projects that come to DFIs don’t actually happen”?
CDC CEO Diana Noble conceded that DFIs have a “well-earned reputation for being slow”, while OPIC Africa MD Subha Nagarajan warned of the danger of lumping all DFIs into the same group. “We have our own systems to measure risk and reward. We are not all the same,” she said.