Sekete Mokgehle is the co-head of Africa infrastructure finance at Nedbank CIB, where he is spearheading a newly launched business unit aimed at consolidating the bank’s focus on infrastructure financing in Sub-Saharan Africa.
The new division merges Nedbank’s export credit finance unit, led by Mokgehle, with its infrastructure, water and telecoms finance teams, forming a powerhouse for regional development.
In this instalment of GTR’s Trade Leaders Interviews, he discusses the bank’s export finance business, the challenges the continent faces in growing its infrastructure spend, and the team’s plans for the future.
This interview has been edited for length and clarity.
GTR: What are the most interesting or important trends you’re seeing in the infrastructure financing space at the moment? How are these changes impacting the sector?
Mokgehle: Firstly, infrastructure development is seen as a catalyst for economic growth and job creation, particularly in countries like here in South Africa. The new South African government, for instance, is actively seeking to turn the country into a large construction site to stimulate economic growth and alleviate current socio-economic challenges. This approach underscores the critical role of infrastructure in facilitating trade, both within the country and across the whole of Africa, which is increasingly focused on enhancing intercontinental trade.
Secondly, geopolitical dynamics are influencing infrastructure financing in Africa. Developed nations view Africa as a fertile ground for deploying their technologies and securing trade advantages. This has led to significant investments from countries like the US and GCC states, aimed at reducing China’s influence in the region. Examples include a number of US agreements in Angola, which have broader implications for neighbouring countries, and GCC investments in selected African states. Despite this, China’s role remains significant, though it faces increasing competition and has shown signs of strategic retreat in certain areas.
An interesting trend within export credit agencies (ECAs) is the evolving competitiveness criteria. Some ECAs are more flexible, requiring lower sovereign content in their deals compared to others with stricter requirements. This discrepancy affects the competitiveness of different ECAs and their influence on the global stage.
Moreover, ECAs are introducing new product sets aimed at supporting small and medium-sized enterprises (SMEs). While this is a good initiative to broaden the export range and inclusion of smaller players, it faces practical challenges. The complexity of ECA funding structures often deters investment banks due to the smaller deal sizes, leaving SMEs stuck between retail and business banking’s reluctance to handle such structures and the high-effort requirements of larger financial deals.
Additionally, there is a reform agenda within ECAs aimed at improving efficiency and market reach. For example, in May, Export Credit Insurance Corporation of South Africa expanded its coverage to include euro-denominated transactions, which was a positive development. Elsewhere, efforts are being made to centralise guarantee products through platforms like the World Bank’s Miga to streamline processes.
Lastly, sovereign involvement with the IMF is heavily impacting infrastructure financing. IMF-imposed borrowing limits, both concessional and non-concessional, create constraints on how much these countries can borrow, affecting the returns on investment and ultimately hindering the ability to progress with infrastructure projects. This is a significant development trend that poses challenges to advancing infrastructure spending.
GTR: Which ECAs does Nedbank work most closely with?
Mokgehle: Nedbank collaborates closely with several ECAs, and has had exposures covered by UK Export Finance (UKEF), Euler Hermes, the Export-Import Bank of the United States (US Exim), Sace of Italy and Credendo of Belgium.
With UKEF, we funded the construction of 115 rural healthcare centres and five district hospitals in a US$300mn deal in Zambia, for which the ECA provided direct lending, with Nedbank funding the 15% down payment through a commercial tranche. Elsewhere, we worked with Euler Hermes to fund the purchase of boiler units for Eskom’s Kusile power plant. And we continue to maintain a deep relationship with US Exim, despite the demise of an airline we financed together.
We continue to explore opportunities for collaboration. Credendo, while not used for ECA products, has recently provided a market window insurance product for one of Nedbank’s sovereign lending projects.
Our collaboration with these ECAs is influenced by our limitations as a South African bank, particularly in terms of our lack of dollar deposits. The financial landscape often makes it challenging for us to lend under ECA cover at competitive rates. As such, we tend to either lend alongside ECAs like UKEF or under specific conditions that allow for local currency lending. However, we’re certainly exploring ways to overcome these challenges to enhance our ECA partnerships and competitiveness in the market.
GTR: As an industry, we’ve been talking about Africa’s infrastructure financing needs for decades: is the needle moving? Where do you see the greatest challenges and opportunities? And where does the industry need to concentrate its efforts?
Mokgehle: To understand the dynamics at play, one must consider the continent’s significant borrowing needs. Despite growing economies, African countries face an expanding fiscal deficit, driven by insufficient revenue collection and an increasing demand for infrastructure investment. This persistent deficit indicates that access to finance for infrastructure is not improving at the desired rate; the needle isn’t moving as much as it could.
Several factors contribute to this situation, including high sovereign debt levels that force governments to prioritise debt servicing over new projects. This leads to the cancellation or postponement of essential infrastructure developments. So while urbanisation and population growth are escalating the demand for infrastructure, the fiscal space remains limited.
Foreign direct investment flows into Africa have been unstable or decreasing, further hindering infrastructure financing.
Despite these challenges, numerous opportunities for infrastructure development remain. Africa’s transport infrastructure, particularly roads and ports, is in dire need of improvement. Inefficient ports and deteriorating road networks present substantial opportunities for investors and lenders to step in and address these issues. However, state-owned enterprises, which are often responsible for such projects, face liquidity challenges that prevent them from effectively leveraging outside funding. This has resulted in significant inefficiencies in critical infrastructure, such as ports and railways.
The health sector also presents significant opportunities. The disparity in healthcare infrastructure between Africa and more developed regions highlights the urgent need for investment. For instance, the number of hospital beds per capita in Africa is significantly lower than in developed countries, indicating a substantial gap in healthcare services. Additionally, the Covid-19 pandemic exposed the deficiencies in Africa’s healthcare systems, such as the lack of medical oxygen in hospitals. This gap presents an opportunity for investors to develop comprehensive healthcare infrastructure, including physical facilities and essential services.
Nevertheless, political instability and governance issues continue to deter investors. Incidents such as coups and civil unrest create a perception of high risk, discouraging investment in infrastructure projects. Rating agencies also play a crucial role, as many African countries have poor credit ratings, making it difficult to attract investment. Only a few countries have investment-grade ratings, which limits the pool of potential investors willing to take the risk.
The high cost of borrowing is another significant challenge. Interest rates have surged, making it prohibitively expensive for African countries to secure the necessary funds for infrastructure projects. Inflationary pressures, often exacerbated by global events such as the war in Ukraine, further strain economies, weakening local currencies and increasing debt levels.
Debt restructuring processes, while providing necessary fiscal relief, also have their downsides. Countries that undergo restructuring are often seen as higher risk, which can lock them out of future borrowing opportunities. This creates a vicious cycle where countries default to gain fiscal space, but in doing so, they jeopardise their long-term ability to attract investment. For instance, Zambia’s debt restructuring has provided it with some fiscal space, but it also sets a precedent that might encourage other distressed countries to follow suit, further complicating the investment landscape.
Regulatory challenges add another layer of complexity. Different interpretations of regulations by banks and regulators create an uneven playing field. For example, when lending to countries with poor credit ratings, some banks use risk mitigators like insurance to shift the credit risk. However, regulatory interpretations on how to account for this risk vary, leading to inconsistencies in how banks price and approach these loans. This inconsistency discourages investment as it creates uncertainty and makes it difficult to compete fairly.
Also, the tools designed to mitigate risks, such as insurance, often do not deliver the expected benefits due to conservative regulatory requirements. This mismatch between the cost of obtaining insurance and the actual benefit it provides further discourages banks from engaging in infrastructure financing.
GTR: How is the new infrastructure unit’s portfolio shaping up? Are there any recent infrastructure projects or deals that you’re particularly proud of?
Mokgehle: We are progressing steadily, albeit slowly, in integrating the new unit. This process is deliberate, with a focus on maintaining client relationships and gradually training team members to acquire new skill sets. It involves shadowing and collaboration to ensure a cohesive unit in the long term. Both teams continue to strategise together, and opportunities are provided for staff to engage in deals across both segments.
The need for infrastructure on the African continent is clear, and the public sector is likely to lead in the medium term due to the underdeveloped regulatory framework for private sector involvement. At Nedbank we have expanded our exposure in lending to ministries of finance to nine sovereigns across Africa, focusing heavily on infrastructure project finance. Key sectors include roads, with projects like the Beitbridge toll road in Zimbabwe. In the rail sector, ongoing refinancing continues to be a focus.
Water infrastructure represents a significant portion of Nedbank’s portfolio. A recent project is an augmentation system in Limpopo, South Africa, a large-scale endeavour involving multiple banks and substantial investment. We’re also involved in towers and telecoms, often through refinancing existing loans.
Challenges persist, particularly in South Africa, where the speed of bringing projects to market is slow. Across the rest of Africa, pricing and other risk factors complicate investment. Export credit finance remains a key tool to mitigate risks. However, local currency requirements for many projects pose difficulties.
Significant achievements include three deals that stand out: a Zambian hospitals project with NMS International, a Luanda intersection project in Angola, and a substantial loan to the government of Côte d’Ivoire. The Zambian project is notable for its scale and impact, bringing healthcare closer to the people through new clinics and hospitals. The Luanda intersection has greatly improved traffic flow and accessibility in a previously congested area. The Côte d’Ivoire loan demonstrates our deep relationship with the government, having provided over €200mn for various projects, including pedestrian bridges and markets development, amongst several infrastructure projects identified in our lending.
GTR: You previously served as the head of commodity finance at Nedbank for 11 years. How has that experience influenced your approach to export credit/infrastructure financing?
Mokgehle: My previous experience has really shaped my approach to export credit and infrastructure financing. In my former role, I managed a diverse and active portfolio across many commodities and regions within Sub-Saharan Africa. This required a deep understanding of market dynamics, commodity lifecycles and liquidity factors, all of which are crucial when deciding on lending strategies. The focus was more medium-term, involving substantial deals and a complex environment of governance, procurement processes and ensuring value for money to maintain Nedbank’s reputation.
Transitioning to my current role, I’ve found the scope has broadened. Deals now involve a wider array of stakeholders beyond just the clients, such as EPC contractors, export credit agencies, insurers and co-lenders, adding layers of complexity to negotiations and deal alignment. The need for a cohesive strategy and collaboration has increased, necessitating robust stakeholder relationships. My long tenure at Nedbank, spanning 23 years, has been advantageous in navigating these new challenges.
