By Birama B. Sidibé
Africa’s investment needs are enormous. To catch up in terms of infrastructure would require some 90 billion dollars a year, or 15% of the region’s GDP, according to a study recently conducted by the World Bank and the Infrastructure Consortium for Africa (ICA). Historically, financing has largely come from international and bilateral institutions dedicated to development. However, the cost of today’s projects makes this situation untenable.
States have a limited capacity to borrow
Firstly, public debt cannot be called upon for everything indefinitely. Driving up the amount states owe is not a viable medium or long-term solution. Their financial capacity has limits. For instance, construction of the Inga Dam in the Democratic Republic of Congo cost several billion dollars, a much greater sum than this country could possibly borrow alone. Furthermore, lending institutions are themselves subject to prudential limitations. Country exposures are tightly controlled.
Given these constraints, new funding approaches must be devised. From a strictly financial standpoint, it appears sensible to let financing rest on investment, rather than debt, and thus to attract actors from the private sector. The type of very long-term assets that large-scale infrastructure projects involve offers the advantage of a potential for regular revenues over a long period, explaining the enthusiasm of major institutional investors from Africa and abroad (pension
funds, sovereign wealth funds, insurance companies and even central or development banks), which have flocked to participate alongside African nations in ever greater numbers. The recent announcement by Norway, which has the world’s largest sovereign wealth fund, that it would be significantly reinforcing investment on the African continent, is emblematic of this growing trend. It is important to heed this desire to make capital investments by offering opportunities for these actors to participate directly in project companies, via investment certificates or equity which represent a portion of the underlying tangible assets and earn returns commensurate with the revenues generated by such assets.
Adjusting Sovereignty
Africa’s economies are fragmented, isolated and uncompetitive compared to those of other regions. Fifteen of the globe’s thirty-one least developed countries are located in Africa. The continent’s Island Nations are particularly isolated. However, one of the central goals for infrastructure is establishing connections among regions, in view to opening up vast markets and developing trade on the level of the continent. The projects involved—motorways, rail lines, power plants and high tension lines, ports for shipping and airports—will thus be increasingly focused on meeting the needs of more than one country, well beyond the frontiers within which they are situated. Such shared infrastructure naturally entails adjustments, and at times concessions, of sovereignty on the part of all stakeholders. Some countries have already accepted (and implemented) this idea. This is how Mali, Mauritania and Senegal successfully designed several hydroelectric dams, in concert via the OMVS (known in English as the Senegal River Basin Development Authority).
These constructions are held as common property by the participating countries, all of which share access to electricity produced, despite the dams themselves being located in a single country. This model could be profitably translated in the future to PPP concessions bringing together private actors and investors, as well as public construction companies and equipment manufacturers from the energy sector.
The AfDB must be in a position to serve as a catalyst
For the foregoing reasons, steering these projects from financing to realisation ought to be entrusted to a supranational institution. Such an entity would be able to ensure the timely completion of projects and prevent any changes to their economic model, regardless of political events in the countries concerned. This institution would also serve as a catalyst. Here, the African
Development Bank (AfDB)’s technical expertise and prior experience with infrastructure projects offers real value added for all concerned. As a community-based regional institution, the AfDB would also become a preferred entryway for African and international investors, given its ability to coordinate their participation and provide guidance on the viability of projects, but also bring countries together in support of shared goals. The bank’s financial participation in the form of capital investment, and not necessarily loans, would provide a moral guarantee of the operation’s success. However symbolic and carefully calculated the risk, such investment by the AfDB would help reassure others as to the sustainability of an operation.
Birama B. Sidibé is a candidate for president of the African Development Bank (AfDB)
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