INFRASTRUCTURE FINANCING TRENDS IN AFRICA 2018

INFRASTRUCTURE FINANCING TRENDS IN AFRICA

2018We will begin shortly…

February 7, 2020

MFW4A WEBINAR

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Centennial Group International

MFW4A WEBINAR

INFRASTRUCTURE FINANCING TRENDS IN AFRICA - 2018

• Introduction

• MFW4A - Presentation

• Housekeeping

• Panelists/ Speakers

• Introducing ICA

• The report

• Findings

• Sector Issues and Challenges

• Key Messages

• Discussion

• Conclusion

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Contents

• G8 initiative launched in October 2007

• Common platform for the harmonization and facilitation of financial sector

development and knowledge sharing in Africa.

• Donor partners, African governments the private sector, and other financial

sector with the aim of unleashing the full potential of Africa's financial sector

in order to drive economic development and reduce poverty across the

continent.

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MFW4A - Presentation

MFW4A WEBINAR


Vision, Mission & Key Pilars

Our work programme encompasses the three inter-linked strategic pillars:

Financial Inclusion

Long-Term Finance

Financial Stability &

Regulation

• Digital Finance

• Agricultural Finance

• SME Finance

• Capital Markets

• Pension Systems

• Housing Finance

• Community of African

Banking Supervisors

(CABS)

Knowledge Management and Advocacy

Financial InclusionFinancial Stability &

Regulation

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MFW4A WEBINAR


www.mfw4a.org

[email protected]

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MFW4A Funding Members

MFW4A WEBINAR


http://www.mfw4a.org/

Today’ session is scheduled to last 1 hour including Q&A

To ensure the highest quality of experience, all participants will be muted

QUESTIONS can be submitted via the “Chat” or “Q&A”

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(Lower Hand and mute after)

Slides and a recording of this presentation will be circulated after we conclude.

They will also be available on MFW4A.ORG.

Message the organizers for any issues

Don’t forget to fill out the survey that appears automatically after the session

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MFW4A WEBINAR


Housekeeping

Moderator

Mike Salawou, Division Manager Infrastructure & Partnerships,

African Development Bank and ICA Coordinator

Jean Kizito Kabanguka, Division Manager Transport & Logistics,

African Development Bank

Osward Mulenga Chanda, Division Manager, Water Security and

Sanitation, African Development Bank

David Ashiagbor, Coordinator, Making Finance Work for Africa

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MFW4A WEBINAR


Panelists / Speakers

Infrastructure Financing Trends in Africa – 2018

• Findings

• Sector Issues and Challenges

• Key Messages

MFW4A WEBINAR

Introducing ICA

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MFW4A WEBINAR


The Big Picture 2018 - Financing on the rise

ICA members$20.2bn(20.1%)

China$25.7bn(25.5%)

Other bilaterals/multilaterals$5.5bn(5.5%)

Private sector$11.8bn

(11.7)

African National Governments

$37.5bn(37.2%)

2015: $78.9bn

2016: $66.9bn

2017: $81.6bn

2018: $100.8bn

West Africa$25.7bn(25.6%)

North Africa$19.9bn(19.7%)

East Africa$14.2bn(14.1%)

Central Africa$7.0bn(6.9%)

Interregional$2.3bn(2.3%)

RSA$18.0bn(17.8%)

Southern Africa$13.7bn(13.6%)

-21% 22%

24%

The financing of infrastructure in Africa has never been as high as in 2018. It reached $100.8bn, thus passing the $100bn mark for the first time. This level is 24% higher than in 2017, 50% since 2016 and 33% higher than the 2015-2017 average.

Sector Trends

• Energy attracted largest amount of commitments ever, $43.8bn :

• China committed over $10bn more

• ICA members, African governments, and private sector each committed $3bn more

• Transport commitments, $32.5bn, in line with recent years’ pattern

• Water and Sanitation commitments, $13.3bn increased by close to 22%

• ICT commitments, $7.1bn, now mostly private sector

32.3626.24

34.04 32.46

7.5412.22

13.18 13.34

33.52

20.62

24.78

43.84

2.38

1.66

2.27

7.08

3.12

6.16

7.30

4.08

2015 2016 2017 2018

Transport Water Energy ICT Multi-Sector

• African governments commitments rose to a level 33% higher than previous three-year average;

• Commitments by China increased by 65% over the previous 3-year average; and

• New commitments from Africa50 and AIIB, as well as inclusion of IFAD, and self-standing private sector financing in ICT for first time.

Where did the increase come from?

ICA Members Financing

• Major financing role at $20bn

• ICA members play an important role in policy and institutional reform

19.8

18.6

19

.7

20.2

0

5

10

15

20

2015 2016 2017 2018

$bn

• Commitments of $68.7bn (35% increase)

• Commitments by African governments increased by 33%

• Continued, sustained financing by Arab Coordination Group, EBRD, Non-ICA European bi-laterals, India

Other Non-ICA Financing

Private Sector Financing: $11.8bn

Almost all private financing is in ICT and in Power

RSA received almost 2/3 of all private sector investment

Private Sector Financing by Region Private Sector Financing by Sector

Financing Gaps

• Overall yearly financing needs: $130-170bn|

• Average 2016-18 commitments: $83bn* | yearly gap $47-87bn

• Wide gap disparity among sectors

• Water: $43 – 53bn

• Energy: $5 – 20bn

• Transport: $4 – 16bn

• ICT: $0 – 3bn

* Includes $6bn 2016-18 average commitments made to multi-sector operations

Key Sector Issues and Challenges

Key Sector Issues and Challenges • Water and Sanitation ( biggest gap )

• Real productivity gains from improved service. ( ~40 billion work hours are lost each year)

• Lack of project preparation funds a big constraint (especially for many small water systems)

• Key issue is financial sustainability

• Low tariffs - typically set to recover only O&M costs –but poor end up paying more

• Low level of O&M expenditures leads to large additional capital expenditures

• Transport

• Road sector making good progress, although significant network deficiencies

• Progress in OSBP, logistics, freight forwarding- but much more needed

• Rail expanding , but revenues and financial viability remain an issue

• Toll roads slowly gaining attention

• Road funds for maintenance working well in some countries, but need reform in others

Increased financing of routine and periodic maintenance could reduce overall capital expenditures needs in both the Water and Sanitation and Transport Sectors

Key Sector Issues and Challenges

• Power

• 20-30 million Africans gain access to electricity every year. Low population density remains a challenge

• New technologies (renewables) and system designs (off-grid, mini-grid) contributing to energy access

• Gap could be eliminated within 2-3 years if China keeps up commitment level of 2018, or others step in.

• ICT

• Now competitive, almost fully privatized

• Important public sector role: regulation to ensure competition, broad, equitable access

• Mobile access a great private sector success, including M-Pesa

• Gap smallest of all sectors

Five (5) Key Messages

African governments can save billions of dollars with stronger national planning, project selection

and feasibility processes

Infrastructure assets have long lives.

Decisions made in the selection of projects have lasting impact on the cost and quality of services.

Good maintenance can free scarce resources for capital investment

Inadequate routine maintenance can substantially increase capital costs:

In water, poor maintenance can result in an increase of over 60% in overall capital replacement costs.

In roads, it can lead to rehabilitation expenditures several times the cost of maintenance.

In electricity, it has substantially reduced the economic efficiency of public sector power utilities.

Increases in both public sector and private sector funding required to continue to improve economic and social

performance

More private sector is imperative, but not sufficient

Some sectors (e.g. water) harder than others for PS to enter

Perceptions of risk will remain in the near term

Public sector funds will always play a large role and also needed to crowd-in private sector

Increased private sector financing is needed especially in Water and Sanitation and in Transport

Not just PPPs ; need to tap commercial financing;

Around the world, publicly run water and sanitation utilities rely heavily on private finance from domestic commercial sources (either banks or domestic bonds).

Elsewhere, water utilities rely on specialized financial intermediaries, which although they are normally public sector entities, operate as commercial financial institutions.

Other regions have capitalized toll road Special Purpose Vehicles (SPVs) with securitization of revenues.

A small but increasing number of local governments in Africa would be ready to tap domestic capital markets if the national governments would clarify the rules for such borrowing.

This could open the possibility of better self-government, and

For some, the opportunity to better finance their infrastructure needs with reduced burden on the national government.

African national governments could move more quickly with decentralization --- giving local

governments both more responsibility and more accountability

Two (2) new topics in the 2018 IFT in Africa Report

Role of the Private sector

• Private sector finance and competence key to meeting infrastructure challenge

• High concentration in ICT, electricity generation, ports, airports, toll roads and bridges (user fees)

• In water and sanitation, and urban transport, more decentralization could result in increased local private financing

Key Constraint Possible Policy Response

Poor creditworthiness of utility and/or sector

better tariff systems, public departments to pay for use, more management contracts to private sector

Perception of political risk

PPPs, political risk insurance, government and/or MDB guarantees

Quality Infrastructure Investment

• Quality Infrastructure investment depends on quality preparation: Reforms are underway in Kenya and Ethiopia and are needed in many countries.

National and sector planning , project identification, feasibility study, appraisal, financing, procurement, implementation, operation and management.

• G20 Principles for Quality Infrastructure Investment recently approved by members as voluntary, non-binding principles

G20 PrinciplesQuality of infrastructure investment

Principle 6.1 “Openness and transparency of procurement should be secured to ensure that infrastructure projects are value for money, safe and effective and so that investment is not diverted from its intended use.

Principle 6.2 “Well-designed and well-functioning governance institutions should be in place to assess financial sustainability of individual projects and prioritize among potential infrastructure projects subject to available overall financing.”

G20 members should work with African partners to achieve these principles through: Capacity building, training, scholarships; Also voluntarily incorporating the principles into their own work

with African economies.

THE ENDThank you

Mike SalawouICA Coordinator,Division Manager, Infrastructure & PartnershipAfrica Development [email protected]

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INFRASTRUCTURE FINANCING TRENDS IN AFRICA 2018

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