INFRASTRUCTURE FINANCE AND DEVELOPMENT KAS-SAIIA Roundtable Discussion: Investment in Africa: Infrastructure and Regional Value Chains CYRIL PRINSLOO AND RUDOLF DU PLESSIS 7 DECEMBER 2017
INFRASTRUCTURE FINANCE AND DEVELOPMENT IN AFRICA Global Economic Governance and Sustainable Development GG Processes (G20, BRICS, MDBs) Identify Challenges Articulating African Concerns PRESENTATION OVERVIEW 1. Changing Financing Landscape 2. Established Challenges/Bottlenecks 3. Emerging Issues 4. Opportunities / Recommendations
1. INFRASTRUCTURE FINANCING: A CHANGING LANDSCAPE MDBs (World Bank, AfDB, DBSA) Cost-effective financing and decades of development knowledge Bureaucracy & Conditionality Private Financing Bi-lateral Development Partners Domestic Resource Mobilisation Africa: Infrastructure Commitments by Source 2016 42.1% 4.2% 5.0% 10.2% 8.8% 29.8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% African - Public Private Sector Other bilateral/multilateral China Arab Co-ordination Group ICA Members Source: ICA Infrastructure Financing Trends in Africa 2016
1. INFRASTRUCTURE FINANCING: A CHANGING LANDSCAPE Bi-lateral Development CHINA Evolution: 1) Solidarity aid (1950 s to mid 1960 s); Zambia, Tanzania 2) Extractives (early 2000 s): Sudan, Angola, 3) Infrastructure and integration (mid-2000-present); 4) Post commodity-boom manufacturing and local beneficiation, FOCAC 2015 Action Plan - Ethiopia, East Africa Challenges: Lack of reliable data; debt sustainability and environmental impacts China is Crossing the river by feeling the stones
1. INFRASTRUCTURE FINANCING: A CHANGING LANDSCAPE Domestic Resource Mobilisation Improved macro-economic environments (2000s) Commodity price booms, end of boom 2014/2015 Green Bonds A rising Star Pros: Tool to raise less restricted, local currency capital for sustainable infrastructure projects Can give cities greater financial autonomy Low-yield economies can generate capital from many sources Cons: No established standard - however, voluntary Green Bond Principles (GBP) Programme Bankability and risk For countries with established financial sectors
1. INFRASTRUCTURE FINANCING: A CHANGING LANDSCAPE Globally, the green bond market is impressive: Africa, too, is catching on to the trend: Continental: $135m $1.46m $63m $117m Sovereign (and private): $70m $143m Municipal:
1. INFRASTRUCTURE FINANCING: A CHANGING LANDSCAPE Private Finance In SSA, top 10 recipients include South Africa, Nigeria, Kenya, Tanzania, Ghana, Sudan, Ivory Coast, the DRC, Benin and Uganda in 2013 of the US$ 17 billion in private sector investment in SSA, less than 2% went to countries other than South Africa and Nigeria Preferred Sectors ICT and Energy (Generation) clear costs associated with such projects easy securitisation of revenue streams control over the management of the investment Neglected water and sanitation, transport
2. INFRASTRUCTURE DEVELOPMENT: ESTABLISHED CHALLENGES Bankable Projects / Project Preparation Capacity Public Financial Management Environment and Social Management MDB Effectiveness Political Economy Regional Infrastructure Development
3. INFRASTRUCTURE DEVELOPMENT: EMERGING CHALLENGES 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 Debt Sustainability Global Financial Crises Countercyclical Financing World Bank, 2010 - $93 billion annual financing shortfall BUT, availability of financing is not an issue sustainable finance Decline of concessional finance General government gross debt, select economies (% of GDP) Morocco Nigeria South Africa Africa Average Africa s External Debt Stock ($ Million) Source: IMF World Economic Outlook; ITCSD
3. INFRASTRUCTURE DEVELOPMENT: EMERGING CHALLENGES Private Financing and PPPs Contemporary narrative - private sector financing to bridge the infrastructure financing deficit Yet, some concerns: 1. PS finance is more expensive and less favourable terms (e.g. shorter maturities and grace periods) 2. Narrative focusses on de-risking investments or improving the investment environment - could in turn shift greater risk from private investors to sovereigns (e.g. sovereign guaranteed loans) 3. Public sector lack capacity to negotiate PPPs
3. INFRASTRUCTURE DEVELOPMENT: EMERGING CHALLENGES Quality Infrastructure Environmental and Social management frameworks and feasibility studies Capacity, political will and increased competition Use of Country Systems Boon or bane for sustainable infrastructure Megaprojects MDBs and country preference (economies of scale) Iron law of mega-projects: Over budget, over time, over and over again adapt our approach?
3. INFRASTRUCTURE DEVELOPMENT: EMERGING CHALLENGES Urbanisation and the Fourth Industrial Revolution: Opportunities and Challenges for Africa s rapidly expanding cities Africa is the world s fastest urbanising region - 70% of urban growth will occur in secondary cities And the Fourth Industrial Revolution will have significant impacts on these cities: Planning for infrastructure deficits vs. planning for changing economic landscapes e-commerce: Greater inclusion for Africa vs greater marginalisation Digital economy: Cheaper goods and more efficient supply chains vs. more unemployment e-governance: better governance vs. more efficient authoritarianism
4. CONCLUDING REMARKS 1. Policy and Global Governance (G20, MDBs) 2. Bankability and Project Preparation 3. Capacity and Inclusion 4. Changing Landscape more players, more competition 5. Infrastructure investment is important, but so is debt sustainability
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