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WEF on Africa: Growth in Africa not possible without infrastructure

‘The usefulness of WEF is the ability to bring together decision makers’ – Mohan Vivekanandan, Development Bank of Southern Africa.

SIKI MGABADELI: For double digit growth to become a possibility Africa needs infrastructure in abundance. We’re talking broadband, railways, roads and ports. Last year the World Bank estimated that we would need at the very least $93 billion a year worth of investment and infrastructure. Some have said that is actually a drop in the ocean. So what is it now we need, how are we going to get there and what are some of the deliberations going to be? I’m here at the World Economic Forum on Africa in Cape Town. We’re joined by Mohan Vivekanandan who is Group Executive for Strategy with the Development Bank of Southern Africa. Mohan, thank you so much for your time today.

MOHAN VIVEKANANDAN: Thank you very much Siki.

SIKI MGABADELI: Ninety three billion dollars, but we’re still told that’s just a drop in the ocean for what we actually need.

MOHAN VIVEKANANDAN: Well, I think the $93 billion, it’s an annual figure and it is correct. Roughly half of that does get provided currently. So what that means is the gap is about $45 to $50 billion a year that we need to make up from various sources. Ideally, you know, we’d love to be able to crowd in the private sector in infrastructure, but historically it’s been a tough ask to get private sector involved in infrastructure especially in developed economies like the ones we have in Africa. Therefore, we’re going to have to learn from some global lessons, but also some very good lessons from South Africa as well.

SIKI MGABADELI: Why is it a big ask for the private sector to get involved?

MOHAN VIVEKANANDAN: Well, one is the nature of the returns that you’re going to get. Generally, infrastructure isn’t going to give you the massive returns you get in hi-tech, in mining and in the other areas. And also, one of the real big challenges that we’re finding is that early stage risk is very, very high. It’s called project development, project preparation, it goes by a lot of names. But generally what you find is that the private sector isn’t willing to take that early stage risk and so they’re looking for governments or development banks such as ourselves to take that risk and bring the project to bankability.

SIKI MGABADELI: I see, and how long does that take? What is bankability for the kinds of infrastructure projects that you’re talking about?

MOHAN VIVEKANANDAN: It’s a good question, you know, from a concept stage when an airport or port somebody’s…an idea that somebody has, all the way through to when all the technical feasibility studies are done, it could definitely take three or four years, and an oft quoted figure is somewhere around 5% of the capex can be required to take a project to that level. So, you know, if you’re talking about a $1 billion project which could easily be the case in infrastructure, you could be looking at $50 million in development work that’s required to get a project to that level just to be able to then get banks, get other investors willing to fund it, to provide that billion dollars.

SIKI MGABADELI: What are some of the difficulties that come, for example, with what we’re starting to talk about now, cross border infrastructure projects, where more than one country is involved where there’re different regulatory frameworks and so on?

MOHAN VIVEKANANDAN: Yeah, I know, I mean that’s a very good question and you know, there’s a list of these what are called PIDA projects which are presidential infrastructure projects in Africa and here at WEF, we’ve been working closely on a few of them including what’s called the central corridor of projects from the port of Dar-es-Salam to the Great Lakes regions, to connect those countries together. The real challenge is now, you’re no longer just talking about the regulatory environment in one country but in multiple countries. You need them to be harmonised, you need them to be able to, you know, have travel options, all of those kinds of things, which is a big, big ask, and that’s why a lot of these cross border type initiatives have been bogged down. And I think that is the usefulness of something like the World Economic Forum, is the ability to bring together decision makers and make commitments on those lines.

SIKI MGABADELI: I talked about the different types of infrastructure that is needed and some needing upgrades, and some needing to be built up from scratch, whether its power, whether its water, whether it’s rail or ports, and so on. Where is this bend going at the moment, can you give us some trends?

MOHAN VIVEKANANDAN: You know, I mean that study said that about $40 billion per annum was for energy and then the next biggest elements were for transport and sort of water sanitation and then a little bit less for ICT, because it looks like, you know, the ICT gap’s been covered to some degree and I think where the investments have been going have been in information technology, as you know with mobile telecoms and data and such and also in energy, especially in South Africa, actually we’ve been very lucky. I think the renewable energy program for instance, has brought in R168 billion of investments through the first four rounds and the vast majority, I would say, about 80%, 85% of that have been private sector investments. So that has been an area where we have been very successful with energy. Transport is starting to get there but not as much but I think water and sanitation is the big gap and it really comes down to the off take models.

SIKI MGABADELI: Lots of infrastructure projects needed, some needing upgrades, some needing to be started from scratch, where is the money actually going?

MOHAN VIVEKANANDAN: So, I mean, if you go back to that World Bank report, about 40% of the demand was in energy. The next two big sectors were transport and also water and sanitation and then a little bit less on information technology. To date, certainly there’s been a lot of investments in information technology and the same in mobile telecoms and in data. We’ve also been successful in certain markets around energy, South Africa being a perfect example. We’ve brought in about R168 billion, merely to the renewal of the energy program, of which roughly, 80%, 85% have been private sector. Where I think we have been less successful has been in transport and certainly I think the biggest gaps have been in water and sanitation.

SIKI MGABADELI: We’ll leave it there, thanks for your time today. Mohan Vivekanandan is the Group Executive for Strategy at Development Bank of Southern Africa.

 

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