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Where Africa’s infrastructure spend is coming from

Majority is funded by development capital, not private investors.

South Africa is the top destination for Infrastructure funding on the continent, according to a recent Economist Corporate Network (ECN) report, taking up 28% of funding from development funding institutions (DFI) between 2009 and 2014. The lion’s share of that capital, some $16.3 billion, went towards the Renewable Energy Independent Power Producer Procurement (REIPPP) programme, which also accounted for 43% of all power-related funding commitments in the period. South Africa was followed by Egypt, Nigeria, Morroco, Kenya and Ethiopia as the largest receivers of development capital.

The ECN and Baker & McKenzie, researched African infrastructure funding over the six-year period, finding that an overwhelming majority of capital that is required for infrastructure projects was funded by DFIs, and export credit agencies, which accounted for around $93 billion.

Top DFIs for Africa infrastructure investment

Organisation       

Funding commitments 2009-14 in US$bn

% of total focus DFI commitments

World Bank

$20.8

22%

Development Bank of South Africa

$16.5

18%

African Development Bank

$16.2

18%

Agence Francaise De Développement

$9.1

9%

Others (nine)

$30

33%

Total

$92.7

100%

Although annual private-sector investment of $10 billion is viewed as too little, Baker & McKenzie partner Kieran Whyte, said DFIs played a huge role in making infrastructure projects bankable by bringing capital, technical expertise and capacity where private-sector players were unable, ill equipped or unwilling to do on their own. Speaking at a media roundtable about the report on Tuesday, he noted that the DFI also had the know-how of jumping through compliance hoops and red-tape often associated with infrastructure projects.

Unlike some people may expect, much of the spend did not go into commodity-related projects, in order to exploit resource endowments. Instead, it was power and transport-related projects that received the most funding approvals, receiving $37.1 billion and $24.6 billion respectively. South Africa, Ethiopia and Kenya received around 55%, or US$10.7 billion, of DFIs’ transportation sector funding approvals over the period.

Funding to Africa in 2013

Africa Infrastructure African Infrastructure2

The role and influence of China-based DFIs in Africa are likely to increase. In 2013, more than 85% of all Asia-sourced funds came from China-based institutions, according to the Infrastructure Consortium for Africa, with South Africa the common destination for funding allocation. Already, $12 billion of China’s investment stock has come to South Africa. Baker & McKenzie’s Whyte said China had stockpiled mineral resources and was looking to grow its influence in the world by growing its influence on Africa. And this meant diversifying into other sectors on the continent.

“China is trying to offset influence of the US and other western democracies,” he said. In the past we’ve seen them invest in transport in the form of airports or off-road travel. I think we’ll see the Chinese moving more into ports.

In 2009, the World Bank estimated that sub-Saharan Africa alone needed more than US$90 billion annually to meet its infrastructure requirements. A figure, which the reports states, is likely to have increased since.

Zhao Changhui, chief country risk analyst of the Export Import Bank of China, is quoted in the report saying Chinese investment in Africa over the next ten years will cumulatively amount to at least US$1 trillion.

“In the next three to five years, there will be at least US$500 billion of trade between African countries and China, so the investment will naturally open up new frontiers for investments in all countries in Africa,” says Changui in the report.

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Nigeria’s recent fine on MTN does an awful lot of damage by scaring foreign investors. Short term gain traded for long term pain. It affects the rest of Africa as well. I am not saying foreign investors should be allowed to break the law without consequences either, but this story will do a lot of damage to the whole continent in the years to come.

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