Author: Jérôme Bertrand-Hardy, Deputy Chief Investment Officer, Proparco
DFIs have been investing for some time to support African infrastructure development. As financing becomes more available and new players are emerging, governments and DFIs must focus on nurturing new projects.
Are we entering a new virtuous circle?
The time and efforts required to develop an African infrastructure project do not deter new developers. At Proparco, we witness the emergence of new players: established firms diversifying, emerging market firms, contractors or developers entering Africa, financiers looking to replicate PPP models in new countries.
New ideas are emerging, new projects are being proposed. Successful projects are being developed in South Africa, Kenya, Senegal, Ivory Coast,… We may be entering a virtuous circle where successful projects attract new investors and convince new government that private investment is a viable proposition.
What prevents DFIs from investing more in African infrastructure?
The most important obstacle that Proparco, and DFIs, meet in increasing their investments in African infrastructure is not lack of financial capacity, it is the scarcity of bankable projects.
It is true, as every developer will tell you, that achieving financial close for an infrastructure project is very difficult. This is not however because potential financiers are missing. Even without taking into account the rise of emerging financiers, such as China, or the growing number of infrastructure focused investment funds – Proparco alone has beeninvesting in four of these – showing that African infrastructure is becoming a recognized asset class, there are ample funds available for the construction of new projects. Indeed, most DFIs make Africa, and infrastructure, their priorities.
It is bankability that is extremely difficult to achieve. Bankability involves the right compromise between public and private interest, apportion of risks borne by each party, profitability for the private party and affordability for the public. There is no single blueprint to achieving bankability. However, numerous examples on the continent show it can be reached, even in the face of adverse political conditions: electricity supply in Ivory Coast has been privately managed for close to thirty years. South Africa, with the Renewable Energy IPP program has shown that private investors can be attracted to develop significant projects, including ENEL, Total, EDF, to name a few. Achieving bankability for private investment in infrastructure does not mean that government involvement is less; it means it is going to be different, in designing efficient contractual setups … and maintaining them.
For their part, DFIs need to focus more on helping new developers to design bankable projects. This will mean investing more upstream, in project development, but also devoting human resources to this work. This is a significant challenge for all DFIs: at Proparco, it is one of the tasks envisaged by our new 2015-2019 strategy.
- To unlock capital for solar project development in Africa, Asia and Latin America, join 200 international financial and technical stakeholders at Making Solar Bankable, in Amsterdam next February. Register now for the Early Bird prices.