Commercial lenders have been withdrawing their support from key projects, increasing the pressure on the development banks and donor governments to keep up the spending

African governments are trying to save essential infrastructure investment from the worst ravages of the ongoing economic downturn. And, responding to concerted international pressure, major donor agencies are preparing to back projects where private funding has turned out to be as fickle as the financial markets themselves.


Around the world, private investment in infrastructure was on an upward trend before the financial crisis broke last September. Now that the surge has given way to slump, Africa can hardly avoid a further widening in its expenditure shortfall. Already lagging behind other regions in infrastructure, international experts calculate Africa’s spending deficit in this area to be at least $40bn a year. 


With the financial-sector freeze causing collateral damage, there are frequent reports of new delays in projects where private finance, sought through syndicated loans or bond issues, has failed to materialise. Among the latest victims are a large hydroelectric project in Ethiopia from which a major bank withdrew, oil refineries in Algeria and Côte d’Ivoire, and new toll roads in Kenya and Senegal. The International Finance Corporation says it has been trying to help out in at least two cases where large financing shortfalls have became apparent: a Nigerian telecoms scheme for which $200m is needed, and a gas-to-power project in Cameroon, where the gap is estimated at $280m.


Follow the leader


“It is critically important that we keep the infrastructure projects on track,” African Development Bank (AfDB) President Donald Kaberuka told The Africa Report during April’s G20 conference in London. He noted that the AfDB has taken a lead with recent loans to fund road schemes in West Africa, a large hydroelectric project in South Africa and an airport in Tunisia, amongst others. But he added that the available capital is “under pressure”.


Following promptings from the AfDB, the AU and the New Partnership for Africa’s Development, the main donor agencies are taking a renewed interest in funding power, water, roads and railways. Some now admit their earlier belief that private investors would plug the gaps was misplaced. 


One way the public sector can make a difference is to fund necessary engineering and environmental impact studies, as well as procurement and financing plans. Once these are completed, the private sector can be invited to participate, often in a public/private partnership arrangement. It is an approach taken by the donor-funded and London-based InfraCo.


InfraCo’s latest agreement, with Kenya Railways Corporation, envisages development of a commuter railway linking Nairobi to various suburbs and the international airport. With an investment of $5m, the company hopes to prepare a project costing in the region of $200m. “We will strive to get a bankable project in 18 months, bring in private-sector operators and exit at month 24,” InfraCo partner Gad Cohen told The Africa Report. The company has already been involved in dozens of projects across Africa, including water provision in Kampala, Uganda, and a wind-power scheme in Cape Verde.


The best-managed public companies will certainly be the first in line to win strong donor support. Thus South Africa’s Transnet managed to raise R4bn ($468.7m) in late March from the Japan Bank for International Cooperation (JBIC), a state-owned financial institution, for the widening and deepening of the entrance to Durban harbour, complementing the North-South Corridor project.


Mitigating the risks


More public-sector involvement in the development of infrastructure projects has won the support of the Infrastructure Consortium for Africa (ICA), a donor-coordination group. “In the context of the crisis, there will be greater demand for risk mitigation instruments,” the ICA has declared, welcoming an Italian-inspired scheme that is intended to increase the flow and quality of projects “to match the level of risk acceptance by the private sector”.


The ICA has also welcomed the AU’s new Programme for Infrastructure Development in Africa, a continent-wide policy framework. The AU commissioner for infrastructure, Elham Mahmoud Ibrahim, wants this to become a strategic framework to prepare a priority action plan.