De-risking project finance will boost infrastructure development, says Samaila Zubairu, AFC President,

By Temitayo Lawal
Posted on Thursday, 25 August 2022 13:15

Samaila Zubairu (photo: https://commonpurpose.org/biographies/samaila-zubairu/)

In order for Africa to solve its infrastructure deficit problems, at least $170bn annually must be invested in infrastructure, Samaila Zubairu, the President and CEO of the Africa Finance Corporation, tells The Africa Report in this interview.

The AFC was created in 2007 by African states looking to provide a pragmatic solution to Africa’s infrastructure challenges. In essence, the AFC bridges the investment gap that many countries face by providing debt and equity finance, project support, and “technical and financial advisory services.“.

But how is this mandate being put into action?

The Africa Report sat down with AFC’s President and Chief Executive Officer Samaila Zubairu to better understand Africa’s infrastructure development, the impact of AfCFTA on trade, and the impact of digital currencies on financial inclusion.

The Africa Report: How can Africa solve its infrastructure deficit problem?

Samaila Zubairu: Several studies indicate that we need to spend about $170bn annually on infrastructure. Historically, we have spent about $70-80bn on infrastructure. But this has increased to over $100bn in the last few years. That means that there’s a deficit of about $70bn.

Most of that money comes from African governments themselves through their internally generated revenue and the Eurobonds that they issue to get money to invest. There are also Chinese investors in certain African countries and some Middle Eastern investors as well – in fact, there’s a debate on whether the Middle Eastern investors are committing higher amounts than Chinese investors. Multilateral institutions like AFC are also investing.

That is the scope of the challenge which must have worsened with Covid-19. I am saying this because the figures available are dated – the data typically comes in one and a half years behind – as the $100bn I mentioned was for 2018/19.

At AFC, we are making our own contributions to solving this problem. That is in fact the purpose for which we were established – to address Africa’s infrastructure deficit and challenging operating environment resulting from the deficit. The deficit reduces GDP growth by 2-5% depending on the economy on average. It also reduces 40% of productivity.

Everything costs more and takes longer because of the deficit.  It is for instance cheaper to bring inputs into Cameroon from overseas for a building operation than it is to move it from Nigeria to Cameroon because of this deficit.

What is AFC doing to help close the gap?

We believe that there is a need to have a strong institution that has the capacity to derisk opportunities and projects on the continent, for the continent, and that is the role we’re playing.

Since we were established, we have grown to about $8.5bn in terms of our balance sheet. We have invested in 35 African countries. We are trailblazers for most of the high impact commercial investments in infrastructure on the continent.

We did the first Independent Power Plant (IPP) and first wind farm in Cabo Verde, which provides 20% of energy requirements of the island. We built the first IPP in Ghana with a capacity of over 40 megawatts, all gas fired, and we are currently building a wind farm in Djibouti that would replace imported fuel from Ethiopia and power from heavy fuel oil and diesel generators.

One of the things that we plan to do is focus on the digital economy because we believe that considering our young population, we need to provide digital infrastructure and access to electricity for the economy to grow. To ensure that the opportunities are deployed at scale, we are focused on understanding the technology space in Nigeria and Africa in order to create a technology fund that could provide support to all the talents.

Please shed more light on the technology fund.

The technology fund will be created by end of this year. We plan to create technology hubs in Africa. For example, starting with Nigeria, we are looking at the technology hub in Yaba and trying to understand how we can make it more robust with access to reliable stable energy; reliable, stable broadband connectivity; while also putting in place a framework for them to get all the support they need.

We’re talking to one of the law firms whose interests align with ours on this. We also plan to work with them to provide high quality legal service at an affordable price or at a reduced price. The whole idea is that we are trying to replicate the Silicon Valley ecosystem here in Nigeria and across the tech hubs that we have on the continent.

How can AfCFTA facilitate infrastructure that can connect Africa?

I mentioned earlier that one of the biggest consequences of the infrastructure deficit is our inability to trade with each other and the way forward is to make regional blocs more effective by providing infrastructure for connectivity among these blocs, which will then form the backbone for the full continental integration.

I was in a meeting with the Director-General of the World Trade Organization, Dr Ngozi Okonjo Iweala, recently and we had a conversation about how we can build infrastructure that will facilitate trade. We also discussed how we can have a rapid passport rollout for Africans for them to be able to travel everywhere within the continent; and how to put in place payment systems that would allow integration of African currencies without going to dollars or euros. We need to support these kinds of initiatives.

More importantly as Africans, we need to change how we trade with the rest of the world. We need to move away from just primary commodity export to value addition for trade within Africa and then trade with rest of the world. Look at cocoa for instance. Cocoa has a $100bn value chain. In West Africa alone, we have over 70% of the world’s cocoa and our contribution to the value chain is 5 or 6%. If we create the capacity for more value addition on the continent, even if we can’t export to Switzerland, we can sell within Africa. And the continental free trade area should be the incentive for us to make that initiative come to life.

At AFC, we have invested in a platform called ARISE Integrated Industrial Platform that is focused on the value chains of African resources and ensuring that there’s a lot more value addition that happens on the continent. We are looking at opportunities in Cote d’Ivoire, Ghana, Senegal, Benin, Togo and Nigeria on the back of what we have already achieved in Gabon, where we partnered with the government of Gabon and Olam to create the Gabon Special Economic Zone for more value for forestry.

On the back of that, we have transformed the forestry industry. Gabon is now one of the largest exporters of veneer plywood globally. We created an industrial park where 90 companies operate. The yield from forestry has increased to about 70% from about 30% and exports have grown fourfold. They are making five times as much money as they earned exporting raw logs of wood.

Can insurance help to catalyse infrastructure development in Africa?

Enhancing the insurance capacity in Africa is very important. It is in fact part of how we derisk opportunities. The growth of the insurance industry in Nigeria or in Africa is key to the growth of infrastructure investments. We ensure that most of our projects are insured in any case in order to derisk them.  For us to be able to attract sufficient capital to the continent, I think insurance will be key.

If you look at the necessity for securitization as a key tool for crowding in more capital into Africa, insurance will even play a more prominent role in that process. That is why one of the benefits that we enjoy at AFC is that we have immunities and privileges that reduce these risks across the continent and that give comfort to investors as we mobilise capital for investments in Africa.

However, some of these risks are a bit misplaced. The percentage of risk is higher than reality. There are several studies that have indicated that the default rates in Africa are lower than Asia, Eastern Europe, Latin America – where a lot of capital goes to – and even North America where a lot of capital exists. Only Western Europe and the Middle East are comparable. But Africa is subjected to a prejudice premium and this perception is part of what we need you to change.

What’s your take on the mass migration of African talent?

We need to create the jobs that keep Africans in Africa. Most Africans would like to stay here but there are no incentives. The solution to the problem is that we have to do value addition in order to create jobs that can grow in Africa.

After that, we should create further jobs and then provide the cycle for even more jobs to be created. All jobs are ecosystems with their own value chain – when you supply something to them, they supply something to somebody else. Once that chain is established, the system can only grow.

It is critical that we also focus on quality and relevant higher education and adequate health care systems so that people can have better lives here. If we improve on the system, we will provide higher quality jobs that will enable people to earn more.

Our continent is one of the fastest growing and we have favourable demographics. So, we only need to improve the system and create more quality jobs, and not just export primary commodities. This is why I am eager for the Dangote Refineries to begin operations. We invested three hundred million dollars in that enterprise to demonstrate that we are focused on anything that adds value on the continent.

What have been the effects of Covid-19 on your work and in Africa? Are you looking to renew your role?

At the AFC, the first thing we did was to ensure we safeguarded the lives and livelihoods of our people and our key stakeholders. We launched working from home. Fortunately, we had technology to support it because we have always been a very mobile organisation. A large segment of the workforce still works from home. We have also put in place protocols to better monitor our projects and to monitor the impact.

Of course, Covid and lockdowns affected project execution. We had delays on lots of projects, but we’re overcoming that now. Initially, we put in place a more stringent framework for monitoring the projects to be sure that we could protect the balance sheet. Of course, we had some businesses that were exposed and we restructured their facilities. Fortunately, the International Financial Reporting Standards came up with a programme for deal restructuring, and for easing of the rules, and we then shifted to that to restructure our facilities.

Our results continue to be good. We had good results in 2020 and 2021. We are a strong, resilient financial institution. We are working to improve the resilience of African institutions and African governments as part of what we do.

As for me, I have a five-year contract here. I have done two and a half years. I seek to continue because I like my job. I like the fact that I am able to add value on the continent. And I will continue to add value. I see myself as someone that has been fortunate, through my education and experience, to be able to make contributions and I want to continue to make contributions. I think that I am driven to improve situations and I constantly look for situations to improve.

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