Friday, November 27, 2020

Africa 50 – Investing in Africa’s Infrastructural Development

In 2012, the African Development Bank (AfDB) consulted with various stakeholders to find a way to accelerate Africa’s economic growth. During this interaction, the various heads of state and other representatives agreed that one of the hindrances to Africa’s economic growth and productivity is inadequate physical infrastructure. 

The problems were not just poor planning and implementation, but under-investment as well. It was also established that the private sector needed to be involved if Africa’s infrastructure was to be developed to levels that would spur growth. So, AfDB established Africa50, an investment infrastructure platform, tasked with identifying and investing in bankable projects, mobilizing private sector funding, and catalyzing public sector capital. 

AfDB estimates that Africa needs between $130-170 billion annually for the development of physical infrastructure. At the moment, there is a financing gap of at least $108billion. Since public financing cannot meet 100% of the cost of building physical infrastructure, Africa50 acts as a bridge through which financing flows from the private sector to support the funding coming from the governments. It is estimated that Africa50 can provide up to $50 billion per project through equity investments and other value-added support. 

According to the World Bank, Africa loses 40% of its productivity due to the absence of adequate financing for interconnected road networks, lack of water, inadequate electricity supply and inadequate telecommunications connectivity. 
 
Why Africa Faces Infrastructure Development Challenges

Some of the common problems facing various African nations include;
Limited public resources
Inadequate project planning and implementation
Strict investment regulations
Few early risktakers

Africa50 strives to overcome these limitations and create an environment conducive for infrastructure development in Africa. 

Africa50’s Governance Structure

Although Africa50 is a subsidiary of the African Development Bank, it is a legally independent entity. It has its own financial and governance structure that mimics that of private institutions. However, since Africa50 is a multilateral institution, it enjoys privileges and immunities that are accessible to other institutions with a similar setup.  

Besides AfDB, Africa50 is also owned by two central banks and 28 governments. The ownership is expected to expand as more entities join to reap the benefits from the various infrastructural projects, and at the same time raise the capital needed. Africa50 has its headquarters in Casablanca, Morocco. 

African nations that currently have a stake in Africa50 include Cameroon, the Democratic Republic of Congo, Benin, Djibouti, Burkina Faso, Gabon, Egypt, Ghana, Gambia, Guinea, Kenya, Ivory Coast, Malawi, Madagascar, Mauritius, Mauritania, Morocco, Mali, Nigeria, Niger, Senegal, Rwanda, Sudan, Togo, Zimbabwe, and Tunisia. 

Currently, Africa50 has two legal entities, Africa50 Project Development and Africa50 Project Finance. Each of these entities has its decision-making bodies and capitalization. 

How Africa50 Secures Financing 

Africa50 gets its funding from various sources, including African states, international financial institutions, insurance companies, sovereign wealth funds, pension funds, and other private sector entities. Africa50’s operations are similar to those of commercial, financial institutions. Other than provide financing for major infrastructure projects, it also seeks to provide investors with an attractive return for their investment. 

During the 2015 Constitutive General Assembly of the founding shareholders, Africa50 raised $700 million from the subscription fees paid by 20 African states and Africa Development Bank. 90% of the pledges were set aside as financing for the various projects. The remaining 10% will go into a fund for project development.

Other than the finances raised from subscription fees, Africa50 received more financial support from Bank Al-Maghrib and the Central Bank of West African States (BCEAO). So far, Africa50 has committed capital of more than $850 million.

Types of Projects Africa50 Supports

Although Africa50’s main objective is to fund infrastructure developments in Africa, it does not take on every project. It is mainly involved in medium and large scale projects. Such projects are expected to have a significant impact on the community. The projects also have to be profitable for investors. 

Additionally, Africa50 invests in fully developed projects. However, it is sometimes involved in the acceleration of projects that are still in the early stages of development. This is a benefit of having project development and financing in one institution. So, African countries can seek support from Africa50 for projects that are at any stage in the project cycle. 

When determining how much funding to give per project, Afruca50 considers future cash flow projections. Although it receives preferential debt from AfDB and Development Finance Institutions (DFIs), Africa50 usually takes on a minority stake of more than $20 million since it tries to find a balance between profitability and development impact. 

The projects also have flexible exit options to allow Africa50 to pull out or inject more funds depending on how profitable the project is for the investors. Africa50 measures the returns based on risk level, location, and impact of the project.  

Besides the involvement in public projects, Africa50 also invests in and sponsors private sector funds in a bid to mobilize institutional investor capital. 

Current Projects

70% of Africa’s infrastructure investment needs up to the year 2025 are primarily in the transport and power sector. These projects are expected to be transformative and economically beneficial. Powe infrastructure projects include renewable and non-renewable sources of energy, power transmission and distribution, as well as mid-and downstream gas infrastructure. 

Transport infrastructure include ports, roads, airports, and logistics. Sometimes, Africa50 invests in communication, information, water and sanitation projects. However, eligibility is on a case-by-case basis. 

Kigali Innovation City (KIC)

Africa50 signed an agreement with Rwanda Development Board (RDB) in November 2018 to exclusively, together with RDB, design, develop, finance, construct and operate parts of the Kigali Innovation City.

KIC is expected to house technology companies, international universities, biotech firms, commercial and retail real estate on a 70 hectares property. 
KIC is a critical component of Rwanda’s Vision 2020 development program 2017-2024. The aim is to attract tech companies to invest in Rwanda by creating an ecosystem with a knowledge-based economy. 

At completion, KIC is expected to create a least 50,000 jobs and generate approximately $150million in export revenue annually. Additionally, this project is expected to attract at least $300 million in foreign direct investment.

Once the universities start accepting students, over 2,600 students are expected to graduate in 30 years. The long-term projection is a significant increase in the number of tech-savvy entrepreneurs in Africa. The Rwandan government estimates that this project will cost $2billion.

The Kinshasa – Brazzaville Rail Road Bridge

During the 2018 Africa Investment Forum, AfDB and Africa50 signed a framework agreement with both countries to develop and finance a road-rail bridge linking Kinshasa and Brazzaville. These two capitals the closest in the world, yet the only way to go from one to the other is by ferry. 

The agreement states that the project will be developed as a public-private partnership. AfDB will be the debt provider, while Africa50 will be the main project developer. Additionally, Africa50 would provide equity for construction, as well as identify a strategic partner. 

This bridge will be constructed under the Programme for Infrastructure Development in Africa (PIDA) Priority Action Plan. It would include a 1.575km toll bridge over the Congo River, and a border checkpoint on either side. This bridge would connect serve as a continuation from the roads from both countries.

The bridge is expected to cost $550million. Currently, approximately 750,000 people and 340,000 tons of goods ply this route. However, with the bridge, the movement of people is expected to increase to three million a year, while freight is to rise to two million tons by 2025. 

Benban Solar Plant in Egypt 

This project started in 2017, and the first two solar plants were operational by May 2019. This project is a partnership between Africa50, Norfund, and Scatec Solar. The European Bank of Reconstruction and Development, the Islamic Corporation for the Development of the Private Sector, and the Islamic Development Bank provided most of the funds. The project is to cost $450 million.

Africa50 is responsible for project development and is a long-term equity partner representing a share of 25%. Benban Solar Park occupies 42 acres, and the energy produced is sold to the Egyptian Electricity Transmission Company under the signed 25-year power purchase agreement, which is supported by the Government of Egypt.

This solar plant is also linked to the infrastructure of the Aswan Dam to help combine solar, hydro and wind power generation. This plant, when completed, is expected to produce 870GWh of power per year. At the same time, the power generated will prevent 350,000 tons of CO2 emissions annually. Approximately 1000 people are expected to gain employment during the construction phase. With this output, Egypt will no doubt become a solar powerhouse in the region. 

Nova Scotia Solar Plant, Nigeria

This 100 MW solar plant is located on a 200ha area of land. Africa50 partnered with Scatec Solar and Norfund for this project. Africa50’s role was primarily to develop the project, be a long-term equity partner, find prospective lenders, and facilitate negotiations with government entities. 

A 20-year agreement was signed with the Nigerian Bulk Electricity Trading to grant this solar plant direct access to the national grid. This solar planted is connected to Dutse substations, which is only 3.7k away. The expected power output from Nova Scotia Solar Plant is 200GWh per year, which will increase the national power generation capacity by 2%.

Additionally, this power output will be responsible for a drop of about 120,000 of CO2 emissions annually. This project is also expected to create at least 300 jobs during the construction phase. 

Malicounda Power Plant, Senegal

This 120MW thermal power plant project is expected to bridge the energy deficit in Senegal. Africa50 worked together with Senelec and Melec PowerGen on this project. Africa50’s role was to find a strategic partner and help secure debt financing. AfDB will be the lead lender for this project. 

This power plant will not just boost electricity production in the country by 17%, but it will also help lower the costs by at least 14%. This will ultimately lead to a 3-7% drop in tariffs. The project will lead to the creation of 150 jobs during construction. 

Nachtigal Hydropower Plant, Cameroon

This 420MW hydropower plant is near Nachtigal Falls and is expected to be complete in 2023. It will be operated under a 35 years concession. Africa50 has a 15% equity stake, while the Republic of Cameroon has 15% as well. Other shareholders include EDF with 40% equity, IFC 20% and STOA 10%. 

This project is quite massive, and it requires several concrete compacted dams, a generation substation, a headrace channel, a transmission line, and at least seven generating units. The reservoir is on a large property covering 421 hectares. It is expected to hold up to 27.8 cubic hectometers of water. 

Since this project is expected to cost 1.2 billion Euros, Africa50 has secured financing from various institutions, including at least 11 DFIs and four commercial bank loans, spearheaded by Morocco’s Attijariwafa Bank. The World Bank also provided support by providing a Partial Risk Guarantee.  

When complete, this power plant will meet 30% of the country’s energy needs. Approximately, 1,500 jobs will be created during the construction process. Permanent employment opportunities will also be available. 

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