A lack of access to capital is standing as a major roadblock to project implementation or expansion in developing countries, the Georgetown University Africa Business Conference heard this month.
According to the World Bank, about $93 billion is needed per year to fill the infrastructure gap in sub-Saharan Africa. In 2015, about $83.4 billion was committed to infrastructure development ($74.5 billion in 2014) on the continent, according to Infrastructure Financing Trends, a report published by Infrastructure Consortium for Africa.
Experts shared their views on how the future of finance, managing currency risks, and public-private partnerships would affect business and governance in African countries. Devex talked with some of them about how international development organizations can best work to successfully implement their projects in the continent.
Here are three takeaways from the conversation.
1. Public-private partnerships work (if well managed).
With the changing practice of financing projects, some experts believe that PPPs would become a more prominent funding option for global development organizations operating in Africa.
One example is Power Africa, a project launched in 2013 by the U.S. government to facilitate transactions aimed at boosting the power sector in African countries. It brings together experts and investors from multilateral entities, the private sector, and government agencies to work in partnership.
“As one of the largest PPPs in the world our job is to make sure that all of the actors that can be there to put together a transaction in sub-Saharan Africa in the energy sector are sitting together to make that happen,” said Sean Jones, Power Africa deputy coordinator at USAID.
Cultivating the right partners is the backbone of every successful PPP financing. This makes it possible to mobilize the right parties to come together to move a deal forward. There are currently over 130 partners working on the Power Africa project and it is changing the paradigm of PPP, Jones said.
“I think the main takeaway from the experience was that the South African government was very clear what their rules were for the procurement and all their documentation were standardized,” said Maureen Harrington, head of client coverage and infrastructure at Standard Bank.
She explained that transparency in the process helped companies bidding for the renewable procurement to better manage the risk and expectations.
“I think that is a lesson for some other countries in Africa,” she said, “If you can set the rules and be clear about how it is going to work, then it is easier for the private sector to come in because they have an understanding of the risk that they are facing.”
2. The complexity of finding “the right model.”
PPPs, however, must not be seen as the only way to go. There are still many other options that can be used to finance a project, experts said, which can be tailored to each one’s individual circumstances.
“We need to make sure that whatever we are doing is the right way,” said Kweku Nduom, vice president of business development and finance at Groupe Nduom, a company that manages a portfolio of firms and social welfare enterprises in West Africa and the United States.
“OPIC recently told me about a $500,000 grant that they have that you can spend doing due diligence on a new project based in Africa that nobody is taking advantage of,” he said. “I think talking to both private sector organization such as Homestrings, and also public sector organizations such as OPIC is a good way to start.”
But that does not replace the role of traditional donors or development financing institutions.
Harrington, while drawing from her experience of working with Standard Bank to facilitate the funding of infrastructure projects, said finding long-term financing is a major challenge and a role that traditional donors will continue to play. Development financing institutions can also help track other kinds of capital on the continent.
“I think there is still going to be a role for the donor organizations in development to play in financing the longer-term infrastructure,” Harrington said.
With the growing interest of institutions driving investors to Africa, she said DFIs can contribute credit enhancement by helping these institutional investors learn the risk on the continent.
“There is also an interest in trying to find ways to make more local financing currency available for local projects so that countries’ exposure to dollar risk are reduced,” Harrington said.
3. Overcoming the complexity of dollar risk.
International organizations are looking for ways to reduce their exposure to the negative impact of foreign exchange rates and to do so may need to look to new non-bank players in the sector.
Daniel Webber, the founder and CEO of FXcompared, explained how this has worked in his experience. His business, which operates as an online marketplace, matches individuals, small and medium-sized businesses to non-bank players that help find currency and FX solutions.
Technology has enabled large numbers of new companies to enter the foreign exchange market, he said. The increased options for international money transfer have made it cheaper to send money from outside to inside Africa.
“Companies such as World Remit enable you to send [through] mobile money to allow those without bank accounts into [the] space,” Webber said.
But, despite these options, Africa still has the highest cost of remittance rates and he believes that expense will continue to drive the market for finding options aside from working with traditional banks. “It still costs about 10 percent on average. That is a lot,” Webber said.
Jennifer Ehidiamen is a Nigerian writer who is passionate about communications and journalism. She has worked as a reporter and communications consultant for different organizations in Nigeria and overseas. She has an undergraduate degree in mass communication from the Nigerian Institute of Journalism, Lagos, and M.A. in business and economics from Columbia University Graduate School of Journalism, New York. In 2014, she founded Rural Reporters (www.ruralreporters.com) with the goal of amplifying underreported news and issues affecting rural communities.
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