Unlocking public and private capital for African infrastructure

Thousands of delegates have descended on Addis Ababa to set the new financing architecture for a new global partnership. This event, the Third Financing for Development Conference, organized by the New Partnership for Africa’s Development (NEPAD) Agency and Sustainable Development Solutions Network (SDSN), is a high-level conference aiming to address emerging issues in international development cooperation, especially in light of the Sustainable Development Goals and shifting global dynamics. Its outcomes will also address the issue of means of implementation, referring to the “how” the goals set out in the post-2015 development agenda can be achieved.

In particular, closing the infrastructure gap is a top priority for this year’s conference. Water and sanitation, energy, and transport services are just some of the infrastructure sectors sorely in need of financing. For example, in Africa different sectors are being funded by different sources, but without any coordination.

On Monday, as part of the conference, I moderated a panel themed, “Unlocking Public and Private Capital for African Infrastructure,” which included Professor Sachs, director of the Sustainable Development Solutions Network and special advisor to U.N. Secretary-General Ban Ki-moon on the Millennium Development Goals; Dr. Ibrahim Mayaki, chief executive officer of the NEPAD Planning and Coordinating Agency; Joseph Stiglitz, Nobel laureate in economics and professor at Columbia University; Dr. Sanjay Peters, associate professor at the Copenhagen Business School; Malcolm Gray, global head of ESG at Investec Asset Management; and James Zhan, director of investment and enterprise, at UNCTAD. The event also brought together other leading representatives from the private and public sector, as well as global think tanks.

This panel explored potential priority subsectors for infrastructure financing as well as how to unlock that financing, especially in Africa. Below are some top takeaways from the event:

  • Closing Africa’s infrastructure gap is a top priority in order to put the continent on a path for double digit growth and sustainable development, according to Prof. Jeff Sachs. “There is no choice: Africa needs 10 percent per year of economic growth in the next 15 years,” Professor Sachs said. The only way to achieve this, he emphasized, is to focus on large-scale investments in transnational infrastructure projects in power, roads, broadband, and other core regional infrastructure needs.
  • For Africa to realize the 2030 timeframe, the global community must rally around the NEPAD agenda as the continent’s strategy for implementing cross-border infrastructure projects, Prof. Sachs urged. “We need to help support NEPAD achieve its goals,” he said. The NEPAD Agency has identified Africa’s most important infrastructure needs within the context of the Program for Infrastructure Development in Africa (PIDA), which provides the framework to implement 51 priority program and projects in the sectors of energy, transport, broadband and trans boundary water.
  • Speaking on the issue of how to crowd in investment, Prof. Sachs encouraged African economies to forge partnerships with East Asia, tap into capital markets, and strengthen continental bodies such as the NEPAD Agency and African Development Bank.
  • Dr. Mayaki highlighted that Africa’s challenge is not a lack of resources, but a lack of bankable projects. “We need to invest in the capacity to invest,” he said. It is about proposing structured projects. The CEO especially noted the complementary instruments that have been developed to build the necessary capacity for early-stage project preparation and the Africa50 Fund to finance the implementation of PIDA and other regional infrastructure projects. Dr. Mayaki also underscored the important role of regional economic communities in providing the enabling environment for project implementation, through harmonized policies and regulatory frameworks.
  • On his part, Prof. Stiglitz noted that financial markets have “failed to translate pools of savings into productive investment.” There is need to better match these large-scale resources with financing priorities of developing countries. “The world has the resources with which to do this. Allocating more of these resources to inclusive development would be good for the global economy,” he said.
  • The best way for Africa to achieve its infrastructure goals is to tap into a Global Infrastructure Investment Platform (GIIP), Prof. Stiglitz said. The objective of GIIP is to put forward an ambitious proposal that would allow long-term investors to ramp up their infrastructure asset holdings, with an allocation target of up to 10 percent of assets under management over a 15-year horizon.
  • Malcolm Gray expressed some skepticism about large-scale infrastructure projects and noted that small-scale projects could attract private sector financing, especially in the energy and information and communication technology sectors.
  • Gray explained that although institutional investors such as pension funds and sovereign wealth funds have a need for long-term investment opportunities, their intermediaries (consultants, asset managers, and issuers of securities) have a shorter-term horizon and do not have expertise in illiquid investments. There is some progress, however, as recent changes in the South African regulatory framework now allow pension funds to invest up to 25 percent of their assets in illiquid investments such as private equity and infrastructure funds. The new regulation also supports environmental and social consideration in investment.
  • Finally Mr. Zhan presented the main findings of UNCTAD’s new World Investment Report, including proposals to reform the international investment regime. He noted a new methodology developed by UNCTAD, which estimates the contribution of affiliates of foreign multinational enterprises (MNE) to government budgets in developing countries at about $730 billion annually or 10 percent of total government revenues. This new methodology is a useful contribution to the debate on domestic revenue mobilization and base erosion and profit shifting (BEPS) as the largest share of infrastructure financing comes from government budgets.

After the productive exploration of these important and complex issues, the NEPAD Agency, SDSN, UNCTAD, and Africa Growth Initiative at Brookings agreed to continue the conversation by setting up a working group that will move Africa’s regional infrastructure financing agenda forward.