The African Development Bank (AfDB) has been a major force in private and public sector infrastructure development in Africa through the provision of financial and technical resources. , infrastructure development is among the priority sectors outlined in the Bank's Private Sector Development Strategy along with creating an enabling environment, financing systems, and promoting trade. According to the Bank's Strategic Plan 2003-2007, lack of adequate social and economic infrastructure is one of the key constraints to short- and medium-term poverty reduction in Africa.
However, the Bank promotes infrastructure development with special attention to PPP investment by providing: financial support through direct equity investment and loans; advice to enterprises on the structuring of such projects; and, advice to governments to introduce a conducive legal and regulatory framework and technical assistance to enhance their capacity to structure and handle PPP programs. In line with the Bank's infrastructure investment policies, points out that "structuring PPPs is a must to leverage scarce public resources and maximize infrastructure investments".
The key objective of the Bank's private sector strategy is to boost confidence in other lenders and investors to mitigate the risks resulting from the relative long-term maturity of infrastructure investments. interventions include investing directly in such transactions; upgrading the technical and managerial capacities of governments; helping in the creation of appropriate institutional, legal and regulatory frameworks for PPPs; assisting governments in developing and implementing sound privatization strategies including designing a regulatory framework that encourages transparency; and creating conditions for SME involvement in the maintenance and management of infrastructure.
Achievements
In 1993, the AfDB started financing infrastructure development through its new private sector window. From 1993 to 2006, the Bank approved about USD 400 million to finance infrastructure projects in various countries and sectors. Examples of its private sector funded infrastructure projects include: the SASOL Natural Gas pipeline running from Mozambique to South Africa where the Bank's contribution totaled Rand 550 million; and, AES Sonel, an electricity company in Cameroon, whose financial structure the Bank funded to the tune of EUR 60 million. The Bank is also involved in PPP operations having contributed USD 50 million to the RASCOM project, which involves the construction and launching of an earth-orbiting satellite system to provide point-to-multi-point telecommunications services throughout Africa. The East African Submarine Cable System (EASSy) is of interest to the Bank's private sector operations, where it has contributed USD 14.5 million to reduce the cost of transporting telecommunications (voice and data) into and out of the continent through terrestrial networks.
Infrastructure investment funds are of vital interest to the AfDB as well. The Bank's Private Sector Department contributed USD 50 million in equity to the AIG Fund to establish a private investment fund investing in infrastructure projects and infrastructure-related companies and industries in Africa. The Bank also participated in the financing of an equity of Rand 113 million to the South African Infrastructure Fund (SAIF). This project involves the establishment of a SAIF private equity fund to invest in infrastructure projects in South Africa. Tim Turner, Director of the Bank's Private Sector Department, argues that one of the Bank's distinctive comparative advantages is its capacity to operate in the 'sweet spot' where the public and private sectors overlap.
The Bank prepared the Infrastructure Short Term Action Plan (STAP) adopted in June 2002. It included projects that established policy, regulatory and institutional frameworks to create a suitable environment for investment and efficient operations; capacity building initiatives to empower the implementing and coordinating institutions to meet their NEPAD mandates; and, capital investment projects and studies to prepare new priority projects. The STAP formed the foundation for a coherent and structured approach to the development of regional infrastructure focusing on projects and initiatives with a strong facilitation element. The aim is to create an enabling environment for accelerated development and sustenance of infrastructure assets on the continent and to advocate policy, regulatory, and institutional measures necessary to ensure the efficiency of existing and planned regional infrastructure.
The AfDB, which houses the NEPAD-Infrastructure Project Preparation Facility (NEPAD-IPPF), has supported the preparation of more than fifteen regional projects. Examples include the Benin-Togo Ghana Electricity interconnection, which has been financed and is entering the implementation stage; the Kenya-Uganda Oil Pipeline, which has secured a strategic investor and has entered the implementation stage; and, the Zambia-Tanzania-Kenya Electricity Inter-connection, which is in the final stages of attaining financing for implementation. Other projects being prepared and supported by the NEPAD-IPPF include the Gambia River Basin Organization (OMVG) Power Transmission Project, the Botswana-Zambia (Kazanlunga) Bridge project, the Senegal-Gambia Bridge, the Senegal-Mauritania (Rosso) Bridge, the Cross Border Electrification project in Central Africa, the Kenya-Ethiopia Electricity Inter-connection project, the Ghana-Burkina Faso Electricity Inter-connection project, and the SATA Telecommunications back-haul project. At present, the Bank's pipeline contains more than 50 regional infrastructure projects that require funding for their preparation prior to being packaged for financing and implementation.
Further, through the STAP, a significant number of regional infrastructure projects have been successfully brought to financial closure and entered the implementation stage. From 2002-2006, the AfDB financed 33 projects/programs consisting of 18 physical projects, including one private sector project, twelve studies, and three capacity building projects for a total Bank Group financing of more than USD 1 billion. The Bank also mobilized about USD 1.6 billion in co-financing. Some these projects are at an advanced stage of implementation and others –the Mozambique-South Africa Gas Pipeline project (completed and entered into service), the Morocco–Algeria-Spain Electricity Interconnection project, the West Africa Gas Pipeline project— have been completed.
The AfDB has enhanced efforts to mobilize additional resources for infrastructure development at all levels. Many African countries are increasing their investments in physical infrastructure; and, regionally, the AU/NEPAD programs have been emphasizing infrastructure resource mobilization.
Challenges
Despite the fact that reasonable resources have been committed with sporadic coordination amongst agencies, Africa lacks the basic infrastructure to facilitate sustainable development and trade regionally and globally, and to ensure competitiveness among its sub-regions. There are a significant number of landlocked countries and their access to markets is hampered by weak transport and energy infrastructure. While some countries have been able to implement individual projects, Africa does not have common strategic targets for infrastructure development.
Moreover, assessing the gaps and strategies to ensure efficient use of resources is a much cumbersome task. In an attempt to address this problem, the Bank Group has financed the Medium to Long Term Strategic Framework (MLTSF) study, with a USD 2.5 million contribution from the African Development Fund and a USD 1.4 million contribution from the Nigerian Technical Cooperation Fund. The study, now merged with other continental programs led by the AU Commission, is the second part of a two-pronged strategy adopted by the African Union and NEPAD undertaken as part of the AU/NEPAD agenda for the integration of the continent. It seeks to institute a coherent strategic framework to serve as the basis for defining, implementing and monitoring infrastructure development on the continent as well as establishing partnerships that can promote economic integration and support the development of trade on the continent. The common AU/NEPAD/ADB study is expected to institute a well-coordinated response to infrastructure development on the continent including measures to mobilize local and foreign private sectors.
Water, ICT, energy and transport experts from Regional Economic Communities including CEMAC, ECCAS, COMESA, SADC, IGAD, ECOWAS, UEMOA, CEN-SAD, ECA, ICA, NEPAD Secretariat, and other bilateral African stakeholders agencies in infrastructure development, have been holding regional workshops to find solutions to the problem. At a workshop in Addis Ababa in July, they reviewed the findings and recommendations of the first part of the MLTSF Study on the four subject sectors. Discussions are also underway to identify measures to accelerate STAP implementation.
Poor planning and port delays caused by a sub-optimal use of landing rights across the continent are also among the challenges. According to reports released at the 9th Africa Rail Summit in June 2006, bottlenecks at southern African border posts cost the region USD 48 billion a year. Transport providers are forced to pay penalties for failing to meet service obligations to their clients. The costly delays affect turnaround times of transport and service providers, who then fail to deliver goods on time. "This is why transportation costs in Africa are the highest compared to other regions of the world. These constraints would be resolved in an integrated Africa," says Dr. Mandla S.V. Gantsho, AfDB's Vice President for Infrastructure. One of the biggest constraints is the commitment of countries to implement regional integration programs and agendas. "Countries cannot give meaningful commitments if they are in conflict or are facing internal or external conflict", argues Dr Ini Urua, former Manager of the NEPAD Division. Other constraints include local capacity to support project development, implementation and maintenance of existing assets, and the availability of resources to do early stage project development work.
Opportunities
There is growing interest among firms to explore investment potentials. Following deliberations at the AfDB Annual Meetings in Shanghai this year and business meetings between African leaders and the European Union, it is obvious that there is ample space in African countries to broaden trade and investment relationships with improved infrastructure. The AfDB's Chief Economist affirms there are opportunities for joint-ventures and has encouraged African businesses to engage more aggressively with Asian companies in the supply of processed materials and in tourism investments. This optimism comes in handy as AfDB's preliminary estimate of the infrastructure gap stands at USD 24 billion. The Bank is collaborating with the Infrastructure Consortium for Africa to coordinate international efforts to mobilize additional resources to bridge this deficit.
There is also a need for massive foreign investment in infrastructure. Such investment would ensure the free movement of goods and services across national borders and develop economies of scale by integrating national economies and creating a results-based business environment. Such an environment would attract investments and generate rapid economic growth, a major objective of the AfDB. Harmonized economic, monetary and regulatory systems with open markets are essential for effective intra-regional and international trade, and thus, economic growth. However, they are not sufficient. "Sustained and robust economic growth also requires the development and maintenance of modern and efficient regional transport, communications and energy infrastructure," the Vice President admits. "Without these, there will be limited opportunities for harnessing complementarities and synergies between African economies, enhancing industrialization and creating employment," he said in a recent interview. Finally, sustained peace and security are pre-conditions for accelerated development. With free elections and general political stability in most of Africa's sub-regions, the investment climate looks bright.
Contact Emmanuel Ngwainmbi, NEPAD, Regional Integration and Trade Department e.ngwainmbi@afdb.org Tel+216 71 10 26 27
