US Treasury Secretary Janet Yellen hosted G-7 Ministers and heads of multilateral development banks on Tuesday. The high-level virtual roundtable event to discuss scaling up of infrastructure financing--organized in the context of President Biden's Building Back a Better World plan--was moderated by US Assistant Secretary for International Trade and Development Alexia Latortue.
Speaking at the virtual roundtable, African Development Bank Group President Akinwumi Adesina commended Secretary Yellen and the Biden Administration for mobilizing development resources to expand infrastructure financing, which he said was critical for Africa and other parts of the developing world.
He said the African Development Bank, the premier financier of infrastructure in Africa, had committed more than $44 billion to infrastructure across the continent in the last six years alone, in such critical areas as transport, energy, and water and sanitation. He said despite collective efforts, Africa still faced an infrastructure financing gap of 68 to 108 billion dollars annually.
Adesina proposed eight solutions to bridge Africa's infrastructure finance gap:
Project preparation
Adesina said project preparation facilities are critical to develop bankable infrastructure projects, given that one of the major challenges in infrastructure projects was moving commercially viable projects to financial close. Adesina spoke about the NEPAD Infrastructure Project Preparation Facility--the special fund established to promote regional integration and support African countries in preparing quality, bankable projects to attract investments from both the public and private sector. He said the Facility had so far catalysed $25 billion dollars in downstream investments for integrating infrastructure.
Mobilizing institutional investors
According to Adesina, institutional investors including pension funds, sovereign wealth funds and insurance companies held enough resources to scale up infrastructure financing from billions to trillions of dollars. He said collectively, these institutions, with commercial banks, held 103 trillion dollars of assets under management. "This pool of capital is so vast that what is needed is only 0.03% or up to 0.04% to bridge the infrastructure financing gap for Africa." He said multilateral development banks should take early-stage investment risks in the project development phase."
Improving public financing for infrastructure
Adesina said governments provided the largest share of infrastructure financing and must improve the efficiency of public financing for infrastructure. He said they must promote a competitive procurement process, quality project design, timely execution and a better maintenance culture. He added that focus should be on quality infrastructure and go beyond least-cost projects to larger projects that could deliver at scale.
Attracting the private sector
The Bank chief called for governments to focus more on attracting the private sector to infrastructure financing. He said governments must improve the policy, legal and regulatory environment to support public-private partnership (PPP) investments in infrastructure. He said the African Development Bank Group's board had just approved a new PPP framework for financing infrastructure.
Mobilizing financing for green infrastructure
The mobilization of financing for green infrastructure is critical Adesina said, with Africa's share of global green bonds standing at only 0.4%. He explained that of $522 billion in green bonds issued globally between 2007 and 2018, only $2 billion were issued in Africa. He said this is why the African Development Bank had collaborated with partners to launch the Alliance for Green Infrastructure in Africa. He said the Just Energy Transition Facility that the African Development Bank is developing with G7 partners and South Africa will be an opportunity to raise additional climate finance toward the continent.
Dealing with risk
Adesina said risk was a critical constraint for investment in infrastructure. He advised doing more in de-risking through partial risk, and partial credit guarantees to attract the private sector.
Stretching the balance sheet of multilateral development banks
The African Development Bank chief emphasized the need for multilateral development banks to stretch their balance sheets to finance infrastructure. He explained that the African Development Bank had launched a one-billion-dollar synthetic securitization to transfer risk on its private sector portfolio to the private sector.
Local currency for infrastructure financing
Adesina explained that because foreign loans finance the bulk of infrastructure, and the revenue streams are in local currency, this presents high financial risk to investors. He said more can and should be achieved by focusing on local currency financing for infrastructure. This, he said, could help with debt sustainability, as the bulk of Africa's debt today was due to infrastructure financing.
Secretary Yellen told the group that even in the face of crises that demand urgent attention, it was important not to lose focus on long-standing issues like infrastructure. She said a long-term commitment to infrastructure investment is one of the most reliable tools available to increase growth, in turn reducing poverty and fostering a more stable global economy.
