Transcript Financing Africa

Strategies for Regional
Infrastructure Development
and Economic Growth
African Development Bank Group
Prof. Mthuli Ncube
Vice President & Chief Economist
AfDB
African Development Bank
Presentation to the “Economic Growth and Employment”
Seminar
Mozambique, February 10, 2011
1
Presentation Outline
1. The state of infrastructure in Africa & Implications for
economic growth
2. Financing infrastructure development & AfDB’s Role
3. Lessons learnt from AfDB’s interventions
4. Strategies for infrastructure development and further
engagement with the AfDB
2
THE STATE OF INFRASTRUCTURE IN AFRICA &
IMPLICATIONS FOR ECONOMIC GROWTH
Infrastructure Coverage in Mozambique and Sub Saharan Africa
350
300
Mozambique
Sub-Saharan Africa
Normalized units
250
Other low-income countries
200
150
100
50
0
Paved road
density
Total road
density
Mainline
density
Mobile
density
Internet
density
Generation
capacity
Electricity
coverage
Improved
water
Improved
sanitation
Mozambique lags behind the average coverage for Sub Saharan Africa
on all but 2 dimensions (mobile telephony and internet usage)
Ranks 42 out of the 53 according to the AfDB’s Infrastructure Index
Regional connectivity particularly lacking
Missing links for physical integration of the African continent
(AICD)
Region
Large hydropower
(MW)
Central
1,383
East
10,968
Southern
8,912
Western
3,758
Total
25,021
Power
transmission
(MW)
Road upgrades
(kms)
Fibre optic links
(kms)
3,700
2,257
2,524
3,565
11,100
5,158
5,804
1,905
23,129
12,885
1,662
27,755
23,839
11,250
64,506
ONRI Presentation on RISPs– 05.02.2010
Source: AUC,
AfDB, WB
presentation at
UN Millennium
Summit,
September
2010
Source: AUC,
AfDB, WB
presentation at
UN Millennium
Summit,
September
2010
Source: AUC,
AfDB, WB
presentation at
UN Millennium
Summit,
September
2010
Source: AUC,
AfDB, WB
presentation at
UN Millennium
Summit,
September
2010
Why infrastructure?
(i) Good infrastructure creates an enabling
environment for economic activity:
 Lowers costs of doing business
 Improves global competitiveness of local production
 Promotes FDI and partnerships
 Promotes cross border investments and trade
Hence promotes productivity and growth:
• African firms could achieve productivity gains of up to
40 percent with adequate infrastructure
• GDP growth could be enhanced by as much as 2% per
year
10
GDP and Real GDP Growth in Mozambique
Real GDP growth (annual %)
10.00
11.1
30
20
14.7
12.6
9.2
7.5
6.8
8.4
6.5
8.7
7.0
6.8
3.3
2
5.4
6.5
7.55
10
0
6.00
-10
-15.1
4.00
-20
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
-40
1993
0.00
1992
-30
1991
2.00
1990
GDP (current, billion USD)
12.00
8.00
40
GDP (current billion US$)
Real GDP growth (annual %)
14.00
Year
Mozambique’s growth has not been inclusive, in part due to infrastructure
bottlenecks (high transportation and energy costs)
Competitiveness of the economy is low (ranked 131 out of 139 economies –
Global Competitiveness Index, 2010)
Why infrastructure?
(ii) Added pressure from consistent growth of
African economies, which has led to:
 Larger cities and increased urbanization
 Growing consumer markets
 Broader ties to the global economy
Infrastructure stock must increase to support
this growth
12
Why infrastructure?
(iii) Linkages to local industry




Manufacturing
Construction
Financial markets
Labor
Hence growth in infrastructure development
activities has direct GDP growth implications
 Infrastructure expected to become the 4th largest
contributor to revenues in Africa by 2020
13
FINANCING INFRASTRUCTURE DEVELOPMENT &
AfDB’s ROLE
Current Sources of Infrastructure Financing
1.6
% of Sub Saharan Africa GDP
1.4
1.2
1
non-OECD
0.8
OECD
Private
0.6
Public
0.4
0.2
0
WWS
Energy
ICT
Transport
Sector
US$ 93 billion required annually to finance infrastructure in Africa
Current expenditure = US$ 45 billion
Potential efficiency savings = US$17 billion
Financing gap = US$ 31 billion
15
Innovative Financing Instruments
• Traditional Design-Bid-Build approaches given way to new
and often long-term arrangements
• Attracting private players into infrastructure provision
through different forms of PPPs (DB, DBOM, DBFO, BOO,
BOT, BOOT, Full Delivery OR Program Management)
Advantages:
• Cost savings
• Fully integrated client services
• Transferring risks
• Innovation
• Better asset management
• Better level of service
• Partnering potential
• Developing a new industry
• Benefits of economy of scale
16
Innovative Financing Instruments
While long-term arrangements are attractive they have
disadvantages too:
• Costly tendering process
• Longer tendering periods
• Reduction of competition (social justice), usually for large
contractors
• Uncertainty of long term relationships
• Mobilization issues need to be addressed
• Loss of control & flexibility
17
Source: Pekka Pakkala (2002)
Other innovative sources include
–
–
–
–
–
Local currency bonds
Commodity-linked bonds
Diaspora bonds
External sovereign bonds
Sovereign wealth funds
• Require strong institutions , credible policy
environment
• Yet have benefits
–
–
–
–
Government maintains control
Reduce risk of sovereign debt stress
Reduce instability of financing flows
Deepen domestic financial markets
18
AfDB’s Support to Infrastructure
• Lending
– Sovereign incl. regional operations pool
– Non-sovereign (loans and equity)
• Grants for technical assistance
– FAPA (US$ 16 million per year towards private operations)
– IPPF (US$ 15 million per year towards regional infrastructure
operations)
– MIC (US$ 16 million for operations in middle income countries)
• Risk Instruments
– Guarantees
– Hedging products
• Coordination
– Hosts the Infrastructure Consortium for Africa (ICA)
– Executing agency of the Program for Infrastructure
Development in Africa (PIDA)
19
AfDB’s Approved Financing by Sector – Ongoing as at 31.01.2011
Share of Approved Amount by Sector
Water & Sanit.
9%
Transport
14%
Power
23%
Social Total
1%
Agriculture
36%
Finance
3%
Multi-Sector Ind/Mini/Quar
13%
1%
• Infrastructure sectors now attract the lion’s share (46 %) of
AfDB’s financing
2009 Infrastructure Loans & Grants
US$6.05 Billion to
Infrastructure
Projects
Water &
Sanitation, 8%
US$700 Million to
Regional
Infrastructure
Communication
, 2%
Transportation,
33%
Recent Key Regional Projects Funded
• Kenya-Ethiopia Highway
• Mozambique-Malawi-Zambia Highway
• Kenya-Tanzania Highway
•Burundi-Rwanda-DRC-Kenya-Uganda
Power Interconnection
Other Key National Projects Funded
Power Supply,
57%
•US$2.3 billion Power Project in RSA
•Power Projects in Botswana, Kenya,
Uganda, Ethiopia, Lesotho
•Transport, power and water projects in
Mozambique
21
ONRI Presentation to COMESA-EAC-SADC 2010
AfDB’s regional infrastructure operations
• UA 1.17 billion in 2009, an increase of 57.9%
over the 2008 level of UA 741.10 million
• 20 percent of ADF-12 resources allocated to
the Regional Operations pool
• Increasing participation by private sector
investors widening the resource base
• But innovations are necessary
22
AfDB’s Support for Infrastructure in Mozambique
Communications
Historic Operations
- 1977-2010
(UA million)
Ongoing Operations
– as at Jan 2011
(UA million)
Recently Approved
Operations
(UA million)
35,230,787
Water Supply
/ Sanitation
Power
Transport*
TOTAL
92,874,810 82,403,884 295,112,906 505,622,387
18,000,000 48,402,000 30,100,000
10,250,000
96,502,000
135,350,000 140,620,000
*Includes one multinational project, Nacala Road Corridor (UA 102.7 million)
• Mozambique’s transport sector historically the biggest beneficiary of
AfDB’s funding
• Project pipeline shows continued strong support to infrastructure (43 %
of total allocation)
23
MZFO, 2011
Productivity and efficiency gains from infrastructure investments
Cost effectiveness of regional operations
Alleviation of public investment constraints through private participation
LESSONS FROM AfDB’S INTERVENTIONS
Case 1: Senegal’s Infrastructure PPPs
Project objectives and financing:
• Four public-private projects approved in energy and
transport between 2009 and 2011
• The objective was to improve access and efficiency,
and lower costs of power and transport services
• EUR 1.1 billion financing mobilized from private
sector, DFIs (including AfDB), and Public sector
25
Project
Key Development Outcomes
Dakar Container
Terminal
(EUR 210 million)

Dakar Toll Highway
(EUR 209 million)


Increased road capacity
Lower indirect costs of transport by alleviating congestion e.g. average
travel time from Dakar to Diamniadio from 2 hrs to 45 minutes. Cost
saving to the users estimated at EUR 165.2 million in NPV.
Senegal Coal Power
Plant
(EUR 195 million)

Increase power generation capacity e.g. 925 GWh of electricity
generated, about 40% of national consumption in 2008
Improve quality of electricity services e.g. reduce annual power
shortages from the 176 days reported in 2008 to 40 days by 2014
Improve national electrification coverage (target: from 46% in 2008 to
66% in 2015)




Blaise Diagne
International Airport
(EUR 525 million)

Increased terminal capacity and productivity e.g. capacity increased by
50%
Lower indirect costs of trade e.g. average waiting time for berthing
reduced from 15 hours to 1.7 hours.
Increase air freight and passenger traffic capacity e.g. annual capacity
growth of 3 million passengers and 53,000 tons of cargo freight (x3
capacity increase).
Improve quality and cost effectiveness of air transportation e.g.
eliminate over-capacity operation at existing airports.
Case 2: Other 3 billion Networks (O3b),
Multinational
Project objectives and financing:
• The project involved the design, construction, launch and
operation of a constellation of 8 medium orbit satellites
• Objective: delivering affordable, high bandwidth, high quality
internet and cellular access to inland markets in developing
countries and island economies
• One-third of capacity dedicated to Africa including 1st wave
off-takers from: Nigeria, DRC, Kenya, Tanzania, Malawi,
Zambia, Cameroon, Sierra Leone, and Ghana
• Financed entirely by DFIs and private investors (US$1.1 billion)
on a limited recourse basis
27
O3b: Key Development Outcomes
• Reach ‘white areas’ and fragile states with high quality ICT
infrastructure
• Improved access to mobile telephony, broadband and data
networks in 9 Africa countries e.g. connect 18 million
households to cellular backhaul
• Lower costs of ICT on the continent.
– Cost savings versus the equivalent capacity from high orbit
satellites estimated at US$1.3 billion net present value
• Regional integration through expansion of broadband internet
and cellular access across several Africa countries
28
Case 3: North-South Corridor Program
Selected development outcomes:
• Lower indirect costs of trade e.g.
reduce time for clearance of goods
from up to 5 days in 2009 to 37 hours
• Improve port capacity e.g. increase
cargo handled at Nacala port from 0.9
million tons in 2009 to 1.6 million tons
in 2015
• Lower transport and transit costs by
25 percent in 2015 on Nacala corridor
29
Case 4: Urban Water Supply, Sanitation &
Institutional Support Project in Mozambique
Project objectives & financing:
• To improve the coverage of water and sanitation in four
towns: Chókwè, Xai-Xai, Inhambane and Maxixe
• Financing of UA 19.06 million (ADF Loan + Grant)
Development Outcomes:
• Improved access to safe water and sanitary facilities e.g.
284 595 new uses served with potable water
• Lower costs of service delivery e.g. non-technical losses
reduced from 55% to about 30%
30
Mobilize domestic resources
Attract private capital
Invest in regional infrastructure
Invest in clean energy
STRATEGIES FOR INFRASTRUCTURE DEVELOPMENT
& FURTHER ENGAGEMENT WITH THE AfDB
Strategies for Mozambique
Performing more of the old functions better
• Improve efficiency in use of allocated resources
– An estimated 17$ billion per year lost through inefficiency
in Africa’s infrastructure sectors
• Increase public allocation to capital expenditures for
both new investments and maintenance
The Bank’s role:
• Policy-based lending, e.g. Nigeria power sector reform
program
• Technical assistance, e.g. FAPA TA grant accompanying
a private sector operation
32
Strategies for Mozambique
Domestic resources mobilization
• Infrastructure bonds in local currency
• Example – Kenya’s long-term government
infrastructure bonds
– Three bonds valued at (US$1 billion) successfully issued
since 2009
The Bank’s role:
• Treasury / MFW4A developing financial markets on the
continent e.g. TA for bond issues, plans to invest in
local currency bonds issued in RMCs
• Policy-based lending for financial sector reforms
33
Strategies for Mozambique
Attract (foreign) private capital
• PPP model
• Example: Senegal Dakar Toll Highway
– Total cost EUR 223 million (DFIs, foreign concessionaire, local
commercial bank, government)
– Bankability improved by (i) long-tenor foreign currency financing
from DFIs (ii) viability gap subsidy from the state
The Bank’s role:
• Financier
• Lead arranger e.g. Lake Turkana wind farm in Kenya
• Honest broker e.g. Markala sugar plantation in Mali
• Risk management through currency and maturity matching
34
Strategies for Mozambique
Attract foreign private capital
• Private equity funds, external sovereign bonds, emerging markets
investors
• Example: Africa Infrastructure Investment Fund 2 (AIIF-2)
– US$ 500 million fund; US$5 billion in additional financing mobilized
– Equity investments of US$ 10 – 100 million in up to 15 projects
– Target: power and transport projects in southern Africa
The Bank’s role:
• Equity and loan financing e.g. AIIF-2, Argan Infrastructure Fund
• Influence geographic reach of infrastructure PEFs /emerging
partners
• Influence practice and standards of infrastructure PEFs / emerging
partners
35
Strategies for Mozambique
Invest in regional infrastructure
• Regional hydropower projects are the continent’s least-cost
power development strategy & Mozambique has large
potential
• Transport corridors capitalizing on coastal access, e.g.
North-South corridor
The Bank’s role:
• Financier e.g. about US$ 1 billion for N-S corridor projects.
(Already supporting Nacala road corridor with US$150 mn)
• Project preparation and TA support, e.g. US$ 11.6mn under
NEPAD-IPPF for N-S corridor projects
• Honest broker
36
Strategies for Mozambique
Develop clean energy
• Capitalize on clean and renewable energy resource
endowment (hydro, wind), bio-energy potential
• Tap into clean technology finance
The Bank’s role:
• Experience in project structuring and financing e.g.
financed Cabeolica wind farm in Cape Verde, and
Markala sugar plantation in Mali
• Public and private sector financing
• Risk management facilities
37
THANK YOU
Office of the Chief Economist
African Development Bank
38