funding african infrastructure

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144 | The Banker | May 2010

Cli CobttEconomics edito at The

Banker and chai of the

ond table

Ti d

Logm Vice-pesident fo nance,

Afican Development Bank

aloi Od Vice-pesident fo

opeations, Afican

Development Bank

nic roManaging diecto fo

fontie makets fnds,

Standad Bank

Cli ToPatne at vente capital

m, Mais Capital

nicol Pitiot Vice-pesident fo

banking, MediCapital

Bank

Tobjo CPatne and co-head

of infastcte, Actis

ad adol Head of poject nance,

Afica, Standad Chateed

Bank

The PaneL

Funding AFricAninFrAstructure

Leadership series round tableThe parlous state of infrastructure in Africa is one of the main reasons the

continent has never achieved its immense potential. The Banke’s roundtable

attempts to nd out how this situation can be rectied and where the money

will come from to fund it. writer Charlie Corbett

Cli Cobtt, coomic dito t The Banker , opd t Ldip i

od tbl b qotig ct pot b

t aic Itct Cot Dig-

otic tt od tt bd itct

i 24 lctd aic coti ct

tiol coomic got b to pct-

g poit d dcd bi podc-

tiit b 40%. T m od tt

i od to big itct o t

cotit p to tdd b t

cici cold b gid, tggig

$31b p dd to b pmpd i.

Ti pomptd M Cobtt to tqtio: i itct i o citicl to

t dlopmt o aic coo mi,

it b glctd o o log d

ill t mo com om to pt

ti igt? h d t pl t t

t biggt obtcl to bildig

d dig itct i aic.

Ade Adeola, head of poject nance, Afica,

fo Standad Chateed Bank, said the big-

gest obstacles wee affodability and nding

eliable off-takes. “O analysis acoss the

maket indicates vey clealy that thee is a

mismatch between the need fo infastc-te and the ability to get a stong off-take

to be able to sppot the financing of

pojects.” Aloysis Od, vice-pesident of

opeations at the Afican Development Bank

(ADB), said access to nance was by fa the

most impotant handicap to infastcte

in Afica. “When we think of Afica, we think

in tems of 53 conties in a $1100bn econ-

omy, and if we had the ight amonts of

money to fnd infastcte in this conti-

nent, yo cold gow that $1100bn economy

to $5000bn,” he said.

M Cobett then asked Tobjon Caesa,

a patne and co-head of infastcte atpivate eqity company Actis, what moe the

banks cold do to help nance citical infa-

stcte pojects. He said that pivate capi-

tal shold play a mch bigge ole than it

does today, bt then allded to M Adeola’s

point that the poblem was nding eliable

and cedit-wothy off-takes. “Longe-tem,

yo need to have deeglation take away

[ntageted] sbsidies and yo have to have

a tanspaent secto with cost-eective ta-

iffs,” he said.Nicolas Pitiot, a vice-pesident fo bank-

ing at MediCapital Bank, the Eopean sb-

sidiay of BMC of Moocco, said the key to

impoving the state of Afican infastc-

te was access to long-tem nancing: “The

pivate secto has a hge contibtion to

make bt, with the cedit cnch, a lot of

instittions ae having difclties enanc-

ing on vey long-tem matities.” M Pitiot

also lamented the fact that in many Afican

conties, the legal famewok eqied to

pt sch pojects into action was not p to

scatch. “If we want to see moe pblic-

pivate patneships, the legal famewokhas to be stengthened in these conties,”

he said. Anothe difclty highlighted by M

Pitiot was hman esoces, which he said,

A nAlysis Across the mArket

indicAtes very cleArly thAt

there is A mismAtch

between the need for

infrAstructure And the

Ability to get A strong off-

tAker to be Able to support

the finAncing of projects

Aloysius Ordu

infrastructure

afrICa | rOuND TABLE



rOuND TABLE | afrICa

May 2010 | The Banker | 145

infrastructure

was wanting. “The pool of talent [in Afica]exists, bt it is too little now to be able to

cope with a hge pipeline of infastcte

pojects.”

Nick rose, managing diecto fo fon-

tie makets fnds at Standad Bank, stck

a moe optimistic note: “I think thee is case

to believe things have got bette ecently,” he

said. “Thee has been economic gowth in

Afica and the nmbe of pojects we’ve been

ndetaking has gown.” Howeve, he said

that the big isse was nding qality spon-

sos fo pojects o, in M rose’s wods,

“people who can make these things happen”.

M Cobett then asked Thiey deLongema, vice-pesident fo nance at the

Afican Development Bank (ADB), what

moe his bank cold do to change the c-

ent sitation in tems of pan-Afican infa-

stcte. M Longema said the ADB was

in the pocess of tipling the bank’s esoces

and was in discssions with shaeholdes.

Howeve, he added that one of the most citi-

cal aspects was local cency fnding.

“Local cency is an aea whee we ae

doing a lot, bt whee we cold do mch

moe, becase most of o pojects geneate

evene in local cency and they need to

avoid cency mismatches,” he said.Chalie Tyon is a patne at a vente

capital fnd Mais Capital, which invests in

small and medim-sized entepises in fon-

tie and post-conict Afican makets.

M Cobett asked him what moe the

commecial banks and othes cold do to

help him get his bsinesses off the gond

and into potability. He said one of the aeas

of infastcte most neglected is the oads.

“We wok in soth Sdan and it is land-

locked. The neaest pot to the capital of

soth Sdan, Jba, is in Mombasa, which is

1500 miles [2414 kilometes] away. The cost

of moving goods fom thee to Jba is$10,000 fo one 40-foot [12-mete] con-

taine, which woks ot as $4 a mile [$6.4 a

kilomete],” he said.

M Tyon added that anothe poblem

was that often the lage banks tended not to

bothe with smalle pojects sch as oad

and ail bilding in hashe envionments.

“It is a less attactive infastcte invest-

ment fo a lot of the development banks and

thee’s a lot moe isk, a lot moe cency

isk and the cost of bsiness in these ma-

kets is that mch highe,” he said.

■MOBILe MODeLThe panel all ageed that the most sccessfl

model fo pan-Afican infastcte inte-

gation was the evoltion in mobile phone

technology acoss the continent. M Cobett

asked what lessons cold be leaned fomthis. “Thee was light-toch eglation, little

govenment intefeence and some vey

committed sponsos,” said M Pitiot.

M Cobett made the point that not all

infastcte investment was going to be a

good commecial oppotnity, as mobile

phones have been, so how cold investos be

convinced to pt money into the less com-

mecially viable, bt eqally citical, infa-

stcte?

M Pitiot sed the example of toll oads.

He said that otside Soth Afica, thee was

jst one fnctioning toll oad in sb-Sahaan

Afica, the Lekki Toll road in Lagos, Nigeia,and even that was not yet flly opeational.

“Thee ae othe toll oad pojects aond –

thee’s the tolling of the Daka-Kmasi road

between Senegal and Ghana and thee’s the

Naiobi ing oad – bt all these ae

npoven,” he said. “It is the affodability

isse. Does it actally make sense fo the sot

of tolls that need to be paid to make these

pojects economic?”

M de Longema esponded that

npopla pojects will always emain

npopla with some pivate investos so it

was citical that govenments took the lead.

“Thee ae some pojects that eqie gov-enment involvement and this is the only

pactical esponse,” he said. “Thee is a

esponsibility they have to take. Some ae

willing, some less.”

■GOvernMenT InfLuenCeM Cobett asked the panel what moe Afi-

can govenments cold do to tansfom

Afica’s infastcte. M Tyon said that

one of the biggest challenges facing goven-

ments in fontie makets was capacity and

expeience. “They may be govenments who

ae in place fo vey shot peiods of time

and lack long-tem pespective. Thee is alsothe isse of coption,” he said. “I have seen

it in a nmbe of conties we wok in whee

the inteplay between the govenment

■ MOBILe MODeL

■ GOvernMenTInfLuenCe

■ CO-OPeraTIOn Thekey

■ enTer The CaPITaLMarkeTs

■ IMPaCT Of TheDOwnTurn

■ One MOre ThInG...

The Issues

Watch NowWatch the debate or

individual chapters – visitthebanker.com/media

if we wAnt to see

more public-privAte

pArtnerships, the

legAl frAmework

hAs to be strengthened

Nicolas Pitiot



146 | The Banker | May 2010

infrastructure

afrICa | rOuND TABLE

helping these conties to make se that the

pocement pactices ae back p to scatch,

making se that thei bdgets ae tanspa-

ent. We ae helping these conties in state

bilding,” he said.

M Cobett asked how Actis balanced its

elationships with Afican govenments, in

paticla when thee wee qestions abot

tanspaency and ethics. M Caesa

esponded that thee wee “mltitdes of

ways” of managing elationships bt that it

was impotant that development agencies

sch as the ADB, the Intenational Finance

Copoation (IFC), the Wold Bank and oth-

es wee also involved. “If yo ae looking

fom a tanspaency point of view, instit-tions [sch as these] make se that thee is a

pope pocess [to stcting infastcte

nance],” he said.

M Caesa added that it was citical that

pivate investos, who ae committing fnds

fo a lengthy peiod of time, cold be eas-

sed that the next govenment o eglato

was not simply going to evese all the deci-

sions of its pedecesso.

■CO-OPeraTIOn Is keyM Cobett qestioned how Afican states

cold be encoaged to co-opeate moe

togethe in ode to impove the continent’sinfastcte. M de Longema said he

eally believed that the stongest potential fo

gowth in Afica was thogh inta- Afican

tade, bt that this was hindeed by poo

infastcte, in paticla oads and coss-

ing points. “Some conties have aleady eal-

ised that, and yo have got oganisations sch

as SADC [the Sothen Afican Development

and the pivate secto is pooly managed

and yo get contactos bilding oads and

powe o tility podces who ae qite

fankly iesponsible and they ae not p to

the task to delive the infastcte that

they ae paid to delive.”

Fo M Od, the key to developing good

infastcte is in developing good instit-

tional famewoks. “We have seen this in a

nmbe of conties, especially Lagos state

in Nigeia, whee they have pt togethe a

eglatoy commission. What that does is to

ceate a moe standad model [with] a

standadised pocement pocess and a

tende pocess that allows stong sponsos to

emege,” he said.M de Longema said that one of the

most impotant oles fo the ADB was to act

as a boke between govenments in Afica

and pivate nance. “We mitigate the isk of

having to deal with govenments and offe a

bidge between the pblic secto and the

pivate secto. It is not o expetise, not o

money, nothing else. It is the isk-mitigation

aspect,” he said.

M Od added that the ADB also woks

in tandem with govenments to ceate moe

sond legal and eglatoy famewoks. “The

second point, of cose, is the bsiness envi-

onment. In rwanda, fo example, now ittakes mch less time to open a bsiness,

wheeas 10 yeas ago it sed to take yeas,” he

said. M Od also allded to poblems of

political instability on the continent. He said

thee wee 14 conties in Afica officially

temed fagile states. These states wee mov-

ing ot of peiods of civil wa o nest and

towads political stability. “[The ADB is]

Commnity] that ae vey mch awae and

meet [to discss] mattes of how to make the

lines of commnication between states in this

egion mch bette,” he said.

M Adeola said it was p to people sch

as M de Longema at the ADB to kick stat

sch co-opeation. “The ADB [exists] as a

fai and honest boke that helps to povide a

famewok fo potecting ceato ights

acoss both sides [of the bode]. When yo

look at conty isk, it gets amplied once

yo coss the bode – we need the ADB to

take a lead ole.”

M Adeola added that it was not so mch

the money that development agencies sch

as the ADB povided, bt the isk mitigation.“When I look at the difclty in getting a lot

of these pojects bankable, it is not eally

money. It is abot being able to get a cedit

annoncement that will enable pivate banks

sch as os to deploy capital,” he said. “So,

even if today the ADB stopped deploying any

fom of debt in tems of cash and all it did

was to povide conty isk mitigation and

cedit annoncements, it wold pobably

have as mch impact as it does in tems of

wit ing the cheqes. When I look at how

mch we cold deploy if we didn’t have to

woy abot conty isk, we wold pobably

be able to doble that,” he said.M de Longema mentioned yet anothe

challenge to pomoting inta-Afican tade,

which was to hamonise egional economic

commnities in Afica. “Thee ae, I don’t

know how many – nine o maybe moe [eco-

nomic commnities] – bt the poblem is

that thee ae ovelaps eveywhee. Many

conties ae membes of diffeent egional

economic commnities,” he said.

■enTer The CaPITaL MarkeTsM Cobett asked how otside-investos

cold be bette eassed that thei invest-

ments in Afica wee safe, given the conti-nent’s widespead political and economic

ncetainties. M Tyon said that it was pos-

sible to inse investments thogh oganisa-

tions sch as the Wold Bank, bt that his

fnd had taken the view that sch insance

mechanisms wee not necessaily appopi-

ate to smalle investos sch as Mais Capital.

He sggested that each deal was individal,

bt that the long-tem pospects fo the con-

tinent wee good. “Goldman Sachs pblished

a pape sggesting that the pan-Afican

gowth ate ntil 2050 cold be as mch as

6% goss domestic podct gowth pe

annm and I think that’s a vey eassingpoint fo investos,” he said.

M rose said that said that Standad

Bank managed fnds that an fo 15 yeas



May 2010 | The Banker | 147

infrastructure

rOuND TABLE | afrICa

tal bank come in and say, ‘we will backstop

[a deal] when it comes to the cost of fnding

fo a longe-tem infastcte poject’, is

sch a big catalyst,” he said.

M Caesa added that the nivese of

lendes fom the pivate secto had shnk

consideably as a eslt of the cisis. “If yo

take Egypt, whee we did a $250m enanc-

ing jst befoe the cisis, eveyone was thee.

Thee was ece competition and extaodi-

nay tems – not so any moe,” he said.

Despite the difficlt economic backdop,

howeve, M Caesa said that it was still pos-

sible to pt togethe sond deals. “Yo canse the development agencies and patial

isk-gaanteed podcts, and [with that]

yo can make good, stable, solid etns in

these makets,” he said.

■One MOre ThInG...M Cobett thanked the panelists fo thei

contibtions and asked them to name one

and had boght to fition 27 pojects. “The

nancial stctes yo can get in Afica ae

vey obst compaed to othe makets,” he

said. “It is a little bit of a myth that Afica is

high-isk, becase actally, when yo get

down to it, yo get good etns and yo get

stong stctes.” A moe impotant isse,

M rose said, was abot how to mobilise

local cency fo long-tem infastcte

pojects.

“Thee’s a lot [of local cency availa-

ble] in Afican conties . Thee ae long-

tem savings in insance companies and

pension fnds. All that this money does at

the moment is go into govenment bonds.

The mechanisms shold [be pt in place] toenable [that money] to be eleased fo infa-

stcte,” said M rose. “Getting pension

fnds to ndestand the isses and getting

capital makets eglation in place that

eleases that money is vey impotant.” M

Pitiot also made the point that thee was an

ndelying isse concening inteest ates

when it came to lending in local cencies.

“Once yo stat to do 15-yea deals and inte-

est ates ae 20%, it becomes qite difclt

to make sch things economic. Local c-

ency inteest ates need to be at acceptable

levels, and that’s a bigge macoeconomic

isse,” he said.

■ IMPaCT Of The DOwnTurnM Cobett sggested that it was spising

that moe than 50 mintes of debate had

passed withot one mention of the nancial

cisis. He asked the panel what impact it had

had on investment. M Pitiot said thee had

been a noticeable withdawal of commecial

banks, bt that development agencies had

stepped into the beach. “Thee has actally

been an intenational eaction to plg the

gap, bt in the long tem, the best soltion to

all of this is that commecial banks ae active

in Afica in the same way they ae in devel-oped makets.”

M Adeola said that Standad Chateed,

as a commecial bank, had fond that the

downtn had made deals hade to distib-

te. “Thee was no moe ndewiting capac-

ity available in the maket and we wee the

only bank that was still ndewiting tans-

actions,” he said. Accoding to M Adeola,

the matity of deals to fnd infastcte

fell fom seven to 10 yeas to abot thee to

ve yeas. “And, of cose, fo any sensible

infastcte poject yo need a longe

teno than that,” he said. M Adeola also sg-

gested that cental banks in Afica cold play jst as big a ole as the development agencies

in sppoting infastcte nance. “When

it comes to picing and teno, having a cen-

thing that they thoght needed to change,

which wold go the fthest in tansfoming

Afican infastcte and thei abili ty to

nance it.

“I think fo s it wold be investment in

powe,” M Tyon said. “It is a eqiement of

evey single bsiness and it is seiosly nde-

invested in. It affects o bottom line evey

day. We wold see hge inceases in pota-

bility acoss o investments if we had eg-

la, sfcient powe at an affodable pice.

M de Longema was clea: “Boade

and deepe domestic capital makets,” he

said. M Pitiot wanted less govenment

intefeence. This, he said, wold allow

affodable taiffs and let the pivate sectoget on with things moe.

M Caesa said that the fte lay in giv-

ing the pivate secto a majo ole. “A lot of

capital esoces ae standing by, waiting to

come in,” he said.

M Od said that the mltilateal

banks, sch as the ADB, IFC and Wold

Bank, wee citical to bilding Afica’s infa-

stcte: “We need to wok mch moe in

consltation with govenments becase

that’s whee the bbe hits the oad,”

he said. “[We need] to ceate the enabling

envionment fo the pivate actos to come

and play.”M Adeola was blnt in his esponse. “If

thee is one single thing that cold change

damatically that wold acceleate the

gowth and appetite of commecial banks

and pivate eqity paties into Afican infa-

stcte pojects, it will be a sitation

wheeby they see that the money they invest

gets epaid,” he said.

it is A little bit of A myth

thAt A fricA is high-risk ,

becAuse ActuAlly , when

you get down to it, you

get good returns And

you get strong structures

Nick Rouse

Question time: Charlie Corbett asks AdeAdeola, head of project nance for Africaat Standard Chartered for his views

funding african infrastructure

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