Financing

Infrastructure

The AfDB estimates around USD 35-47bn is needed annually in Africa to spend on road, rail, air and port infrastructure, with most (80%) allocated to maintenance and rehabilitation of existing infrastructure, which has become outdated and inefficient. Globally, investors allocated a record high of USD 85bn to infrastructure funds in 2018, and the positive momentum is expected to continue into 2019 (Source: Preqin).

Financing

As it stands, DFIs together with national governments finance the bulk (70%) of infrastructure investment in Africa. China provided 24% of the funds raised for infrastructure on the continent in 2017. Outside of these investors, participants in the asset class in Africa are few and far between, with the private sector making up less than 3% (Source: ICA Infrastructure Financing Trends 2017).

However, the infrastructure investment gap is substantial and African governments don’t have the budgets to support the required level of investment. Many African governments generate relatively low tax revenue, which is traditionally a good source of financing for long-term projects such as infrastructure, due to the stability of such income. Many generate the bulk of their revenue via royalties on oil and other commodity exports. As a result, the drop in the commodity cycle over the past few years has caused governments to delay infrastructure investment.

Some of the barriers to private sector involvement in infrastructure include currency risk for international investors and uncertain legal and regulatory frameworks, often exacerbated by corruption.

Some of the barriers to private sector involvement in infrastructure include currency risk for international investors and uncertain legal and regulatory frameworks, often exacerbated by corruption. Additionally, the lack of skill and experience in project planning and preparation means that many viable and necessary projects won’t reach bankability, the stage of development at which private lenders and investors are willing to come on board.

Next Structure