Throughout the last decade, Africa’s economic growth has been robust. While this growth is expected to continue during 2016 for sub-Saharan Africa, it will likely not reach the region’s full potential due to ongoing global challenges and under-investment in infrastructure. Doubling-down on implementing infrastructure projects will thus be a critical step in enhancing Africa’s economic climate.
This is why the outcome document of the United Nation’s Financing for Development conference in Addis Ababa, Ethiopia in 2015 (the “Addis Ababa Action Agenda”) recognized that key to achieving the UN’s 2030 Sustainable Development Agenda would be “implementing resilient and environmentally sound infrastructure, including energy, transport, water and sanitation, and sustainable and resilient buildings using local materials.” Likewise, the Sustainable Development Goals have prioritized infrastructure in its own goal - Goal 9 - reflecting the consensus of the world’s development finance institutions that infrastructure needs to be a priority going forward. This is the case particularly in sub-Saharan Africa, which faces a $93 billion per year infrastructure gap.
The question is precisely how infrastructure will get financed. As African governments continue to face diverse financing constraints, which include budgetary restrictions and backlogs of yet-to-be-approved projects, external funding from private and public financial institutions is vital.
But, as Bechtel’s regional president in Africa, Andrew Patterson, notes in a new blog post, governments must be strategic and selective about which projects to focus on and which funding models to use depending on the type of project under consideration. Patterson should know: Bechtel has extensive experience, having worked in 160 countries and delivered 25, 000 projects.
According to Patterson, ideally, governments should concentrate on about three to five large infrastructure projects per year in order to improve the chances of project delivery. They should also carefully consider who to partner with on what kinds of projects: there should be a division of labor between public and private finance. Governments should spearhead the large infrastructure projects – major highways, greenfield freight rail, urban light rail, and the initial greenfield port project – because the Public-Private Partnership or Build-Operate-Transfer (BOT) models are not well-suited for those major projects due to the presence of project unknowns and associated risks.
As Patterson explains, it’s all about bankability - and simply a matter of math: governments can more easily obtain external funding, including export credit that is much cheaper than what private equity firms can offer, and, private institutions require higher contingency reserves for the development phase of projects. This often makes the larger projects no longer bankable. In contrast, private investments should concentrate on projects that are bankable and can rapidly reach financial closure, such as power projects, expanding existing airports and marine ports, and the manufacturing/service industries.
More fundamentally, African governments will need to rise to the challenge of creating the right enabling environments to welcome in such infrastructure investments, as USCIB has argued in a 2015 policy paper on the UN’s 2030 Sustainable Development Agenda. One practical step is creating a dedicated centralized PPP unit within their governments that can analyze PPP opportunities throughout ministries and sectors, which are perceived as contributing significantly to the accomplishments of a country’s PPP program. Bechtel has ostensibly played that role in Gabon, where it helped the government deliver a $25 billion infrastructure plan, including organizing and co-managing the l’Agence Nationale des Grands Travaux, a government agency that oversees the execution and delivery of the plan with various ministries and government agencies. As part of this program, Bechtel supports the government in reviewing and prioritizing the projects for their social and economic benefits, and developing the best delivery model for each individual project.
In sum, infrastructure will be key to achieving the SDGs but governments must take the lead and there are a number of important key policy choices and frameworks they can establish to make funding their infrastructure priorities more achievable. Read Bechtel’s blog here to learn more.