Fola Adeola FUTURE OF INFRASTRUCTURE FINANCING - FIDIC

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FUTURE OF INFRASTRUCTURE FINANCINGINFRASTRUCTURE FOR AFRICAN DEVELOPMENT

Fola Adeola

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r Agenda

■ Africa’s Infrastructure Challenge and Financing Needs

■ Sources of Infrastructure Financing■ Getting Involved: Role of Consulting Engineers

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r Africa’s Infrastructure Challenge and Financing Needs

There is abundant need for infrastructure on the continent■ In many regions, farmers lose half their produce due

to inadequate post-harvest storage■ In Uganda, transport costs add the equivalent of an

80% tax on clothing exports■ In many areas, women and girls walk 6km to collect

water■ 7% of slum dwellers have access to sewerage leading

to economic costs in health and work hours■ Issues of transportation, electricity, water, energy,

sanitation etc.

Source: Commission For Africa. 2005. “Our Common Interest: Report of the Commission For Africa”

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r Map of the World at Night

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Infrastructure is desirable for economic growth and development■ It lowers cost of production and significantly increases industrial

productivityAdequate transportation, water and energy facilities may enhance activities in key productive sectorsRural electrification can stimulate the rural economy

■ It can facilitate post-conflict reconstruction■ It provides access to data (such as prices) and markets■ It is fundamental for provision of health and education services■ It can be an untapped potential for the creation of productive

employment■ It can facilitate regional integration and cooperation


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Increasing the stock of infrastructure by 1% could add 1% to the level of GDP

Below are Sample pair wise correlations between infrastructure variables and GDP*

*Policy Research Working Paper, World Bank East Asia Pacific Sustainable Development Department Operations and Policy Division April 2008

GDP Education Telecoms Electricity Roads WaterGDP 1 0.63 0.93 0.98 0.58 0.51

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Africa needs an additional US$20 billion a year investment in infrastructure between now and 2015■ Additional investment could lead to creation of

■ 15 million electricity connections■ 150,000km of roads■ 3,000km of railway■ Water supply and sanitation services for 75m people■ 60 million telephone connections■ Major expansion of irrigation – increasing the proportion of

arable land that is irrigated by 50%■ Upgrade slums

Question of the day: Where will this money come from?


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r Sources of Infrastructure Financing

Overseas Development Assistance• Official development assistance currently remains an important source

of financing• Yet aid fatigue is a real threat to this assistance

Domestic Savings• Low domestic savings which severely constrains infrastructure

development• Increased government borrowing crowding out private credit

Private Investments• Increased reliance on private sector as source of financing through

public private partnerships• Syndicated bank loans and institutional investors on the rise

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Syndicated lending represents an increasingly important source of private financingCharacteristics of syndicated loan transactions for infrastructure sectors in 2006Borrower / Country of Domicile

Sector Amount (US$m)

Maturity Bank Participation: Local vs. non local

Safaricom, Kenya

Telecoms 165.1 5 years 4 local, 1 South African and 4 developed country banks

UNICEM, Nigeria

Power Plant 210.6 4-, 7- & 9-years

8 local, 1 U.S. Bank and Ecobank

BGT Transport (shipping)

680 12 years 12 major developed country banks

Iberafrica Power, Kenya

Electrical Utility

16.8 5 years 1 local, 2 African, and 2 UK banks

Irving, Jacqueline, and Manroth, Astrid. 2009. “Local Sources of Financing for Infrastructure in Africa.” Policy Research Working Paper 4878, Washington, D.C., World Bank

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Case Study: Lekki Concession Company (LCC) Lagos, Nigeria

■ ARM (Toll systems Company Ltd) was granted a mandate by the Lagos State Government to develop and toll roads/bridges along 5 key land corridors on a Build –Operate – Transfer basis (BOT) and a Rehabilitate – Operate – Transfer basis (ROT)

■ The Lekki Concession Company was incorporated for implementation of the 1st phase of the project – a 30-year concession to build, finance and operate the Lekki-Epe Expressway

Sector / Transaction Toll Road Public Private PartnershipScope Upgrade and create new road infrastructure along the first 49.5km of Lekki-Epe

ExpresswayTransaction size N39 billion (US$300m)Concession Period 30 years (36-42 months of construction)Financing Equity (35%) Debt (65%)Toll Concessionaire will collect tolls and charges on the concession roads to recoup cost of

investmentsARM’s Role Sponsor, Promoter, Financial Adviser and Arranger

Source: ARM

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Limitation of private sector financing

Pros Cons

Access to skills and expertise

Access to private funding

Insufficient capacity to fund more

than 25% of infrastructure

needs


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r Getting Involved: Role of Consulting Engineers

How can consulting engineers get involved?■ Lobbying and advocacy■ Engage in public private partnerships■ Become a knowledge broker

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Consultants have potential to act as knowledge brokers for infrastructure development. Knowledge brokers:

■ Produce innovative solutions to novel problems by combining existing technologies in new ways:■ The steam engine and sailing ship combined to change global

commerce■ The milling machine and computer to change manufacturing■ Electronic, crystal and optics technologies merged to create

the electronic industry

■ Have a better vantage point on the technologies and opportunities of a wider range of industries

Source: Hargadon, Andrew B. “Firms as Knowledge Brokers: Lessons in Pursuing Continuous Innovation,” California Management Review, 40/3 (Spring 1998)

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Ability to innovate is a competitive advantage that can attract financingActivities Underlying Innovation by Knowledge BrokersActivity ImplicationsAccess“Explore new territory”

• Ability to access valuable knowledge from a wide range of industries and broker it from where it is known to where it is not

Learning“Learn something about everything”

• Creating a knowledge warehouse; storing solutions to an industry’s existing problems for use at later time

Linking“Find hidden connections”

• Ability to identify similarity of problems facing different industries and combine solutions from different sectors

Implementation“Make the damn thing work”

• Turn innovative concepts from outside industries into real products for a particular industry

• Build knowledge base for use in later projects

Source: Hargadon, Andrew B. “Firms as Knowledge Brokers: Lessons in Pursuing Continuous Innovation,” California Management Review, 40/3 (Spring 1998)

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How do you access funding?■ Commission for Africa recommends ODA of US$10bn from

2005 and 2010 and a further increase to US$20bn from 2010 to 2015 to target:■ Infrastructure development■ Operations and maintenance cost■ Local capacity building

■ Funding will also support increased private sector participation through PPP facilities:■ Public Private Infrastructure Advisory Facility■ IFC’s Private Infrastructure Development Group■ NEPAD’s Infrastructure Project Preparation Facility


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In conclusion, invest in innovations and engage in new partnerships to promote infrastructure development in Africa

Documents

Fola Adeola FUTURE OF INFRASTRUCTURE FINANCING - FIDIC