The African Development Bank (AfDB) has often been criticized for the time it generally takes to approve projects. It managed to somewhat counter this accusation at the Africa Investment Forum that it organised in Johanesburg last week by bringing to the table a pipeline of 61 projects with a value of $40bn.
According to the organisers, of the 61 projects put forward, there was investment interest and advancements on 45 of those representing total value of a little under $32bn. It sent a clear message: that demand for bankable projects is there and that there is capital available to finance these projects. The pipeline was aggregated by the AfDB but the hosts were quick to project that this was a collective effort by African development finance institutions, including the likes of the Trade and Development Bank, Afreximbank and the Africa Finance Corporation.
A new leaf
This was a game changer for the bank and the bank’s President Akinwumi Adesina, who seems to have found his feet at the bank. He was in his element at the AIF and with this initiative seems to have singlehandedly found a solution to what has always been the investor and financier’s bane. Having spoken to the latter as well as project developers and promoters, the common complaint has always been a dearth of bankable projects and the timeframe to deal closure. Where the Chinese will be able to fast-track projects and add 120GW of installed power capacity a year, the continent has too little projects it can showcase to reduce its energy gap. Actually, what Africa adds in a year, China does in a month. People across the continent are still talking about a handful of flagships projects such as Cenpower in Ghana or Azura-Edo in Nigeria, both of which took many years to see light of day.
The AIF, which presents itself as a platform rather than a Forum, has managed to show that we can accelerate deal-making and do so at scale. And there is a pipeline of projects that require funding. As Alain Ebobisse, CEO of Africa 50, stressed, the Forum showed that if you bring well-structured projects to the table, the appetite is there. With a mandate to help get projects off the ground, the exit potential was visible, he said
Demand for bankable projects is there and that there is capital available to finance these projects…If you bring well-structured projects to the table, the appetite is there.
The President of the AfDB who will fundraise in 2019 following the approval by the board for a capital raising at the Annual Meetings in May will have a strengthened his case. With such numbers on display and a clear demand for the Bank’s balance sheet, there are more than enough avenues down which the Bank can disburse money. And the AfDB will have also argued that it is in a unique position to drive this sort of initiative: only an African institution could have.
Possibly the AfDB’s greatest achievement in this first instance was to bring all the partners on board to develop the pipeline of projects. Financial institutions can be quite guarded about projects and their pipeline of deals, even if they often collaborate in terms of loan syndications and project finance. However, at the Forum, whether this was choreographed or not – and it didn’t appear to be – they seemed to speak with one voice and all found their common interest. The President of Afreximbank, Benedict Oramah, for example said that they had had 60 meetings and developed a project pipeline of $15bn. The President of TDB, whose own bank’s balance sheet has increased 50% in the past two years to nearly $6bn mentioned that to scale up you need firepower; and it was during the Forum and after 4 months of discussions, that he welcomed a new institutional shareholder, BADEA (the Arab Bank of Economic Development).
The projects presented at the AIF were principally around energy, transport and logistics, as well as some in agriculture. The next steps for the Forum will be to attract more international capital to start investing in these asset classes, and alongside other partner organisations to develop instruments to facilitate such investments. Adesina estimates that global funds under management represent $133 trillion; of those pension and sovereign wealth funds, or accessible funds, represent $56 trillion. The AfDB’s High Fives strategy requires $170bn or less than 0.3% of those accessible assets under management.
NEPAD estimates that if Africa took only domestic resources – African pension and sovereign funds represent some $1.1tn. And If it channeled 5% of those, that’s already $55bn, they argue.
Global funds under management represent $133 trillion; of those pension and sovereign wealth funds, or accessible funds, represent $56 trillion.
Africa will have to rely on innovative sources of financing and cannot replicate the Asian model. As Tadesse of the TDB pointed out, saving rates in Africa are low and cannot match those of Asia (where they can reach 40%). It is therefore imperative to have to source different pools of capital to fund investments.
One of the discussion points throughout the three days of the Forum revolved around Africa’s risk profile. Africa risk is still mis-priced, the different heads of organisations said. The perception of risk on the continent is still much higher than the reality. This not only means a higher cost of capital but also that it makes it difficult to meet some of the stringent investment criteria that these foreign funds are subject to. By partnering with a AAA institution such as the AfDB however there are ways of managing and mitigating risks.
As much as anything, the achievements from the 3 days of transaction led discussions, was as much about transactions as it was about sending a message: Africa is open for business; African-led institutions will take the lead; and that there are viable, investment ready projects that confound the common thinking. “News travels”, Tadesse said, “and this will help change the narrative out there.”
What it will also do is provide a wake-up call to policy makers. The Minister of Finance of Cote d’Ivoire said that she will make sure that, next time, they come better prepared. Investments in a number of sectors are too often held back by inadequate policy framework. Governments recognise that the private sector needs to be enabled to take a lead in financing and developing these projects. “[Heads of Government] have come to realise that private sector is not the enemy and they can carry the load,” Adesina said in a private dinner with the media. But they can only do so within the right framework. Macro-economic and fiscal management has significantly improved but the regulatory and policy framework has not been always provided the enabling environment to unlock investment especially in infrastructure and agriculture. Adesina added that in private conversations with heads of government the commitment was there, the commitment to encourage through fiscal incentives, and to engage the private sector as key partner in growing their economies. “There is a much more friendly tone in their conversations,” he added.
To ensure this the Forum is a platform, and not an event, it will be launching the Africa Investment Forum Marketplace on the 1st December, an open-source digital platform that the AfDB has developed with the Inter-American Development Bank to publish and connect in real time projects with developers and investors, the AfDB will also track deals. As the saying goes, it’s showtime!