Financing infrastructure projects in Africa March 18, :15 10:45

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3 Financing infrastructure projects in Africa March 18, :15 10:45 Plenary 2: Critical success factors for securing Project Preparation funds Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Projects

Introduction: Global Need for infrastructure in Africa INFRASTRUCTURE COST $93 Billion p/a Funding deficit $31 Billion p/a

Bridging the infrastructure gap could increase GDP growth by an estimated 2 points a year.

endure regular power outages Low access to water & basic sanitation services across the continent 75% of the infrastructure

4 Introduction: Global Need for infrastructure in Africa INFRASTRUCTURE COST $93 Billion p/a Funding deficit $31 Billion p/a Africa invests only 4% of its GDP in infrastructure, compared with 14% in China. Bridging the infrastructure gap could increase GDP growth by an estimated 2 points a year. AfDB Strategy for Infrastructure Status: Inter regional trade: less than 15% 30 out of Africa's 55 countries endure regular power outages Low access to water & basic sanitation services across the continent 75% of the infrastructure that will be in place by 2050 doesn t exist today. This is a huge opportunity Evidence Clearly shows that there is a huge need, but why is it still difficult to finance infrastructure in Africa? NBF 2015

5 Introduction: The Challenges Project preparation funds and private sector funds are required to unleash potential Need of innovative solution to de risk projects in order to attract private sector and compensate public sector lack of funding Project preparation enhancement De Risk Innovative solutions Risk adjustment Infrastructure Projects Bankable

6 Plenary 2: Critical success factors for securing Project Preparation funds March 18, :15 10:00 Presentation: Laetitia Habchi, Head Infrastructure Desk, NEPAD Business Foundation Panellists: Callixte Kombanda, AfDB ICA PPFN Network Donald Mabusela, Director, Capital Projects Feasibility Programme (CPFP), DTI Mohale Rakgate, General Manager, Infrastructure, DBSA Christina Rollin, Senior Sector Coordinator Infrastructure,KfW Development Bank Office Herrik Mpuku, Programme Manager, SADC DFRC

7 Plenary 2: Critical success factors for securing Project Preparation funds Computation of PIDA Projects per Project Cycle Stage High number of projects still in identification and pre feasibility stage Project Cycle Stages ALL COMESA COMESA EAC ECCAS ECOWAS IGAD SADC UMA Grand Total Could not be contacted Stage 0: Project didn't go ahead Stage 1: Identification Concept % Stage 2: Pre Feasibility Stage 3A: Detailing & Structuring Stage 3B: Financing Obtained Stage 4A: Tendering Stage 4B: Construction Stage 4C: Operation Stage X awaiting info Grand Total % NBF

Priority ActionPlan, will require 5 7% (USD 3.

8 Plenary 2: Critical success factors for securing Project Preparation funds Preparation Funding needs exceed available money Illustration: NEPAD, with 51 projects of its PIDA Priority ActionPlan, will require 5 7% (USD 3.4 billion) of its total projects costs (USD 67.9 billion) in project preparation funding alone until Overview of PIDA Priority Action Plan

Plenary 2: Critical success factors for securing Project Preparation funds Infrastructure Consortium for Africa (ICA) Outcomes & Recommendations ICA recommendations for Efficient allocation of

9 Plenary 2: Critical success factors for securing Project Preparation funds Infrastructure Consortium for Africa (ICA) Outcomes & Recommendations ICA recommendations for Efficient allocation of existing Project Preparation Facilities (PPFs) resources to projects: Outcomes from ICA report Recommendations Action items Less fragmentation on the facilities along the project cycle in order to increase impacts and benefits Deeper insight into activities along the project cycle Improvement of cooperation at project and facility levels aligning around priority programs with a Core Group of facilities Consolidation of funds ToRs clear definition according project cycle phases Establishment of the PPFs Network DBSA pool of funds (KFW, EIB, AFD ) NBF support to the NEPAD Agency new Service Delivery Mechanism (SDM) Luncheon of the PPFs Network in June 2014 Better access to data and information about individual PPFs Transparency on selection criteria Awaited outcomes of the Breakout Dialogue Session Today NBF

10 Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Projects March 18, :00 10:45 Presentation: Laetitia Habchi NBF Head Infrastructure Desk Moderation: Mike Peo, Head of Infrastructure NEDBANK Panellists: Kutoane Kutoane, CEO, ECIC Karl Bishop, Head Niche Business, Santam Avril Halstead, Chief Director Sector Oversight, South Africa National Treasury Martha Stein Sochas, Regional Director, Groupe Agence Française de Développement Soumya Banerjee, Principal Investment officer, Infrastructure Sub Saharan Africa, IFC

11 Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Lack of public funding to cover needs (1/2) Mismatch between budgetary resources and size of the capital requirements Country # of Iron ore mines # of railways # new ports Est Cost infra USDbn % GDP % National Budget Guinea % % Cameroon & % Mauritania % % Senegal % % Republic of * 31 % % Congo Gabon % 65 85% Liberia % % Seirra Leone % % Source IFC, RBC Capital MKT, CIA Worl Factbook NBF 2015

Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Lack of public funding to cover needs (2/2) Countries may apply for

12 Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Lack of public funding to cover needs (2/2) Countries may apply for concessional financing from multilateral intuitions such as the world bank, but the use of sovereign lending increases countries financial liabilities NBF 2015

13 Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Africa s Infrastructure funding: weak participation of Private sector ICA Annual report 2012

Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Private funds are required to unleash potential The private sector is driven by the potential to generate positive

14 Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Private funds are required to unleash potential The private sector is driven by the potential to generate positive financial returns, commensurate with the risks assumed through the development of its infrastructure investment. Risk adjustment: Reduce political and related default risks Lower transaction and running cost Lower liquidity risks by smothering cash flows Improve credit quality and investor confidence Spur engagement /Involvement/ Placement of investors NBF 2015

15 Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Package Deal solutions Unsolicited Bids Traditional Bids PPPs Private sector opportunity To build a proposal based on a Bilateral agreement (EPC or/and operator) To answer to a public tender (RFP) to execute EPC To answer to a public tender (RFP) to be an operator or to execute EPC under the operator Financier Partners DBSA & IDC + Commercial Bank Traditional DFIs (World Bank, West DFIs) Traditional DFIs + DBSA & IDC + Commercial Bank Insurer partners ECIC, Export credit, sovereign guarantee, private insurers Low : Sovereign loan under IMF control ECIC, Export credit, private insurers Challenges (NBF Core skills) High level political engagement Sovereign guarantee or Resource backed loan? Find innovative solutions to make the project bankable Early stage engagement with Government and DFIs Identify and promotion of the comparative advantage (ex: local content) High level Coordination Early stage engagement with Government & DFIs Identification of the comparative advantage (ex: local content) Source: AFRI ID NBF

16 Plenary 3: Innovative Funding models to de risk Africa s priority Infrastructure Innovative solution to de risk infrastructure projects Instruments & Mechanisms Examples Objectives What can we do to lower risk and attract private sector funding? NBF 2015 Private / Public financing instruments Lending (debts) Equity Investment De Risking Instrument s Sovereign Guarantee Project lending Debt funds Bonds Concessional/flexible loan terms Direct capital investment Loan guarantees Insurance Foreign exchange/liquidity facilities Sovereign loan guarantees Guarantee of tariffs or traffic Resource back loan Reduce political and related default risks Lower transaction and running cost Lower liquidity risks by smothering cash flows Improve credit quality and investor confidence Spur engagement /Involvement/ Placement of investors 16

Set up of a new desk: Bottlenecks in early stage development of the infrastructure Project life cycle STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6 STEP 7 ENABLING ENVIRONMENT PROJECT

Private / Public Financers through AVID Project preparation funds available at step 3 Monitoring NBF core skills: 1.

17 Set up of a new desk: Bottlenecks in early stage development of the infrastructure Project life cycle STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6 STEP 7 ENABLING ENVIRONMENT PROJECT DEFINITION PROJECT PRE & FEASIBILITY PROJECT STRUCTURING TRANSACTION SUPPORT LEGAL & FINANCIAL CLOSE PROJECT IMPLEMENTATIO N NBF / Afri ID Technical assistance / Capacity Building Private / Public Financers through AVID Project preparation funds available at step 3 Monitoring NBF core skills: 1. Research on opportunities (financing, procurement, technical) 2. Project preparation & investment Funds mobilization 3. Project finance structure advisory & business case definition 4. Facilitation for policy & regulatory alignment NBF

18 Set up of a new desk: Value Proposition by the NBF to the Financiers The NBF is able to support the Financiers strategy through the Africa investment and Integration Desk (AVID) which will: Coordinate Financiers, ECIC, DBSA, PIC, builders of infrastructures, operators of infrastructure to develop a compelling end to end approach to projects opportunities in the African continent Provide private sector companies and Financiers with a forum to form consortiums/alliances to work on opportunities in the African continent Forum for Financiers Syndication Neutral broker assisting governments to put out sensible ToRs + Lead project development feasibility studies e.t.c., to bankability Provide feedback loop on challenges project owners (governments) are facing in specific projects avoid spinning the wheel endlessly Support Financiers investments in African countries by linking them to opportunities across sectors (Agriculture, Energy, Infrastructure and Water) Gateway to Pan African Policy Makers AU/NEPAD Agency, etc to pitch new innovative models to accelerate unlocking opportunities e.g. unsolicited bids with build in public interest NBF 2015 UTILISE THE NBF (VIA AVID) TO BRIDGE THE GAP TO THE REST OF AFRICA

interactions with stakeholders Provided to the Member per their specific commercial requirement to facilitate financing, investment and

19 Set up of a new desk: AVID s Three Delivery Mechanisms Periodic Invitation Only Events and Publications to give Members the Inside Track on African Investment Opportunities Deal Focused activities with an eye on facilitating and concluding transactions through coordinated interactions with stakeholders Provided to the Member per their specific commercial requirement to facilitate financing, investment and business opportunities AVID platform will coordinate different funders and financiers to collaborate and cooperate in packaging finance solutions for projects.

FROM BILLIONS TO TRILLIONS:

98023 FROM BILLIONS TO TRILLIONS: MDB Contributions to Financing for Development In 2015, the international community is due to agree on a new set of comprehensive and universal sustainable development