MOBLISING LOCAL FINANCE
STABLE AND PREDICTABLE FINANCING MECHANISMS FOR UTILITY PROVIDERS
PRESENTATION BY REGINALD MAX
FINANCING FOR DEVELOPMENT OFFICE, UN-DESA
FRIEDRICH EBERT FOUNDATION
INTERNATIONAL POVERTY CENTRE, UNDP
MULTI-STAKEHOLDER CONSULTATIONS ON
“FINANCING ACCESS TO BASIC UTILITIES”
LUSAKA 22-25 APRIL 2007
INTRODUCTION
• AFRICAN FINANCIAL SYSTEMS HAVE CHANGED
DRAMATICALLY OVER THE LAST 20 YEARS.
• GOING THROUGH THE THIRD PHASE OF FINANCIAL
MARKETS REFORMS
– FIRST PHASE
•
DISSOLUTION OF FINANCIAL REPRESSION, REMOVE DIRECTED
CREDIT POLICIES, PRICE CONTROLS, ASSOCIATED WITH
STRUCTURAL ADJUSTMENT POLICIES OF THE EIGHTIES.
– SENOND PHASE
•
PRIVATISATION, CAPITAL MARKET REFORMS, SECURITIES
EXCHANGES.
– THIRD PHASE
• REGIONALISATION AND INTERNATIONALISATION, PENSION FUND
REFORM, MICROFINANCE MOVEMENT, TECHNOLOGY PLATFORMS.
THINKING BEYOND COMMERCIAL BANKING
• UTILITY FUNDING WHICH IN THE MAIN CONSISTS
OF INFRASTRUCTURE FINANCE HAS ONE
OUTSTANDING CHARACTERISITC – IT NEEDS TO
BE IN THE FORM OF LONG TERM FUNDING WITH
MATURITIES OF 5,10, 15 OR EVEN 20 YEARS
• EVEN THOUGH THEY MAY GENERATE HIGH
LEVELS OF RETURNS UTILITIES CANNOT REPAY
INVESTMENTS OUT THE CASH FLOWS
GENERATED OUT THE SHORT TERM HORIZONS OF
MOST AFRICAN MARKETS. THEY REQUIRE
REPAYMENT PROFILES THAT MAKE THE LONG
TERM CASH FLOW PROFILES.
WHAT HAS CHARACTERISED THE AFRICA
FINANCIAL SYSTEMS?
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SCALE
INFORMALITY
GOVERNANCE ISSUES
EPISODAL SHOCKS
CAPITAL FLIGHT
FOCUS AREAS FOR DEVELOPING CAPTIVE SOURCES
• PENSION FUNDS AND OTHER
INSTITUTIONAL INVESTORS AS
PROVIDERS OF LONG TERM CAPITAL
• SECURITIES MARKETS AS CATALYSTS OF
LONG TERM FINANCING
• INFRASTRUCTURE BONDS WITH SPECIAL
FEATURES
• BUILDING CONFIDENCE AND ABSORPTIVE
CAPACITY
• STABILIZING WHOLESALE FINANCIAL
MARKETS
WHATS THE PROBLEM WITH MOBILISING FINANCE
FOR WATER UTILITIES INAFRICA
• UTILITIES ARE COMPELLED TO OPERATE UNDER SUB
ECONOMIC CONDITIONS.
• TARIFF SETTING IS NOT A FUNCTION OF SUSTAINABILITY.
IT IS DRIVEN BY POLITICAL DYNAMICS. THAT IS AT THE
VERY HEART OF PROVIDING AFFORDABLE SUSTAINABLE
SERVICES.
• FINANCIAL STATEMENTS ARE NOT NORMALLY PUBLISHED
OR RELEASED... EVER. CREATES CREDIBILITY PROBLEMS
WITH POTENTIAL INVESTORS.
• THERE IS NORMALLY A FINANCIAL RELATIONSHIP WITH
CENTRAL GOVERNMENT. A COMPLEX FRAMEWORK THAT
IS INCONSISTENTLY APPLIED AND NORMALLY TO THE
DISADVANTAGE OF THE UTILITY.
• THE MARKETS DO HAVE FUNDS. LONG TERM FUNDS ARE
NORMALLY NOT ENOUGH TO SUSTAIN BOND ISSUES OR
CAPITAL INVESTMENT REQUIREMENTS.
THE FUTURE – POLICY CHOICES
• FIVE DIFFERENT COUNTRY CHARACTERISTICS POINT TO
DIFFERENT POLICY AND REFORM DESIGN
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POST-CONFLICT COUNTRIES
SPARSELY POPULATED COUNTRIES
SMALL COUNTRIES
OIL RICH COUNTRIES
COUNTRIES WITH CRITICAL MASS