RAISING CAPITAL FOR AFRICA AND
INFRASTRUCTURE PROJECTS
BY
DR. K. MLAMBO
DEPUTY GOVERNOR
RESERVE BANK OF ZIMBABWE
BACKGROUND
o Africa has a huge infrastructure deficit:
 In terms of supply and access, Africa lags behind
other regions
 Ellen Johnson Sirleaf has noted that on match
day, the Cowboys Stadium in Texas uses more
electricity than Liberia
o The little available infrastructure is expensive
 Moving freight by road in Africa costs $0.05-$0.13
per tonne-kilometer in Africa.
 Elsewhere in developing regions: $0.01-$0.04 per
tonne-kilometer.
BACKGROUND
o Yet infrastructure matters for sustained economic
growth and poverty reduction
 World Bank: if African infrastructure catches up with
that of Mauritius, per capita growth in 2013 would
have been 3.7% instead of 1.5% recorded
 Catching up with the level of infrastructure in Korea
would have meant per capita growth of 4.1%
o Investment in infrastructure is thus key to
unlocking Africa’s growth potential.
But finance for African infrastructure remains
inadequate
Total $93 Billion
nfrastructure
Funding Requirements
$48 Billion
$30 Billion
$15 Billion
Funding Gap
African
Governments
ODA+ Private
Sector
$20 Billion for Operations &
Maintenance
$10 Billion for new
Infrastructure
BACKGROUND
o For
Zimbabwe, World Bank puts the
infrastructure funding needs at US$33 billion
over two decades:
 Electricity – US$11.3 billion
 Transport – US$13.39 billion
 Water – US$1.81 billion
 Telecom – US$6.75 billion
Closing the Funding Gap
o How should this financing gap be closed?
Remove/reduce
inefficiencies in the use of
existing infrastructure
 Estimated that on average about US$17 billion is
lost each year due to inefficiencies, such lack of
rehabilitation, poor budget execution, etc
 Improving efficiencies would reduce the financing
gap to US$31 billion a year (still substantial)
o Countries such as Zimbabwe rely on fiscal
financing
o But capital budgets insufficient to meet
infrastructure deficiencies in the region
o Need to search for alternative/innovative ways
of funding infrastructure
ALTERNATIVE SOURCES OF INFRASTRUCTURE
FINANCING
Domestic borrowing
International borrowing
Enhancing the role of the Private Sector
Sovereign wealth funds
Diaspora financing
Engaging the new development partners
Domestic Borrowing
o Financing
infrastructure development through
domestic borrowing: e.g. local infrastructure bonds
o e.g. Kenya raised about US$1.6 billion (KSH 141bn)
through domestic bond issues, from 2009 to
September 2013.
Opportunities
 No foreign currency risk;
 Improves intermediation of savings; and
 Facilitate monetary policy implementation.
Challenges
o Crowds out private sector; and
o High interest rates.
Accessing Global Capital Markets
o Due
to
improved
macroeconomic
conditions, low interest rates in developed
economies, African countries accessing
international sovereign bond markets
o Examples:
 Ghana issued bonds worth US$750 million in
2007;
 Senegal issued bonds in 2009 and 2011 worth
US$200 million and US$500 million;
 Zambia issued bonds worth US$750 million in
2012; and
 Kenya raised US$2 billion in June 2014.
Accessing International Markets cont’d
 Issuance reflects Africa’s high return potential, owing to
its
natural
resource
wealth
and
improved
macroeconomic policies and development prospects.
 Helps in benchmarks pricing of corporate bonds in
international markets
 Strengthens
macroeconomic discipline, transparency
and structural reforms
 Provides access to long-term funding to help finance
infrastructure
 Lowers debt servicing costs
PRIVATE SECTOR FINANCING
o Specialized
infrastructure or private equity
funds - funds created by established infrastructure
firms, including upstream industries that invest in
various infrastructure projects.
o According to EY, in 2013, about US$3.2 billion was
invested in 98 private equity investments in Africa.
o But SSA still lags behind other regions in attracting
significant amounts of private equity investments
o Also average size of transactions small—between
US$30million- $60 million
PRIVATE SECTOR FINANCING
Advantages
o Removes burden from the fiscus; and
o Efficient allocation of resources;
Challenges
o High financing costs; and
o Difficulties in pricing some public goods
e.g. toll fees.
Securitization of natural resources
o Natural resources lend themselves easily
to securitization
o Growing trend by Investors and new
donors to adopt this form of financing
 Chinese investments in:
 Angola, Nigeria, and Sudan are backed by oil;
 Gabon backed by iron;
 Ghana backed by cocoa; and
 Democratic Republic of Congo backed by copper.
o Note:
 critical for Governments to negotiate equitable
deals that correctly value the resources assigned.
 Otherwise, risk of mortgaging minerals at highly
discounted levels
Sovereign Wealth Funds (SWF)
o SWF represent a large and growing pool of savings,
esp. in NR rich countries
 Globally, SWF control about US$30 trillion
o Africa experiencing the strongest growth in SWFs
 Some of the countries with SWF include Algeria
($77bn); Libya ($65bn); Botswana ($6.9bn); Angola
($5bn); Nigeria ($1bn); Gabon ($380m); Mauritania
($300m); Ghana ($100m) and Eq. Guinea ($80m)
 Potential for more to be set up as countries in east and
west Africa continue to make oil&gas discoveries
o Asset allocation shifting towards long-term
investments to close the infrastructure gap
Sovereign Wealth Funds (SWF)
o SWFs from other regions also beginning to
invest in Africa
e.g. the Investment Corporation of Dubai recently
invested $300m in Nigerian based Dangote
Group focus will be on agriculture and
infrastructure
o But challenges remain
 The funds are relatively small (the Norwegian SWF is
$900 billion).
 Governance issues, esp. regarding transparency and
accountability in the admin of the fund.
 Not all countries can set SWF—need excess forex
reserves
Securitizing Diaspora Remittances
o Africa has a large growing diaspora, estimated at
over 140 million by the AfDB
o Remittances by Africans to their home countries
exceed ODA flows
In 2012 total remittances to Africa stood at US$60
billion
ODA to SSA amounted to US$44.6 billion
o According to the WB, Africa could potentially raise
US$17 billion annually from securitization of future
export flows and remittance
Diaspora as catalyst to develop and deepen
local capital markets
 Zimbabwe has a large diaspora population living and
working in countries such as South Africa, UK,
Australia, and USA, among others.
 Diaspora remittances have become a major source of
foreign inflows, amounting to US$750 million in 2013.
 To improve the investment instruments available to
the diaspora, all non-resident Zimbabweans are now
permitted to invest in any listed counter on the
Zimbabwe Stock Exchange, without any limit (i.e. up
to 100%).
Engaging new development partners
o New development partners, such as China, India and Brazil
increasingly playing a prominent role in the global economy
o Chinese investments to Africa increased from $317m in
2004 to $2.5bn in 2012
 But only 4.3% of its global total—potential to grow
 Only 5 countries dominate Chinese investment in Africa—
South Africa, Zambia, Nigeria, Algeria, and Angola.
o Brazil and India also expanding their reach into Africa:
emphasize shared colonial legacy, shared identity (Brazil)
and longer history on the continent
CONCLUSION
o To attract additional financing:
o African countries must institute sound economic
policies to attract investors
o Policies that facilitates development and deepening
of capital markets to attract long term capital
o Strengthens governance systems and capacity
building in contract negotiation; and
o Addresses adverse factors which increase country
risk profile.