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Infrastructure investment is vital for Africa's growth, but funding remains a
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challenge.
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How can private sector investment in infrastructure unlock the continent's
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sustainable development?
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Let's find out in the Blue Space.
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I'm Voyon Ntui.
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I'm the joint managing director of African Infrastructure Investment Managers.
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My name is Jonathan Muga.
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I look after the infrastructure sector in Standard Bank within CIB.
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Favorite city in Africa?
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Malindi.
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That's in the coast of Kenya, the best beaches.
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It'd have to be Cape Town, although I live there.
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Analog or digital?
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Analog.
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Why analog?
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I'm old school.
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You're old school.
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Welcome back to The Blue Space, brought to you by Standard Bank Corporate and
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Investment Banking.
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I'm Joanne Joseph, and in this episode, we'll explore how private sector
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investment in infrastructure
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can unlock Africa's sustainable development.
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Joining me for this conversation in the Blue Space studio are Jonathan Muga,
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Global Head of Infrastructure at Standard Bank CIB, and Vuyon Toi,
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Co-Managing Director at African Infrastructure Investment Managers.
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Gentlemen, welcome to the Blue Space.
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Lovely to have you with us today.
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Also in this episode, we'll get some perspective from Mike Salawu, Director of
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Infrastructure,
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Cities and Urban Development at the African Development Bank.
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The AFDB is a key infrastructure development partner on the continent,
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and I spoke to Mike earlier to get his view on this topic.
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But Jonathan, I'm going to kick off with you for the moment.
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What does Africa need to do right now to develop the infrastructure needed to drive
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the continent forward?
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Thank you.
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Thank you, Joanne.
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I would say that there are three things that Africa needs to do differently.
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The first one is how they bring projects into the market.
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for investment.
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They need to prioritize projects, plan them well,
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so that they are able to deliver those projects to investors.
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The second thing is the rules of the game need to be clear.
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They need to be clear and predictable.
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What am I talking about?
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It's the regulatory environment, the framework, how they procure projects.
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And lastly, they need to bring a steady
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pipeline of projects because for investors it's important for them to understand that
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they can
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allocate large amounts of capital rather than drip feeding and waiting for projects
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to
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come and some of them don't reach financial growth.
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So in other words they need a number of projects to invest in at the same time.
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Yes.
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All right that's interesting indeed.
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Now from a private capital point of view.
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Some international investors are deterred by perceptions of higher risk in African
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countries.
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Here's what Mike Solowor of the African Development Bank had to say about these
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perceptions.
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Perception of risk is one of the key challenges we are facing in Africa, and we
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pay high premium for that.
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That means perception of the risk, in our perspective, is far away from the reality
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on the ground.
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Because we know the continent, we operate in all the 54 African countries, we know
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the risk in South Africa.
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It's not the same as in Senegal, neither is the risk in Kenya, it's the same as in
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Niger or Morocco.
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So this reality check is very important and quite often we see that people don't
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really go to look at the data
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that are speaking to these things.
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For instance, Moody's Analytic, that's not ADB, it's Moody's.
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They produce a report compiling the data for the last 10 years on the default rate
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on infrastructure-led
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debt on the continent of Africa compared to Europe.
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Latin America and Asia.
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It turns out that Africa has the least default rate on infrastructure-led debt,
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you know, compared to the other continent and which goes counter to what we actually
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listening
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to about the perception of risk.
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But that's a strong data and we believe that we want to be telling those narrative
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more and more to show the data that, you know,
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perception is one thing but in reality is another thing.
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Well, that was Mike Salawu, Director of Infrastructure, Cities and Urban
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Development at the African Development Bank.
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You heard what Mike had to say there.
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What are your thoughts?
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Do you think this is a fair perception of Africa?
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The perception is unfair.
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And indeed, the experience is that default rates on African projects are much lower
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than the...
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global average which speaks to the fact that African projects are less risky than
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their global counterparts.
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However this is a top top level view and if you look down on the ground the truth
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is that
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projects on the continent tend to be a lot more structured from a contractual
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perspective with
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various protections that don't apply to projects around the world.
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I think the The dearth of new projects and the slow pipeline have meant that there's
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been very
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little learning.
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And as a result, the mitigants that applied to projects about 20 years ago
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still persist.
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So what we need is more projects, evolution,
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so that the sort of risk mitigants that include the likes of government
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guarantees, etc.,
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hopefully fall away as there's more learning and experience on projects in the
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continent.
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And that makes a lot of sense.
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Jonathan, many African governments are also expressing a desire to attract
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private capital,
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but of course they lack the necessary regulatory frameworks.
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How does Standard Bank work with African governments to create the kind of policy
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environment that can foster the private investment we so
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need in our infrastructure projects?
06:15:
Yeah, so thanks, Joanne.
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I think it's important to give a little bit of context.
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So until now, most of the projects that have been done in the continent
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have been done by government sovereigns on their own balance sheet, which means
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they've borrowed and executed.
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Now, with some of the challenges that governments have with the high debt
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burden,
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what's happened is they have to look for other ways to do projects.
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And this is where new regulatory frameworks, for example, the PPP
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framework,
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becomes important, where you can attract capital from the private sector.
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However, the reality is that they're still in their nascent stages.
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And what we at Standard Bank are doing is, one, we are engaging with the public
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sector.
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We've got specialists within the bank who focus on engaging with sovereigns to
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understand what their
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priorities are and where we can support with capacity building.
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Sometimes we do workshops for them.
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And other institutions, other...
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like development finance institutions, multilaterals, also play their role in
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building capacity.
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But lastly,
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one way to attract more private capital is to do
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pathfinder projects.
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Identify a couple of projects,
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seed them through the cycle all the way to financial growth so that the sovereigns
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can build the muscle.
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And then on, you can then build more and more programs.
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which provides a steady pipeline that I was talking about earlier.
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Right.
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Well, as a development finance institution, the African Development Bank
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takes a different approach.
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Earlier, I asked Mike Solowu how the AFDB seeks to attract private partners.
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Here are his comments.
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What we're trying to do is to de-risk projects.
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But it's very important that we de-risk projects so that we can affect funding.
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So what we do is early stage, where nobody wants to actually intervene, because you
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have a project concept.
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It's too risky, you don't know what it is.
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So we can put some early risk capital on those projects, what we call project
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preparation capital,
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to de-risk the project, bring them to bankability, and then after that, be able
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to allocate the risk to the best parties,
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you know, able to manage those risks, and then have the mitigation, you know, the
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guarantee here and there, to actually manage those risks.
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So that's the way we look at it, so that we can de-risk those projects to attract
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private sector investment.
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And we believe that this is very important.
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So if you do that, showing the data, we believe that we can change the narrative
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on the perception of risk
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because it's costing too much for African countries to attract the private sector.
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But we are seeing a change in that perception due to the fact that data is
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actually showing something different.
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Okay, some very interesting comments there taking the conversation forward, Vuyo.
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And we know that public-private partnerships are often cited as a kind of
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key mechanism.
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for financing infrastructure in Africa.
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But what does it take for PPPs to succeed within the African context?
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I think what's required is the same for PPPs throughout the world, and that's
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contractual compliance.
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PPPs aren't a panacea.
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They are a mechanism whereby government can undertake very large CapEx projects on
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an
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off-balance sheet basis, i.e.
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government doesn't have to pay for the actual.
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construction of the project.
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But beyond that, what has to happen is government needs to stick to its
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obligations in terms of
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paying where government is required to pay,
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or enabling end users to pay for the project so that investors such as
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ourselves are
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protected.
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So in a sense, I think contractual compliance,
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a regulatory framework that's understandable and predictable is required
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in order to
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Get the flywheel on PPPs going and...
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Furthermore, I think something that
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I've highlighted alongside Jonathan is the fact that we need to get lots more
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projects going.
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Lots more projects going, contractual compliance leads to an environment where
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there's a great deal of
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partnership between governments and the private sector more generally.
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Well, the AFDB's 10-year strategy is pinned to what it calls the high fives,
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which are to light up and power Africa, feed Africa.
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industrialize Africa, integrate Africa and improve the quality of life for the people
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of Africa.
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Well, how do we make sure that the projects in which we invest create a
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positive social and environmental impact?
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Thanks for that Joanne.
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I'll first of all start with government and the license they have as the
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initiators of these PPP projects
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in setting the requirements for social and and economic development around the
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projects that they initiate.
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I think in the case of South Africa, for instance, an example is the renewable
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energy process,
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where a number of social and economic development requirements were established
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around the projects that
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were initiated.
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And as a result of that, there were multiple initiatives with millions of
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rands being spent on these
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social initiatives.
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I do think as well, when you do get a flywheel of projects happening, what you
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do is you attract the best of breed.
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investment managers and project developers.
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And as a result of that, you know, these entities tend to have kind of world-class
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social and economic
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development measures for themselves beyond government requirements.
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And as a result, you tend to find projects that positively affect the communities in
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which they're located.
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Any closing thoughts from you, Jonathan?
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Yeah, thanks, Joanne.
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I think...
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The continent finds itself in a very unique phase of development.
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Because of the infrastructure gap and underinvestment,
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anything that the continent does, particularly if it's integrated with the
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community,
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is going to improve the livelihoods of its people.
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And the social impact is going to be very significant.
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And if you look at that alongside protecting our environment, it's gonna be
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giving a livelihood and a sustained economic development for the continent.
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Well, plenty to talk about as always, but we'll leave it there for today.
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Our thanks again to Jonathan Muga, Global Head of Infrastructure at Standard Bank
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CIB, Vuion Toi,
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Co-Managing Director at African Infrastructure Investment Managers, and
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Mike Salawu, Director of Infrastructure,
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Cities and Urban Development at the African Development Bank.
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Gentlemen, thank you so much for sharing your insights today.
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Great talking to you.
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And from me, Joanne Joseph, and the rest of the Blue Space team, that's all for
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now.
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Take care.
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Bye-bye.
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Visit www.standardbank.com forward slash Blue Space to find out more about the Blue
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Space.
