National governments are the main providers of financing for infrastructure in Africa, now followed by China. External funding is provided by foreign public funds and development funding bodies in particular. Institutional investors could be mobilized more.

According to the African Development Bank (AfDB), the infrastructure needs of the African continent are between 130 and 170 billion dollars per year [1]. The Infrastructure Consortium for Africa (ICA) reports, for its part, $100.8 billion in infrastructure commitments in 2018 [2]. This amount is, of course, for the first time above the 100 billion mark, up 24% compared to the previous year and 33% compared to the 2015-2017 average. But it remains below the 130 to 170 billion dollars identified by the ADB, suggesting still a financing gap of 30 to 50 billion per year.

Governments, foreign public funds and development banks

National governments are the primary providers of infrastructure funding. According to the ICA report, commitments from African countries increased by 26% in 2018 compared to the average of the previous three years. In absolute terms, African countries are the main source of funding, with 37% of total commitments (or $37.5 billion).

The capacities of the governments are limited by national economic and fiscal constraints, it is essential for them to have recourse to external financing. Thus, the intervention of governments is complemented by the participation of development financing bodies outside the countries, in almost equal shares. The latter are from Europe, America, Arab countries or Asia. China contributes 25% ($25.7 billion), ICA members 20% ($20.2 billion), and the private sector 12% ($11.8 billion).

Countries and regions intervene either directly or through funds: the commitments of the European Commission (EC) amounted for example in 2016 to 1.4 billion US dollars, via the European Development Fund (EDF) for the sub-Saharan African countries it manages, as well as the Development Cooperation Instrument for North African countries. Similarly, France's commitments and disbursements are made through the French Development Agency (AFD), its subsidiary Proparco (dedicated to the private sector) and the French Global Environment Facility (FFEM) .

Bilateral and multilateral institutions, such as the AfDB and the World Bank (via the International Finance Corporation – IFC) also support infrastructure investments, and particularly projects with public-private participation. Since 2009, the AfDB has dedicated 60% of its portfolio to infrastructure projects, and over the period 2010-2016, it has allocated 6 billion dollars for the electrification of Africa. The AfDB has also launched an Energy New Deal to increase access to electricity from the current level of around 25% to almost 100% by 2025.

The Regional Development Banks (RDBs) also provide considerable support for infrastructure development, through the granting of loans. For example, the Development Bank of South Africa (DBSA) disbursed and committed $1.2 billion in 2016, alongside the pooled $924 million committed by the West African Development Bank (BOAD). ), the ECOWAS Bank for Investment and Development (EBID), the Trade and Development Bank (TDB) and the East Africa Development Bank (EADB).

Institutional investors

With approximately $634 billion in assets under management in 2017, African institutional investors represent a significant potential source of funding. According to PricewaterhouseCoopers (PwC) [3], the assets managed by the latter should almost double by 2020, rising to 1,100 billion.

Institutional investors include pension funds, insurers, sovereign wealth funds and Caisses de dépôts. By the nature of their liabilities, made up of intergenerational contractual commitments (for pension funds and insurance companies), public capital (for sovereign wealth funds), or mixed capital (for Caisses de dépôts), these financial entities should be less dependent on the refinancing capacities of the short-term markets and have abundant long-term resources.

But in practice, each of these actors faces their own intrinsic challenges and the environment in which they operate. Investment capacities and strategies are thus highly dependent on the nature of the resources collected, the mechanisms for mobilizing them and the regulatory framework.

Until recently, little effort has been made to understand the risk appetite, regulatory regimes and expected returns of African pension funds. As a result, many projects presented to African pension funds are not eligible from their point of view. To remedy this, it would be a question here of supporting the development of investment assets and recycling alternative assets to better meet the needs of investors.

According to PwC, the assets under management of pension funds in the twelve main African countries in this area are expected to reach around 1 billion dollars in 2020, compared to 293 billion in 2008. Despite the posted growth of economies across the continent, African markets remain fragmented, with 90% of assets under management concentrated in Nigeria, South Africa, Namibia and Botswana. Within these countries, a few large funds also tend to dominate. This is the case of the Government Employees Pension Fund (GEPF) in South Africa which has 124 billion in assets under management, the Government Pension Fund (GIPF) in Namibia with 7.9 billion assets under management and the Botswana Public Service Pension Fund (BPOPF), credited with 2.6 billion.

For Arnaud Floris, Financial Sector Advisor at Making Finance Work for Africa (MFw4), a family of investors emerges in particular as the best suited to this type of long-term financing: the Caisses de depot. “Although financial capacities are, at this stage, ill-suited to financing large-scale infrastructure projects, African funds could assume, within defined risk limits, a role of precursor and seed. To do this, a Caisse de dépôts can invest via a dedicated vehicle or by becoming a long-term lender to the administration. Moreover, by capitalizing on their public nature, they have the potential to assist governmental and local authorities in the ideation, setting up and management of projects, particularly in segments less attractive to private investment such as infrastructure. social. »

There is a need for a strategy to improve local capacities to develop investable assets to finance infrastructure, to assess their creditworthiness and to invest.

The MFW4 (Make Finance Work for Africa) partnership thus proposes certain “catalytic” measures to do this:

– set up training programs to upgrade pension fund managers, local asset managers, investment consultants, government officials and other stakeholders. Weak technical capacities are considered a major obstacle to institutional investments in infrastructure. These training programs must be designed and implemented to enable the development and implementation of prudent and diversified investment strategies;

– proactively encourage the extension of the rating to infrastructure projects and related financial products. Institutional investors need solid documentation of the risks of infrastructure investments as well as credit ratings provided by rating agencies;

– overall, foster the exchange of knowledge and the sharing of experiences between actors in the sector (pension funds, regulators, asset managers, etc.) through working groups and networks of asset managers is key to unlocking institutional capital held by domestic and international investors for the financing of alternative assets in Africa.

The private sector

Infrastructure in Africa is mainly financed by institutions with capital held by foreign governments and their capital comes from national or international development funds or they benefit from sovereign guarantees. This allows them to raise capital on international markets and offer financing at very competitive terms compared to local credit institutions. When they are present in projects, commercial banks intervene in this sector in association with more institutional partners such as donors (bilateral or multilateral organizations such as the World Bank), but also through export financing. They can support public projects, but also public-private partnerships (PPP).

In total, all sectors combined, public-private partnerships represented $66.7 billion between 1990 and 2017, particularly in energy and transport over the most recent period, whereas they had previously been more important for telecoms.