Innovative Financing for Developing African Infrastructure
In Africa, closing the infrastructure gap needs to be a priority. Sensible funding solutions need to be suggested as further irresponsible debt creation would be a disaster for the African people. Africa needs to reach a state of strong and sustainable infrastructural growth to keep up with its international counterparts – much of this growth will rely primarily on innovative financing.
Based on research conducted by the Africa Infrastructure Country Diagnostic in 2008, infrastructure within the country requires a spending of a total of $93 billion a year, while only $45 billion of that is effectively financed. Public sector investments are primarily in water and sanitation and transport whilst private sector investments cover a larger area. Together, they form the overall investment in African infrastructure.
Establishment of Public-Private Partnerships
Countries within Africa can benefit by following the well-set example of Kenya and Senegal – both countries having succeeded in establishing successful public-private partnerships (PPP’s) within their Ministries of Finance. It is highly beneficial to African countries to implement these partnerships, as they are able to ease budget constraints and offer leverage to private-sector investors.
Long-Term Infrastructure Bonds
The importance of long-term bonds which fund infrastructural projects should not be over looked as the benefits are clear by looking at Kenya’s issuing of these bonds during the global financial crisis with the successful use of certain incentives (for the development of roads, water, etc.). For countries within Africa with developed domestic bond markets, this example paves the way for others to follow – also encouraging private and state-owned companies to issue corporate bonds. For investors, a subscription to infrastructure bonds is determined by returns. That is why, for example, you might see China putting money into a bond issued by a resource-rich country like Nigeria or Sierra Leone.
The Private Sector
Although the private sector is becoming exponentially important to infrastructural development within African countries, it is limited in terms of what it can do without the public sector. This is usually the case with certain infrastructure projects that do not give much in the way of financial returns, but have high social returns. The funding for the costs associated with these type of projects can normally be partially recovered through raising taxes but this does not always offer a sustainable solution.
New tactics need to be employed when looking at financing for African business. Companies like Trico Capital are an example of a new breed of African companies who are focused on sustainable and intelligent financing and they have spear headed some interesting private public partnerships. Austin Ometoruwa who is the Executive Chairman says he has “a key philosophy which is centred on a core belief in the effectiveness and sustainability of the private sector as representing the best way to eradicate poverty and achieve prosperity in Africa, principally through rapid development of Africa's infrastructure, industrial and financing capacity by leveraging its natural resources and people.”
The economic environment in Africa can be improved with a well-regulated, effectively-functioning financial system in place. Africa can benefit on an infrastructural level if sensible, innovative action is taken now. Ideally, focus should be on making infrastructure improvements on the continent, without adding to the already-mounting debt that the continent faces. This funding for major infrastructural projects across Africa should ideally come from private investors with money already on the continent or from money repatriated by Africans abroad.