July 29, 2015 was a historic day in the history of the African Development Bank (AfDB). Sitting in Casablanca, Morocco, Africa50, a new organ of the bank, held its Constitutive General Assembly where 20 African founding countries subscribed for an initial aggregate amount of $830 million in share capital. Africa50 is the new and innovative infrastructure investment platform promoted by the AfDB, focusing on high-impact national and regional projects in the energy, transport, ICT and water sectors.
Despite being independent, Africa50 will retain the benefits (political support, development focus) of being associated with AfDB and other African governments but from an operational perspective, it will be commercially managed with streamlined structure aiming at providing profit for its investors. Africa50 is currently raising its capital base by enlisting new members, and is expected to reach $3 billion in a period of three years.
Africa50 has been designed by the AfDB to accelerate infrastructure delivery in Africa, thereby helping the continent to unlock its full growth potential. Africa50’s objective is to deliver the support and financial products required to boost project bankability, accelerate financial close, and increase infrastructure delivery. What makes Africa50 different from other initiatives is its holistic nature; Africa50 will cover the entire project lifecycle and combine early stage development work with long-term debt funding. It will intervene through two business lines: Project Development and Project Finance.
The vehicle comes at a critical time when Africa is waking up to develop itself in a bid to catch up with the rest of the world. Africa is today in dire need of $95 billion per annum and at present, only less than half of that amount is being mobilized, leaving a gap of $50 billion per annum according to the AfDB. Africa50 is expected to accelerate the provision of infrastructure projects in Africa by mobilizing African savings and leveraging it with more finance from the private sector.
In an e-mailed interview with the Independent, Alassane Ba, the acting Chief Executive Officer of Africa50, described Africa50 as “the game changer of the infrastructure finance” but that it not replace but only complement AfDB financing. “The financing terms are commercial conditions. A50 will use only financial resources at market conditions because A50 is commercially managed and must be profitable and pay dividends,” he added.
He said A50 would benefit from AfDB’s experience in the creation of financial institutions such as Shelter Afrique, Afreximbank and AfricaRE. “Uganda and all African countries will benefit from the financing of A50, which is driven by commercial opportunities. The projects to finance are selected basing on commercial merits and development impacts,” he added.
He was positive that A50 would be a success as AfDB has accumulated incredible experience and has 25 years’ experience in private sector financing. Over the last 10 years, ADB has ramped up its financing in private sector, which financing can reach up to 40% of AfDB approvals for financing.
Alassane explained that A50 is different from other international lending arms such asThe International Finance Corporation of the World Bank because A50 is dedicated only for infrastructure projects (energy, transports, water and ICT) while IFC is a generalist International Financial Institution providing financing for all sectors. In terms of governance, A50 leans towards private sector governance and decision- making will be short and quick. Africa50 is an infrastructure investment platform designed to significantly narrow the infrastructure finance gap in Africa. The vehicle aims at shortening the time between project idea and financial closure from a current average of seven years to under three years, thereby delivering a critical mass of infrastructure in Africa in the short-to-medium term.
Stephen Kaboyo, who heads Alpha Capital Partners, welcomed the formation of Africa50, which he said would help to mobilize private capital and speed up the implementation of the continent’s large-scale infrastructure projects in productive sectors such as Energy , ICT, Transport and Water.
“Africa as a continent has been struggling to address its infrastructure deficit while at the same time trying to improve poor implementation of these projects and for a long time capital to finance these investments has been mainly from external sources,” said Kaboyo.
Fred Muhumuza, a research analyst with the Financial Sector Deepening programme, was also optimistic, saying A50 would attract resources from those who do not want to put all money in AfDB’s ‘cheap’ lending loans that do not make a good return to institutional investors such as Fund managers (those who invest pension and other foundation monies), who need a higher return. Accordingly, money from Africa 50 will be more expensive than the traditional AfDB money.
“Cost aside, that comes with benefits as countries can get more money for critical big projects from a wider range of funders and also get it more easily as these are more commercial investors who require less bureaucracy. Also, A50 will give the much-needed Technical Assistance in the preparation of projects, which many countries do not have at the moment.