Capacity building to bridge the infrastructure funding gap in Africa

According to the Africa Development Bank, Africa’s infrastructure requirements range between USD 130 and USD 170 billion with an infrastructure funding gap of USD 68 to USD 108 billion ^[1].

These figures demonstrate the critical need to provide essential infrastructure to local people to ensure long-term economic growth. McKinsey and Company found that many African countries lag in the delivery of key infrastructure sectors including renewable energy, road and rail transportation, affordable housing and water infrastructure – with 80 percent of infrastructure projects failing at the feasibility and planning stages ^[2]. At the core of this issue is the lack of technical capabilities, skills gaps in risk allocation and limited financial resources dedicated to feasibility studies and business plans to ensure the successful design and implementation of infrastructure projects with commercial potential.

GuarantCo, part of the Private Infrastructure Development Group (PIDG), recognises the need for capacity building among local banks, institutional investors and governments to create a better understanding and create confidence to engage in long-term, local currency credit solutions to support the financing for sustainable infrastructure projects.

Over the years, GuarantCo has successfully organised capacity building workshops throughout Africa, mainly supported by PIDG Technical Assistance funding.

In June 2019, GuarantCo organised a project and corporate infrastructure financing workshop in Cameroon and in February 2020 a capacity building workshop in Côte d’Ivoire. The main objectives of the workshops were to raise awareness of the variety of approaches that can be adopted in project financing transactions across different industrial sectors, the use of credit enhancement instruments to mitigate project risk, and to promote local currency infrastructure financing credit solutions.

In November 2021, GuarantCo organised workshops in Malawi and Tanzania. The Malawi capacity workshop, held in partnership with Old Mutual Investment Group, enhanced market capacity and knowledge on project finance supporting affordable housing and capital market transactions. The sessions covered a range of themes from evaluating public-private partnerships to assessing investment risks.

The workshop on infrastructure project finance structuring in Tanzania trained participants from various financial institutions including Stanbic Bank, Ecobank, NMB and CRDB to which GuarantCo provided a 50 million TZS equivalent guarantee in 2020.

Malawi and Tanzania, both OECD DAC I countries have huge infrastructure funding gaps. In Tanzania, the Government has sought to address this gap by mobilising domestic revenue and utilising PPPs for large infrastructure projects to limit government borrowing. One way to address this gap is by increasing the number of bankable infrastructure projects in the country. Additionally, local financial institutions should be well equipped with knowledge on how to structure a project finance facility.

GuarantCo believes that capacity building workshops can play an essential role in strengthening the understanding of local financial institutions on how to assess an infrastructure project finance transaction which will in turn increase private sector involvement in infrastructure financing and help to minimise the infrastructure financing gap in the continent.

Jules Samain – Managing Director Africa, GuarantCo:

“Our philosophy is to build capacity, create impact, and build partnerships. The capacity building workshops have been important for the countries and for the wider region. Workshops like this are important for the market, to help key local actors understand what project finance means as far as infrastructure is concerned, how to structure project finance, what sort of risks you need to raise, and how you can mitigate those. The regulation in the market prevents banks from financing infrastructure because there are challenges such as regulatory constraints and liquidity mismatch which means banks are not able to finance infrastructure projects. GuarantCo is there to provide the instruments needed to enable the banks to participate in those projects.”

Edith Jiya – Group CEO, Old Mutual Malawi:

“As a leading asset manager in Malawi, this workshop was very important to Old Mutual Investment Group as it was one way of capacitating our own team as well as other market players managers in Malawi – asset managers, pension fund trustees, and other people that have portfolio mandates on behalf of clients. The workshop helped them understand issues around project financing, how PPPs work and how they can package and perfect such opportunities for the benefit of their clients.”

Andrew Mbunda, Principal Relationship Manager at CRDB Bank:

“It is not very common for commercial banks in Tanzania to finance infrastructure projects as this is usually supported by the public sector and the government.  CRDB Bank PLC has taken a lead in supporting major infrastructure projects including a country mega hydropower project, airports as well as a good number of social infrastructure. The capacity building workshop that GuarantCo organised has brought much awareness of how we can focus on bankability of infrastructure projects, improve the structuring, manage our appraisal to onboard infrastructure projects, key risks involved and how we can harmonise the financial resources from domestic and international markets.”

^[1] https://www.afdb.org/en/documents/document/african-economic-outlook-aoe-2018-99877
^[2] https://www.mckinsey.com/our-insights/…solving-africas-infrastructure-paradox