Meeting Africa's Infrastructure Needs Requires New Tools to Prioritize and Attract Private Sector Investment

JOHANNESBURG, SOUTH AFRICA--(Marketwired - May 10, 2013) - Africa is poised to experience tremendous economic growth over the next several years. However, the continent suffers from underdeveloped infrastructure and a large gap between its future needs and available funding. The World Bank estimates that $48 billion per year is needed to fund unfinanced African infrastructure projects. Public infrastructure financing, however, remains under pressure. Since the financial crisis of 2008, and regulations such as Basel III, it has become more difficult for banks to lend -- even as the use of risk mitigation tools such as collateralized debt obligations has been curtailed. Private capital will need to play a larger role in African infrastructure financing.

Institutional investors hold substantial assets under management, for which they are seeking attractive, long-term investment opportunities. Africa provides many such opportunities, but the projects are often too opaque and lack sufficient risk controls to make them attractive to private-sector investors. Those investors will need tools to help them analyze and accelerate worthwhile projects.

A number of such tools are contained in a new report published by the World Economic Forum, in collaboration with The Boston Consulting Group (BCG): Strategic Infrastructure in Africa: A business approach to project acceleration. The report is based on the work of a business working group of 34 companies, multilateral development banks, NGOs, and regional experts and organizations formed in May 2012 to provide the Programme for Infrastructure Development in Africa (PIDA) with private-sector expertise on ways to accelerate and finance infrastructure projects. PIDA was developed by the African Union Commission in partnership with the United Nations Economic Commission for Africa, African Development Bank, and the NEPAD Planning and Coordinating Agency.

A Four-Step Stage Gate Process

The methodology contains a detailed portfolio of analytic tools to be used in four basic steps: unbundling complex programs into individual projects; grouping projects by their potential along three key thresholds (data quality and availability, project environment, and project complexity) to assess the basic project status, using "two-lens clustering" to illustrate candidate readiness and likely value creation and impact, and fine-tuning the shortlist of high-value creation and impact projects on other key considerations, such as public support.

"We have found that one of the main obstacles for private investments in African infrastructure is the lack of well-prepared projects that meet private-investors' needs," said Philipp Gerbert, a BCG senior partner and coauthor of the report. "The tools presented in the report support potential investors in their analysis but more importantly will also help African governments in understanding private-sector thinking."

New African Infrastructure Financing Products

The report, supported by analysis from the African Development Bank, also explains some of the innovations and new products in African project financing, as well as other efforts currently underway to scale up infrastructure delivery in Africa. These include infrastructure bonds raised from the domestic currency markets or international capital markets; overhauling project preparation facilities, which are important for increasing the flow of funds available at the critical early stages of project development; equity, which plays a catalytic role in raising debt finance; and guaranteed products, which can mobilize private-sector financing and facilitate the flow of investments to non-sovereign projects in low-income countries.

"These new products to de-risk African infrastructure projects will play a crucial role in attracting the international private-sector investors needed to meet Africa's infrastructure demand and support economic growth across the continent," said Tenbite Ermias, a BCG partner and coauthor of the report.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Claire Hopkins at +44 207 753 8334 or hopkins.claire@bcg.com.

About The Boston Consulting Group
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