While infrastructure projects are mushrooming across the continent – brought to life by public-private partnerships in many cases – certain issues need to be addressed so more funds become available.
The fall in commodity prices and slowdown in economic growth in Africa have put pressure on both government and international private sector financing. After steadily increasing direct investment in Africa since 2000, Chinese entities have sharply reduced the number of new projects since 2013. In addition, commercial banks have withdrawn funding due to worries about the Africa growth outlook and Basel III requirements. Government finances are constrained and rising bond yields have pushed up Africa’s borrowing costs significantly since 2014.
Private-public partnerships gaining traction
Africa still requires at least $93bn in infrastructure investment per annum, with an estimated infrastructure funding gap of some $31bn a year. We believe it is an ideal opportunity for private-public partnerships (PPPs) to provide long-term funding for African infrastructure. This should boost long-term potential growth on the continent.
We are starting to see PPPs gaining traction. Investec Asset Management manages the $670m Emerging Africa Infrastructure Fund (EAIF). EAIF is currently funding 42 projects across Africa, all of which are run by the private sector. The bulk of them rely on off take agreements from the public sector.
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