Infrastructure financing in Africa: NEPAD unveils 5% Agenda campaign for the international community

September 19, 2017: Bridging the gap in Africa’s infrastructure financing which is pegged at $68 billion, the New Partnership for Africa’s Development (NEPAD) - African Union’s economic development programme has launched the 5 percent Agenda campaign globally. On September 18, 2017, the programme was rolled out from NASDAQ Stock Market has seen participation from international investors and CEO-level business leaders.

In January 2012, the African Union Summit adopted the Programme for Infrastructure Development in Africa (PIDA) which had set 51 cross-border infrastructure programmes and more than 400 actionable projects in four sectors.

According to the World Bank, the continent needs to spend $93 billion annually (44 percent for energy; 23 percent for water and sanitation; 20 percent for transport; 10 percent for ICTs; and 3 percent for irrigation) until 2020 to bridge its infrastructure gap, which is currently estimated to be 2 percent of GDP growth every year. On the other hand, Africa only managed to close 158 project finance deals with debt totalling to $59 billion from 2004-2013, which represented only 5 percent of the required funding and 12 percent of the actual financial flows.

The 5 percent Agenda campaign highlights the fact that, a collaborative public-private approach only can efficiently tackle these issues and invites more institutional investors to African infrastructure.

Speaking at the launch event in New York, Ibrahim Assane Mayaki, NEPAD, CEO said, “Infrastructure plays a crucial role in supporting the Continent’s growth. At the same time, it can represent an innovative and attractive asset class for institutional investors with long-term liabilities. By launching the 5 percent campaign in New York, we invite investors to take advantage of the wide-ranging opportunities Africa has to offer and to move forward with what can only be a win-win partnership”.

The launch of the campaign gathered high-level international investors and business leaders, including members of the PIDA Continental Business Network (CBN) which is spearheaded by NEPAD and constitutes a CEO-level private sector infrastructure leaders dialogue platform on PIDA.

Tony O Elumelu, one of Africa’s most prominent entrepreneurs and active participant in the CBN pointed out’ “Africa is getting stronger every day with new business opportunities and innovative ideas but what is still crucially missing is project implementation. A coherent and coordinated approach is needed to mobilise institutional investors while limiting their risk exposure. African governments need to work on creating conducive environments to attract these investments which are so vital for the continent's growth and development.”

According to a 2016 McKinsey report, institutional investors and banks have $120 trillion in assets that could partially support infrastructure projects and Africa needs to tap into this. As banks face additional regulatory challenges and governments have limited fiscal support, it is becoming increasingly necessary to unlock additional flows from long-term institutional investors such as insurers, pension funds, and sovereign wealth funds.

For long-term investments of pension and sovereign wealth funds in large-scale infrastructure projects in Africa, there is a need to address a variety of issues. It is crucial to reform national and regional regulatory frameworks that guide institutional investment in Africa. Additionally, new capital market products need to be developed that can effectively de-risk credit and hence, allow these African asset owners to allocate finance to African infrastructure as an investable asset class to their portfolio.