The infrastructure deficit is increasing in many countries in sub-Saharan Africa. A much-needed priority action plan, Programme for Infrastructure Development in Africa, has been developed by the African Union Commission, African Development Bank and the New Partnership for African Development Planning and Coordinating Agency. The priority action plan aims to address the problematic deficit by identifying $68 billion per year of energy and infrastructure investments that should be prioritized through 2020.
However, funding from governments and development finance institutions is not sufficient to finance the level of investment that is required. As a result, a number of these projects will be developed as public-private partnerships, which are able to tap private funds in the form of equity investments made by sponsors and debt issued by international and local lenders.
Bankable public-private partnerships benefit from stable and very long-term (20 to 30+ years) revenue streams. To ensure that these projects are affordable to end-users at the outset, it is essential that project companies can be properly capitalized with the right mix of debt and equity. It is also important that the tenor of the debt financing matches the economic life of the project as closely as possible.
Commercial lenders and development finance institutions have long been the traditional source of project financing in sub-Saharan Africa. Unfortunately, the availability of loans from commercial lenders has been significantly reduced by the financial crisis and the deleveraging of banks that it precipitated, and by regulatory requirements such as Basel III, which make it more expensive and less attractive for banks to issue long-term loans. As a result, the availability of loans for project financed PPPs has been constrained. |