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Addressing Africa’s infrastructure deficit

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The challenge of how to address Africa’s massive $100-billion annual infrastructure deficit is a step closer to being met, following a three-year project by the World Economic Forum aimed at promoting public-private co-operation and identifying solutions to the bottlenecks that cause large infrastructure projects in the region to fail.
The Forum, led Africa Strategic Infrastructure Initiative (ASII), was launched in 2012 and has consisted of two phases:

* Phase 1 – fostering public-private collaboration
A methodology was developed to identify projects that were suitable for public-private collaboration and acceleration. Out of 51 individual programmes already earmarked under the African Union Commission’s Programme for Infrastructure Development in Africa (PIDA), three potential pilot programmes were selected: West Africa Hub, Rail and Port, Beira Nacala Corridor and the Central Corridor. At the outset of 2014, heads of state and business agreed to accelerate the Central Corridor in East Africa as a pilot project, due to its potential for opening up landlocked countries and supporting secondary markets in the region.

* Phase 2 – pilot acceleration
This was initiated in June 2014 with the Central Corridor, an integrated multimodal transport programme (port, rail and road) spanning Tanzania, Burundi, Rwanda, Uganda and the Democratic Republic of Congo (DRC). With an estimated US$18 billion investment requirement, acceleration work initially focused on the quality and quantity of data, aligning stakeholders, championing transparency and improving planning principles. With these barriers reduced, work has progressed to the stage where 23 cornerstone prioritised Phase 1 projects among the 121 sub-projects have undergone an independent technical review and showcased at a market sounding – valued at $9,7-billion.

“The work that has been achieved since 2012 not only demonstrates that it is possible for the public and private sectors to cooperate effectively on large-scale infrastructure projects in Africa, it also proves that there is strong interest among financial investors to participate in programmes such as the Central Corridor. With interest rates remaining at historic lows, we now have a window in which to turn this interest into action,” says Alex Wong, head of Global Strategic Infrastructure Initiative, World Economic Forum.

Apart from project prioritization and acceleration, the initiative has continued to develop innovative ideas and informative publications that support the delivery of African infrastructure. There is a paradox within infrastructure financing: while there is plenty of private-sector interest in financing bankable projects, the available project-preparation resources are insufficient to advance the projects to a bankable state.

This means the pipeline of well-prepared projects is meagre, and investment opportunities are limited. A new report called A Principled Approach to Project Preparation, prepared in collaboration with The Boston Consulting Group (BCG) and launched today, outlines a new approach to Infrastructure Project Preparation Facility (IPPF). It involves enhancing private-public collaboration during the earlier stages of projects, and designing them for effective and sustainable operation.

“Early-stage project preparation and financing has been a perennial problem with African infrastructure projects, with the private sector understandably wary of contributing financially during early stages. However, we are confident that with a well-designed IPPF, we can now offer investors a reassuring vehicle that will enable us to bring them on board as early as possible,” says Patrick Dlamini, chief executive and MD of the Development Bank of Southern Africa and co-chair of the Africa Strategic Infrastructure Initiative (ASII).

There is no one-size-fits-all design. Dr Philipp Gerbert, a senior partner of The Boston Consulting Group and adviser on the report, explains: “IPPFs vary in their underlying circumstances and strategic objectives, so their design has to vary too. There is a range of choices to be made when structuring an IPPF – the sector and project focus, the approach to recover project-preparation expenses, and the governance structure, to mention just a few. Note too that some IPPFs will want to involve the private sector, not just for its financing but for its expertise as well; and appropriate mechanisms, such as a technical board, need to be put in place.”

With Phase 2 at its conclusion, the World Economic Forum will be handing the initiative over to the NEPAD Agency on 3 June 2015. NEPAD will continue the work and replicate the acceleration for further pilots, using the tools and processes created over the past years, and adapting and enhancing them as they systematically progress through the remaining PIDA programmes. The Forum will continue its contribution by facilitating public-private collaboration on infrastructure, with particular focus on sustainable development and financing.