FIDIC 2009 London Conference: Fola Adeola

FIDIC 2009 London Conference :: 13 – 16 September
Fola Adeola
FUTURE OF INFRASTRUCTURE
FINANCING
INFRASTRUCTURE FOR AFRICAN DEVELOPMENT
FIDIC 2009 London Conference :: 13 – 16 September
Agenda
■ Africa’s Infrastructure Challenge and Financing
Needs
■ Sources of Infrastructure Financing
■ Getting Involved: Role of Consulting Engineers
FIDIC 2009 London Conference :: 13 – 16 September
Africa’s Infrastructure Challenge and Financing Needs
There is abundant need for infrastructure on the continent
■ In many regions, farmers lose half their produce due
to inadequate post-harvest storage
■ In Uganda, transport costs add the equivalent of an
80% tax on clothing exports
■ In many areas, women and girls walk 6km to collect
water
■ 7% of slum dwellers have access to sewerage leading
to economic costs in health and work hours
■ Issues of transportation, electricity, water, energy,
sanitation etc.
Source: Commission For Africa. 2005. “Our Common Interest: Report of the Commission For Africa”
FIDIC 2009 London Conference :: 13 – 16 September
Map of the World at Night
FIDIC 2009 London Conference :: 13 – 16 September
Africa’s Infrastructure Challenge and Financing Needs
Infrastructure is desirable for economic growth and development
■
It lowers cost of production and significantly increases industrial
productivity
y Adequate transportation, water and energy facilities may enhance
activities in key productive sectors
y Rural electrification can stimulate the rural economy
■
It can facilitate post-conflict reconstruction
■
It provides access to data (such as prices) and markets
■
It is fundamental for provision of health and education services
■
It can be an untapped potential for the creation of productive
employment
■
It can facilitate regional integration and cooperation
Source: Commission For Africa. 2005. “Our Common Interest: Report of the Commission For Africa”
FIDIC 2009 London Conference :: 13 – 16 September
Africa’s Infrastructure Challenge and Financing Needs
Increasing the stock of infrastructure by 1% could add
1% to the level of GDP
Below are Sample pair wise correlations between
infrastructure variables and GDP*
GDP
GDP
Education
Telecoms
Electricity
Roads
Water
1
0.63
0.93
0.98
0.58
0.51
*Policy Research Working Paper, World Bank East Asia Pacific Sustainable Development Department
Operations and Policy Division April 2008
FIDIC 2009 London Conference :: 13 – 16 September
Africa’s Infrastructure Challenge and Financing Needs
Africa needs an additional US$20 billion a year investment in
infrastructure between now and 2015
■ Additional investment could lead to creation of
■
■
■
■
■
■
■
15 million electricity connections
150,000km of roads
3,000km of railway
Water supply and sanitation services for 75m people
60 million telephone connections
Major expansion of irrigation – increasing the proportion of
arable land that is irrigated by 50%
Upgrade slums
Question of the day: Where will this money come from?
Source: Commission For Africa. 2005. “Our Common Interest: Report of the Commission For Africa”
FIDIC 2009 London Conference :: 13 – 16 September
Sources of Infrastructure Financing
Overseas Development Assistance
• Official development assistance currently remains an important source
of financing
• Yet aid fatigue is a real threat to this assistance
Domestic Savings
• Low domestic savings which severely constrains infrastructure
development
• Increased government borrowing crowding out private credit
Private Investments
• Increased reliance on private sector as source of financing through
public private partnerships
• Syndicated bank loans and institutional investors on the rise
FIDIC 2009 London Conference :: 13 – 16 September
Sources of Infrastructure Financing
Syndicated lending represents an increasingly
important source of private financing
Characteristics of syndicated loan transactions for infrastructure sectors in 2006
Borrower /
Country of
Domicile
Sector
Amount
(US$m)
Maturity
Bank Participation: Local vs.
non local
Safaricom,
Kenya
Telecoms
165.1
5 years
4 local, 1 South African and 4
developed country banks
UNICEM,
Nigeria
Power Plant
210.6
4-, 7- & 9years
8 local, 1 U.S. Bank and Ecobank
BGT
Transport
(shipping)
680
12 years
12 major developed country banks
Iberafrica
Power, Kenya
Electrical
Utility
16.8
5 years
1 local, 2 African, and 2 UK banks
Irving, Jacqueline, and Manroth, Astrid. 2009. “Local Sources of Financing for Infrastructure in Africa.”
Policy Research Working Paper 4878, Washington, D.C., World Bank
FIDIC 2009 London Conference :: 13 – 16 September
Sources of Infrastructure Financing
Case Study: Lekki Concession Company (LCC) Lagos, Nigeria
■
ARM (Toll systems Company Ltd) was granted a mandate by the Lagos State
Government to develop and toll roads/bridges along 5 key land corridors on a Build –
Operate – Transfer basis (BOT) and a Rehabilitate – Operate – Transfer basis (ROT)
■
The Lekki Concession Company was incorporated for implementation of the 1st phase of
the project – a 30-year concession to build, finance and operate the Lekki-Epe
Expressway
Sector / Transaction
Toll Road Public Private Partnership
Scope
Upgrade and create new road infrastructure along the first 49.5km of Lekki-Epe
Expressway
Transaction size
N39 billion (US$300m)
Concession Period
30 years (36-42 months of construction)
Financing
Equity (35%) Debt (65%)
Toll
Concessionaire will collect tolls and charges on the concession roads to recoup cost of
investments
ARM’s Role
Sponsor, Promoter, Financial Adviser and Arranger
Source: ARM
FIDIC 2009 London Conference :: 13 – 16 September
Sources of Infrastructure Financing
Limitation of private sector financing
Pros
Access to
private
funding
Access to
skills and
expertise
Cons
Insufficient
capacity to
fund more
than 25% of
infrastructure
needs
Source: Commission For Africa. 2005. “Our Common Interest: Report of the Commission For Africa”
FIDIC 2009 London Conference :: 13 – 16 September
Getting Involved: Role of Consulting Engineers
How can consulting engineers get involved?
■ Lobbying and advocacy
■ Engage in public private partnerships
■ Become a knowledge broker
FIDIC 2009 London Conference :: 13 – 16 September
Getting Involved: Role of Consulting Engineers
Consultants have potential to act as knowledge brokers for
infrastructure development. Knowledge brokers:
■ Produce innovative solutions to novel problems by
combining existing technologies in new ways:
■
■
■
The steam engine and sailing ship combined to change global
commerce
The milling machine and computer to change manufacturing
Electronic, crystal and optics technologies merged to create
the electronic industry
■ Have a better vantage point on the technologies and
opportunities of a wider range of industries
Source: Hargadon, Andrew B. “Firms as Knowledge Brokers: Lessons in Pursuing Continuous
Innovation,” California Management Review, 40/3 (Spring 1998)
FIDIC 2009 London Conference :: 13 – 16 September
Getting Involved: Role of Consulting Engineers
Ability to innovate is a competitive advantage that can
attract financing
Activities Underlying Innovation by Knowledge Brokers
Activity
Implications
Access
“Explore new territory”
• Ability to access valuable knowledge from a wide range of industries
and broker it from where it is known to where it is not
Learning
“Learn something about
everything”
• Creating a knowledge warehouse; storing solutions to an industry’s
existing problems for use at later time
Linking
“Find hidden
connections”
• Ability to identify similarity of problems facing different industries and
combine solutions from different sectors
Implementation
“Make the damn thing
work”
• Turn innovative concepts from outside industries into real products for a
particular industry
• Build knowledge base for use in later projects
Source: Hargadon, Andrew B. “Firms as Knowledge Brokers: Lessons in Pursuing Continuous
Innovation,” California Management Review, 40/3 (Spring 1998)
FIDIC 2009 London Conference :: 13 – 16 September
Getting Involved: Role of Consulting Engineers
How do you access funding?
■ Commission for Africa recommends ODA of US$10bn from
2005 and 2010 and a further increase to US$20bn from
2010 to 2015 to target:
■
■
■
Infrastructure development
Operations and maintenance cost
Local capacity building
■ Funding will also support increased private sector
participation through PPP facilities:
■
■
■
Public Private Infrastructure Advisory Facility
IFC’s Private Infrastructure Development Group
NEPAD’s Infrastructure Project Preparation Facility
Source: Commission For Africa. 2005. “Our Common Interest: Report of the Commission For Africa”
FIDIC 2009 London Conference :: 13 – 16 September
Getting Involved: Role of Consulting Engineers
In conclusion, invest in innovations and engage in new
partnerships to promote infrastructure development in Africa