“There has never been a better time for Africa to attract capital investment for good bankable projects from sovereign funds, global pension plans and other available capital in the financial system” said Akinwumi Adesina, president of the African Development Bank at the “Investing in Africa” conference hosted by The Wall Street Journal in London on March 7. Adesina is a strong believer in the private sector playing a catalytic role in economic growth.
Africa received less than 10 percent of infrastructure investment in the past decade
Global (ACWI) (VTI) private sector investment into infrastructure has totaled $2.6 trillion over the past decade (2006-2016). However, 56 percent of that has been put into Asia, Europe and the Pacific; 36 percent into Latin America (ILF); and only less than 10 percent into Africa (EZA) (AFK) (GAF). Reasons that Adesina enumerated were:
- The regulatory environment for private sector investment in Africa has been quite weak.
- The high level of risk, market and political, in Africa.
- The lack of bankable projects.
The African Development Bank thus, in its capacity, has been trying to:
- Provide blended finance at good rates for investment in infrastructure.
- De-risk investment, by providing partial risk guarantees on viable projects.
- Providing the necessary support (financial and otherwise) to energy sector projects.
- Connect the stock exchanges within Africa, to make raising capital easier
Despite infrastructure challenges, Africa still offers a lot of opportunity. Africa needs investment in power, rail, roads etc. And such investment, when it comes, would also throw open a myriad of growth opportunities in infrastructure related sectors and industries.
Currently, Adesina sees opportunities in the following transformations:
Africa has long been exporting its commodity produce. Adesina who is “constantly impatient for development,” believes that industrialization is what can help Africa’s case. “Africa isn’t poor. It just happens to have a lot of poor people,” said Adesina. It is very rich in resources. Asia is a similar case, but they have managed to harness and use their resources well. Africa needs to do the same.
Commodity prices are volatile, and in many cases, the produce is dependent on favorable weather conditions. However, the final produce from these resources isn’t that volatile in supply or price. For instance, cocoa beans and chocolate: till Africa keeps on exporting cocoa beans, its revenue would always be subject to volatility as the price of cocoa is subject to market and weather induced volatility. However, if Africa starts manufacturing chocolate using that cocoa, the volatility would be minimal. Moreover, the price of chocolate rarely goes down. Similarly, exporting cotton is a riskier bet than manufacturing and selling apparel using that cotton.
For growth, Africa has to trade more with itself, says Adesina. Only 13 percent of trade today is within the continent. For more regional integration, Africa needs massive investment in infrastructure to build its ICT network, to invest in roads, ports, waterways etc.
In 2016, the AfDB approved a total of $10.6bn (disbursing about $6.7bn of it) in loans towards the development of Africa. The AfDB has plans to invest in creating over 25 million jobs for Africa’s youth over the next 10 years. Prime beneficiaries of this effort would be the ICT industry, agriculture, and SMEs.
There is a lot of money currently with the pension funds and sovereign wealth funds looking for Africa exposure. Availability of quality projects to channel this money into is the challenge.