Statement by M. Shem SIMUYEMBA (AfDB) at the Harith Business Day African Infrastructure Dialogue 27th OCT, 2017

HARITH BUSINESS DAY AFRICAN INFRASTRUCTURE DIALOGUE 2017

27TH OCTOBER, 2017, CAPE TOWN, SOUTH AFRICA

KEY NOTE ADDRESS

PUBLIC-PRIVATE PARTNERSHIPS NEEDED TO BRIDGE AFRICA’S INFRASTRUCTURE GAP AND THE STATE

OF INFRASTRUCTURE ON THE AFRICAN CONTINENT

SHEM SIMUYEMBA

AFRICAN DEVELOPMENT BANK

H.E. Kgalema Motlanthe, Former President of South Africa;

Mr. Jabu Moleketi, Chairman, Harith General Partners;

Mr. Sfiso Buthelezi, Deputy Minister of Finance of South Africa;

Mr. Tim Cohen, Editor, Business Day;

Mr. Tshepo Mahloele, Chief Executive Officer, Harith General Partners;

Distinguished Delegates, Ladies and Gentlemen;

On behalf of the African Development Bank (AfDB), let me take this opportunity to thank Harith and Business Day for inviting us to this distinguished gathering. There can be no substitute for structured dialogue to advance Africa’s development, whether this be in infrastructure or any other sector. This Forum is therefore, both timely and relevant. Let me also take this opportunity to Congratulate Harith on its 10th Anniversary! It is a truly one of Africa’s Success Stories!

Let me share with you five themes, but before I do, let me say that the AfDB has been in existence for more than 50 years now as a trusted development partner for the African Continent and will continue to do, hopefully, for another 50 years and beyond. Every institution has to adapt to changing times and dynamics and the AfDB or the Bank as we call it, is no exception. Under the leadership of the Bank’s new President, Dr. Akinwumi Adesina, the Bank has adopted the “High 5’s” which are aligned to both the African Union’s (AUs) Agenda 2063 and the Sustainable Development Goals and are intended to re-focus Africa to accelerate development and development impact in five key priority areas; (i) Light up and Power Africa or (the New Deal on Energy for Africa); (ii) Integrate Africa; (iii) Industrialize Africa; (iv) Feed Africa; and (v) Improve the Quality of Life of Africans. I have little doubt that we can all agree that these are key priorities for Africa.

The Bank intends to strengthen its partnership with African countries and stakeholders from within and outside Africa from both the public and private sector as well as civil society. To achieve this, the Bank has re-positioned itself to adopt “Accelerated Delivery” which entails being close to and responsive to the Customer. As a result, the Bank has undergone major restructuring and has created five Regional Development Hubs in each of the five regions of Africa with the Hub for Southern Africa being in Centurion, South Africa. It also intends to deepen leverage and partnerships in its ending and across all its interventions so as to optimize impact.

Let me now turn to the Five Themes I wish to share with you.

The First is that, Public Private Partnerships (PPPs) in infrastructure are not necessary, but an imperative particularly at this juncture in Africa’s development where the demand dynamics and the infrastructure landscape across Africa are changing rapidly driven by a number of factors. These include – growing demand for infrastructure services across the board – energy, transport, ICT, water and sanitation due to increased economic growth within Africa itself and growing global appetite for African resources; increased population growth and urbanization whereby Africa’s current population is likely to double by 2040 surpassing that of China and India combined given current growth rates, creating a huge market; deepening regional integration arrangements and convergence towards the creation of a single African economic market; a youthful, growing and talented population generating its own demand particularly in advanced ICT technologies and application; and not least, the emerging and growing African Middle Class which will require superior, value-added infrastructure services in terms of mobility, communication, banking, etc. All these dynamics mean that the Governments on their own will neither have the finances nor capacities to supply all the infrastructure services needed by the productive sectors, industry, and population. The key going forward is therefore, partnerships all round to optimize synergies.

The Second is the need for integrated planning of infrastructure from both the supply and demand sides. The Infrastructure investment gap in Africa is estimated at US$100 billion annually out of which US$45 billion is bridged leaving an annual funding gap of US$55 billion. Cumulatively over the years, this gap has been growing as demand for infrastructure grows. The infrastructure gap is obvious and has been well-documented in terms of availability, access and affordability of infrastructure at all levels – the productive sectors (agriculture, industry, etc), the growing services sector and households. It must also be remembered that both the financing and demand gap are not static and must be viewed from a dynamic context. As Africa grows at all levels, the demand for infrastructure will also grow and the gap will get even wider if we do not, collectively, get smarter about bridging it.

It is evident that we need more integrated long-term planning of infrastructure supply and demand at the local, national, regional and continental levels. We also must be cognizant of the fact that infrastructure is multi-sectoral, multi-disciplinary and multi-dimensional and must encompass policies, laws and regulations, markets, environment and climate as well as respond to economic and social needs. It is thus a complex subject requiring relevant competencies and skill sets. Unfortunately, Africa is not investing in the required requires skills and competencies to develop the depth of knowledge and capacities that is required to manage the infrastructure efficiently and effectively. Of the annual investments going into infrastructure of US$45 billion, very little is being earmarked for skills development at all levels – management, tertiary, artisan, etc and there are no linkages with learning institutions. This model is not sustainable. Another is, inadequate maintenance resulting in power plants, major highways, ports and airports, etc put up at high cost, underperforming in terms of rated design capacities and productivity. Operations and Maintenance (O&M) and Research and Development (R&D) is a gap which needs to be bridged as the economic value and lifespan of infrastructure assets depends on their effective maintenance.

The Third is to recognize that regional markets must be the reference point for planning, delivery, pricing and of infrastructure services and not just national markets as these cannot be viewed in isolation from the bigger picture of regional and continental markets. Additionally, countries can no longer plan in isolation. Going forward, it is imperative that we embrace inclusive, partnership consultative processes in our planning across the “Infrastructure Value Chain”. We also need to understand that the performance of the infrastructure sector, whether this is in attracting investment, ensuring healthy competition, introducing new technologies and innovation or improved performance, depends on effective policies so as to create an enabling environment for investment and business.

However, it is not just one policy because policies are interdependent and overlap. Thus, infrastructure will be impacted by tax, land, trade policies (such as import export duties on infrastructure equipment). Therefore, a holistic, integrated approach is required in assessing how policies affect the infrastructure enabling environment. In this regard, policy formulation and implementation must be viewed within a “Policy Threshold” which defines the “Minimum Policy Mix” as well as the “Maximum Policy Mix” required to achieve set infrastructure objectives and goals. The ideal is somewhere in between the two and only if this “Policy Balance” is achieved and maintained can there be a truly enabling environment for sustainable infrastructure development. Monitoring of policies and their synchronized and sequenced updating becomes a critical success factor.

In infrastructure development, “Policy can be a major Disruptor and Incentivizer” and it is a tool which if properly used by Governments, can be a major catalyst to the transformation of the infrastructure sector. For example, the policy changes which took place in the 1990s particularly in the ICT sector which evolved through a “Three-fold Tier” – starting with “Restructuring”, “Commercialization” and then “Privatization” resulted in gains in the ICT sector across Africa (over the past two decades) which have surpassed all projections in terms of impact and benefits. This can be attributed to the bold decisions Governments made to drive major policy changes in the ICT sector. In recent times, this is also being witnessed in the Clean/Green Energy Sector through increased private sector participation and in the power sector in general and the emergence of Independent Power Producers (IPPs). To be effective, policy formulation must be done within a transparent, consultative and partnership approach anchored on evidence and looking not just at the national, but also the bigger regional and continental picture.

The Fourth is growing global private sector interest in investing in infrastructure in Africa driven largely by liberalization and potentially high returns on investment compared to other regions of the world. However, there is a dichotomy in that, while on the one hand there is an obvious gap and therefore, demand for more infrastructure investments; and on the other hand, there is available capital and potential investors seeking investment opportunities, investments are not happening at the desired levels. The reason in that there is, a “Missing Middle” which needs to be bridged. This missing middle is the lack of well-prepared, bankable, investment-ready infrastructure projects which can attract financing. As an example, the Continental infrastructure programme, PIDA, has an investment portfolio of US$68 billion to be achieved by 2020. Thus, far, only about a quarter, or between US$17 billion-18 billion has been mobilized.

The reason is that there is a major gap in terms of financial resources, capacities and competencies required to provide the range of technical, advisory, legal, transaction services to make projects bankable and this is compounded by the fact that infrastructure projects tend to be large and complex requiring a large outlay of preparation support. Harith as infrastructure project development and financing company is a good example of a private sector institution seeking to bridge this critical gap. In the public sector notable initiatives include, the AfDB hosted Multi-donor Special Fund, the NEPAD-IPPF Infrastructure Project Preparation Facility (NEPAD-IPPF) which has committed over US$100 million to the preparation of infrastructure projects resulting in leveraging US$7.3 billion in downstream financing; the Africa Legal Support Facility (ALSF) also hosted by the AfDB which provides legal transaction advisory services; and the Development Bank of Southern Africa (DBSA) which has been active not just in Southern Africa but, beyond, to other regions of Africa.

In order to increase the stock of bankable, investment-ready infrastructure projects which meet the financing needs of investors, requires considerable scaling-up of financial resources for project preparation and development across the “Project Development Cycle” to unlock investment opportunities. In this regard, financial resources required for project preparation across the four infrastructure sectors of energy, water and sanitation, transport and ICT are estimated at between US$300 million-500 million annually. To bridge this gap, there is need for partnerships between the public and private sector as well as between Donors and African Governments themselves, who within the spirit of initiatives such as the Declaration of Lome of March, 2017, have been called upon to make more direct financial contributions to continental initiatives such as NEPAD-IPPF and related project preparation Facilities.

The Fifth is innovative approached to accelerate investment flows into infrastructure on the Continent. To attract financing requires at least four major interventions. The first, which is underway in most countries is policy reforms to create the enabling environment forInfrastructure investments in Africa coupled with the necessary risk mitigation as well as incentive instruments. The second is reforms to unlock the vast financial resources available in Pension, Insurance and Sovereign Wealth Funds who have traditionally not invested in infrastructure so as to give them necessary comfort and incentives to investment in infrastructure particularly beyond their own borders and this goes hand in hand with sound economic governance. The third is the need for a “Live Pipeline of Bankable, Investment-ready Infrastructure Projects” which meet the needs of the various investors – Public, PPP (Concessionaires) and Private Sector. The fourth is to innovate through leverage and innovation so as to optimize allocation and utilization of available resources through such measures as, deepening regional capital markets; creating specific Investment Instruments which pension funds can access and utilize; and creating Special Purpose Vehicles (SPVs) for larger, cross-border infrastructure projects.

Lastly, all factors point to the fact that Africa is the next “Growth Frontier for the World” a fact which seems to be better known by those outside Africa as evidenced by the growing global investor interest in Africa, than by Africans themselves. Africans must take greater interest in identifying infrastructure opportunities and investments in their own continent so that unlocking Africa’s infrastructure becomes a “Win-Win Global Partnership”.

I THANK YOU.

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