Director of Africa50, Ms. Tas Anvaripour Talks with ICA
10 juin 2014
In late May, Ms. Neside Tas Anvaripour, Director of Africa50 sat down with the ICA in Tunisia to talk about this new finance vehicle. Her detailed account of the massive effort to create Africa50 is a reflection of the hope and determination of a vast array of stakeholders for sustainable infrastructure investments on the continent.
ICA: Could you tell us how Africa50 was born?
Anvaripour: “… Thank you for this interview. It is very timely. As you know, Africa's infrastructure needs are enormous. It’s estimated that Africa needs to spend about US$100 billion per annum on transport, energy, and water projects. At the moment less than half of this is being met through traditional resources; government budgets and donor backed agencies --with very little from the private sector -- leaving a huge gap. Addressing this substantial gap has been a challenge. As The African Development Bank, we had to think creatively about a new approach to ensure new sources of funding – a new way of doing business which addresses the shortcomings of Business-as-Usual.
The African Infrastructure Gap is a widely agreed-upon issue and strategies have been devised to address it. To give a bit of history -- back in January of 2012, the African Union and the NEPAD Heads of State agreed on a declaration for the Program for Infrastructure Development in Africa (PIDA). As most of your readers know, PIDA is a program for accelerated infrastructure development and enhanced regional integration in Africa. At the African Development Banks’ annual meeting in Marrakech in May 2013, we were formally mandated by Governors of the Bank to develop a concept for an infrastructure delivery vehicle that will accelerate the implementation of the PIDA program. We immediately embarked on a series of discussions with Regional Economic Communities, regional development banks and governments – [while] receiving overwhelming support and work on the design of Africa50.
The name of Africa50 not only symbolizes the promise for Africa's next fifty years, but also celebrates the fiftieth anniversary of both the AU and the African Development Bank…”
ICA: Africa50 is the creation of the African Development Bank, Is it going to operate as part of the Bank?
Anvaripour: “…Africa50 was designed and developed by the African Development Bank, however it will operate as a standalone vehicle with financial and legal independence from the African Development Bank.
The African Development Bank has a strong track record in delivering innovative solutions to address market challenges in Africa, for example the creation of Afreximbank in 1993, and the African Legal Support Facility in 2008. In addition, the Bank is the continent's premier development organization, and a key player in the African infrastructure market; having committed close to USD$50 billion to infrastructure over the last 50 years; which has leveraged hundreds of billions of both public and privately sponsored infrastructure investment – so there was really no better place for Africa50 to have been designed and developed. In order to achieve sustainable growth in Africa, a backbone of sustainable infrastructure is essential. Our experience and market knowledge throughout the continent tells us that business-as-usual needs to be challenged and a new approach must be adopted – a commercial strategy which will attract new sources of financing and a new way of building and operating infrastructure assets.
The goal for Africa50 is to be incorporated as a separate entity – managed as a corporation in line with best practices and to be seen by the market as a solution for Africa’s infrastructure challenges. In order to stimulate the market, the African Development Bank, African Governments and African Institutions will serve as founding investors to Africa50. The collective strength and stability of these institutions will boost confidence in the international, institutional and private investment sectors…”
ICA: Africa50 has been described as a ‘one-stop-shop’ for investors. Could you describe why Africa50 is designed as a "one-stop-shop"?
Anvaripour: “… Africa50 is a needs-driven solution to the current financing gap in the infrastructure market in Africa. Africa50's uniqueness lies in delivering bankable, transformational projects to the market, championing a triple bottom line of solid investment returns, development impact through fast delivery of infrastructure projects and creating business opportunities for the African and International business community.
Infrastructure projects are complicated: they involve many players with different interests – so before Africa50 was designed we conducted a comprehensive market and investor scoping activity which assisted us in designing Africa50’s business model. We looked at the operating strategies of all financial institutions in the African infrastructure market today. A SWOT analysis identified success factors and shortcomings of their operating strategies. We noted that they have been constrained by balance sheet size, geographic focus, risk appetite, long processing times because of cumbersome procedures – hence impact of their operations is limited.
Our market analysis coupled with our strong track record, experience and knowledge of the African infrastructure space, suggested there is a need for a platform that accompanies projects from idea to implementation; bringing in appropriate players as needed in different stages of a project cycle.
The “one-stop-shop” approach was a result of this analysis and is a reference to the way Africa50 will participate in project delivery at all stages of the project cycle. We describe this through our two-tiered approach; the Project Development Business Line and the Project Finance Business Line.
The Project Development Business Lines will focus on facilitating the development of early stage projects. On the African continent, project development can amount to 10-12% of total project cost and insufficient resources have focused on this crucial stage. Governments do not have financial and human resources to develop projects to a level that could be offered to the private sector -- and the number of private investors who are ready to take-on early project risk is limited -- and they cannot operate fast since they have limited convening power with governments and government agencies involved. The project preparation facilities hosted by development finance institutions are donor funded. Replenishment of these facilities is limited and they mostly focus on feasibility studies and early technical designs. Taking a project from feasibility study to bankability requires immense capital. In 2010, roughly US$80 million was allocated to project preparation while annual project development costs projected for the PIDA amount to USD $2.5 billion per year. Africa50 will address this gap and will co-develop projects from an early stage; ensuring projects reach bankability. This approach will not only bring projects to bankability, but [will] also increase the number of projects that reach bankability—hence, [Africa50] will create business opportunities for everyone: African and international businesses, infrastructure financiers, both debt and equity and governments.
The later stages of the project cycle will be led by the second tier: the Project Finance Business Line. At this stage Africa50 will focus on providing services such as bridge finance, senior loans and credit enhancements as well as refinancing and exit opportunities hence providing a platform for recycling of capital for certain players for them to invest in new assets.
It is essential to understand that Africa50 will not be acting alone and one of the crucial services it will provide is to be a key advisor and promoter; it will be the driver that holds a project together by ensuring key players collaborate…”
ICA: Who are the investors?
Anvaripour: “…The African Development Bank is the cornerstone investor in Africa50. Other early investors are African Governments and African institutional investors, however Africa50 devised strategies to attract non-traditional resources in the future such as central banks, sovereign wealth funds, pension funds and other pools of resources within and outside Africa -- .although Africa50 is targeting a medium term capitalization of USD$3 billion, it is intended that this will be scaled up to around USD$10 billion since Africa50 is designed to support large scale investments by leveraging its equity base in a cost effective manner. The targeted credit rating of “Single A” plays an important role in the pricing of the borrowing and will allow this vehicle to achieve the appropriate level of leverage, of a minimum 2-3 times. It will also seek to attract central banks and institutional investors for the bonds it will issue. Traditionally, central banks are risk averse with regard to investments of their foreign exchange reserves -- so by tapping international debt and bond markets to leverage its equity base Africa50 expects to achieve to a total financing capacity of around USD$10 billion.
From the team’s extensive experience in the Africa Infrastructure private sector, for every dollar invested, Africa50 anticipates attracting USD$9 dollars of private sector finance. In this way, a total envelope size of USD10 billion can be used to finance projects of a total cost of USD 100 billion…”
ICA: You’ve mentioned Africa50 as making a commercial return as well as an ‘impact’ in building Africa. How is that triple bottom line important to the private sector?
Anvaripour: “… I am glad you asked this question. As more and more companies are focusing on corporate social responsibility and are in search of sustainable investments –there is a new niche to meet their need –through Africa50’s operations. Africa50 offers a real opportunity to invest in a sustainable future for Africa – and since Africa50 is investing in infrastructure projects that have a catalytic impact, any investor in this vehicle can feel confident reporting on an initiative that will improve lives. To support this reporting. Africa50 is developing an impact measurement system that will be invaluable to investors.
Again, Africa50 is a profit-driven commercial vehicle. In Africa, well-structured infrastructure projects have yielded project returns on average of 18% over the past decade. Power generation projects have been backed by long-term power purchase agreements and are not prone to merchant risk. Demand risk on transport projects has often proven to be lower than expected, with actual traffic exceeding initial projections; while some projects have traffic flows guaranteed by a public entity.
Infrastructure is revealing itself as an attractive asset class on the continent, and is deservedly receiving increasing attention from private sector investor, so Africa50 is perfectly timed …”
ICA: How is Africa50 working with PIDA?
Anvaripour: “… Africa50 is working in very close collaboration with PIDA - although, some projects are to be developed and financed on an opportunistic approach, to ensure the profitability of the Africa50 portfolio in the first couple of years, but again, PIDA projects make up a strong proportion of the pipeline for project development…”
ICA: What are your top priorities for the next year?
Anvaripour: “… Plenty … to close the first wave of fundraising of the Founder’s Equity. Given targets for gearing and liquidity required, Africa50 shall require paid-in capital in the range of USD$3 billion over 2014-16 -- and so this is our ‘soft target’. To make the initial Project Finance Business Line investment – sending a clear signal to the market that Africa50 is operational and ready for business. To establish a strong pipeline of Project Development projects, which will create a steady flow of bankable projects coming to the market, and later feeding into the Project Finance Business Line…”
ICA: As you know, the ICA members are committed to sustainable infrastructure development in Africa. Is there anything special you would like to convey to them?
Anvaripour: “…Through the two tier approach of Africa50, the Infrastructure marketplace in Africa will change. Using its Project Development Business Line, Africa50 is designed to deliver the large scale, transformative projects that Africa needs in a commercially and developmentally sustainable way. The continent will have a robust pipeline of bankable projects ready for financing. Similarly, using the Project Finance Business Line, it will now be possible to leverage the necessary funds to finance these projects and ensure timely project delivery.
Collaboration with the ICA will be crucial to streamlining the project cycle, through risk mitigation initiatives, championing of private sector investment reforms, supporting soft infrastructure (such and one-stop-border-posts) and the mapping of African Infrastructure Investment. The ICA members offer an invaluable perspective on Africa50, and with your well-known convening skills, I could envision how we may collaborate on things like workshops and conferences. We also intend to work with the ICA to provide much needed information on private sector investment in African infrastructure…”
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