AfDB Jumpstarts New Infrastructure Fund with $500m

22 May 2014

This Day

The African Development Bank (AfDB) has said it is spearheading a new initiative on infrastructure development financing with the establishment of 'Africa 50', a special purpose vehicle to bridge infrastructure financing gap in Africa countries.

AfDB President, Donald Kaberuka, who disclosed this yesterday at a session on: 'Reducing Perceived Riskiness of Investing in Africa's Infrastructure', at the 2014 AfDB Annual Meetings, said it would be investing $500 million as equity in the initiative, which would be run independent of the bank.

He added that the AfDB was committing $100 million of the $500 million equity capital as an initial investment, out of which the bank's board of directors has approved $20 million.

Kaberuka noted that the Africa 50, which will be Africa-owned and Africa-driven will be opened to only African investors as it was designed to execute projects that are transformative and commercially viable.

According to him, "What we have decided to do in African development Bank is to get a new vehicle for funding African infrastructure. We call it Africa 50. The word fifty is symbolic because we are 50 years after independence and here we are discussing the next 50 years in African development.

"There are two arms of the structure of this vehicle. Arm number one: Project preparation-to bring projects to a level that is attractive to private firms. AfDB is putting up to $100 million in this particular aspect. My board of directors has just approved  the first instalment of $20 million to get those projects ready.

"We have also decided to take equity in that vehicle. I'm hoping that we will be able to put up to $500 million as equity but for now we are putting $100 million. This vehicle is open to African investors, want to be African-driven vehicle, African-owned vehicle. But it's not open to foreign investors because the projects that we will be doing are those that are transformative and commercially viable."

Kaberuka lamented that the AfDB had realised that governments alone can no longer finance the huge infrastructure deficit spread across the continent as public funds and foreign aids are limited, thus necessitating its conceiving the idea of the  fund, which would be run as a private entity with pool of funds from African investors.

"We have looked at infrastructure financing as a bank since independence. What have we found? We have been funding infrastructure mainly with public money, which is limited  and then foreign aids, which is also limited. And I think we are coming  to a plateau, where public resources are not going to increase dramatically in relation to what governments require," he said.

Also speaking on the Africa 50, the AfDB Director, Business Development Department, Neside Tas Anvaripour, explained that the role of the new infrastructure fund would be to partner governments and private companies in Africa that have difficulties in financing projects that have reached the development stages.

According to her, there are huge financing gaps in infrastructure projects, after the preparation stages, in many African countries that the initiative is ready to close, pointing out that Africa 50 would be offering 15 per cent returns to investors, she said its structure would attractive to frontier pension funds all over the world.

Anvaripour, who also noted that currently Africa needs $100 billion infrastructure investment yearly, said Africa 50 would be partnering the AfDB and the World Bank to solve infrastructure problems in Africa.

While commenting on the impact of Basel III regulation on infrastructure financing by banks, Managing Director of the Nigeria Sovereign Investment Authority (NSIA), Uche Orji, pointed out that the regulation, which will over time discourage banks from funding infrastructure projects, is an opportunity for infrastructure financing vehicles to bridge the gap.

Original article by Kunle Aderinokun

Category: General

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