According to the World Bank, about $93 billion is needed per year to fill the infrastructure gap in sub-Saharan Africa. In 2015, about $83.4 billion was committed to infrastructure development ($74.5 billion in 2014) on the continent, according to Infrastructure Financing Trends, a report published by Infrastructure Consortium for Africa.
Experts shared their views on how the future of finance, managing currency risks, and public-private partnerships would affect business and governance in African countries. Devex talked with some of them about how international development organizations can best work to successfully implement their projects in the continent.
Here are three takeaways from the conversation.
1. Public-private partnerships work (if well managed).
With the changing practice of financing projects, some experts believe that PPPs would become a more prominent funding option for global development organizations operating in Africa.
One example is Power Africa, a project launched in 2013 by the U.S. government to facilitate transactions aimed at boosting the power sector in African countries. It brings together experts and investors from multilateral entities, the private sector, and government agencies to work in partnership.
Another example is infrastructure development in South Africa where the government adopted the PPP model in the financing, design, building and operation of its renewable energy infrastructure.
2. The complexity of finding “the right model.”
PPPs, however, must not be seen as the only way to go. There are still many other options that can be used to finance a project, experts said, which can be tailored to each one’s individual circumstances.
“We need to make sure that whatever we are doing is the right way,” said Kweku Nduom, vice president of business development and finance at Groupe Nduom, a company that manages a portfolio of firms and social welfare enterprises in West Africa and the United States. He hailed big organizations such as the Overseas Private Investment Corporation and its partners as a great source of information and leads on potential funders in the private sector.
“OPIC recently told me about a $500,000 grant that they have that you can spend doing due diligence on a new project based in Africa that nobody is taking advantage of,” he said. “I think talking to both private sector organization such as Homestrings, and also public sector organizations such as OPIC is a good way to start.”
But that does not replace the role of traditional donors or development financing institutions. Development financing institutions can also help track other kinds of capital on the continent. With the growing interest of institutions driving investors to Africa, DFIs can contribute credit enhancement by helping these institutional investors learn the risk on the continent.
3. Overcoming the complexity of dollar risk.
International organizations are looking for ways to reduce their exposure to the negative impact of foreign exchange rates and to do so may need to look to new non-bank players in the sector.
Daniel Webber, the founder and CEO of FXcompared, explained how this has worked in his experience. His business, which operates as an online marketplace, matches individuals, small and medium-sized businesses to non-bank players that help find currency and FX solutions.
Technology has enabled large numbers of new companies to enter the foreign exchange market, he said. The increased options for international money transfer have made it cheaper to send money from outside to inside Africa.
“Companies such as World Remit enable you to send [through] mobile money to allow those without bank accounts into [the] space,” Webber said.