The money will be raised from regional and non-African pension funds, insurance groups, sovereign wealth funds and institutional investors.
The fund, to be known as Africa50, will help the continent in delivering vital infrastructure through a new global partnership platform.
To deliver on Africa’s current infrastructure pipeline, including Programme for Infrastructure Development in Africa (PIDA), Africa50 will need an equity investment of USD 10 billion, thereby attracting USD 100 billion worth of local and global capital.
To begin operations, Africa50 targets raising USD 3bn in equity capital, to establish credibility with governments, private developers and financial markets. Depending on funding needs and the project pipeline, Africa50 will augment its financial capacity by raising debt in the international capital markets.
In order to ensure reliable access to capital markets while also offering additional operational flexibility, Africa50 will target an investment grade rating of single A.
The African Development Bank proposal says that Africa50’s critical objective is to shorten the time between project idea and financial close –from a current average of 7 years to less than 3 years, thereby delivering a critical mass of infrastructure in Africa in the short-to-medium term.
“Africa50 builds on AfDB’s recent successes in overcoming early-stage bottlenecks to infrastructure projects, mobilizing political support for necessary reforms, and deploying skilled experts to work along-side government.”
As a commercially oriented financial institution, Africa50 will seek to preserve and grow its capital base as well as provide a return to shareholders.
It will have three broad groups of investors: i) African Countries, ii) the AfDB and other major development financiers, iii) institutional investors such as sovereign wealth and pension funds.
The ownership of the founder’s equity by African countries is central to the strategy of Africa50. Such ownership is intended to send a strong signal to developers and financiers about the commitment of African countries to address the continent’s infrastructure challenges.
Africa50 is expected to be fully operational in Q1 2014.
Africa50 aims at mobilizing private financing to accelerate the speed of infrastructure delivery in Africa, thereby creating a new platform for Africa’s growth. Africa50 will focus on high-impact national and regional projects in the energy, transport, ICT and water sectors.
Africa50 is to be structured as a developmentally-oriented yet commercially operated entity. It will be complementary to and legally independent of existing development finance bodies in Africa. Accordingly, the operational decisions will be made by a management team selected solely on technical merit and demonstrated managerial competence.
Africa50 will establish two business segments.
Project Development with an objective of increasing the number of bankable infrastructure projects in Africa. This will be accomplished through substantially increased funding of early stage project development activities, made possible by innovative partnerships and incentive schemes.
Further, Africa50 will make skilled legal, technical and financial experts available to projects from an early stage of development, sharing costs with member governments and developers and recovering its funding at financial close or through a carried interest in the project.
Project Finance will focus on delivering the financial instruments required to attract additional infrastructure financing to the continent.
These will include, but will not be limited to: i) bridge equity, ii) senior secured loans, iii) refinancing/secondary transactions, as well as iv) credit enhancement and other risk mitigation measures geared at attracting non-traditional funders such as institutional investors and international investment banks.