Bankability essential for infrastructure projects in Africa

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The bankability of infrastructure projects in Africa needs to be achieved before they can gain long-term investor interest and funding.

“We have this absolutely unprecedented need for infrastructure in Africa. The demand is coming out of China and India for the resources, so for the first time we really have the commodities coming on line,” Nedbank Capital’s head of infrastructure, energy and telecommunications Mike Peo told CNBC Africa on Tuesday.

“The problem at the moment is the connectivity: getting the ports, roads and rail infrastructure to be able to deliver these resources and commodities to the markets that demand them. We’ve never seen as much demand for the actual asset class. We have European and American investors for the first time significantly putting up their hands to play in the space.”

Infrastructure has always been Africa’s biggest challenge, as it stops growth and development on the continent.

Peo added that lack of political will from country leaders to get the projects off the ground is also an infrastructural constraint.

“The extremely fast pace of urbanisation that’s taking place in the continent is putting more pressure on infrastructure demand, so on the one hand you have commodities, on the other hand you have the actual demographics itself,” Ebrima Faal, the regional director of the Southern Africa Resource Center of the Africa Development Bank.

“You’re beginning to see some political championing coming out, where you have now a strategic framework that defines the main transformative infrastructure required in the continent.”

According to the Southern African Development Community, poor infrastructure in sub-Saharan Africa reduces business productivity by as much as 40 per cent.

Poor infrastructure also cuts economic growth by two percentage points every year.

Funding projects to reach bankability before their full development stages is therefore crucial to attracting investors and funding for the final stages of development.

“It’s not just the bankability but how we structure the actual financing afterwards, and also how do you then make the project itself self-sustaining. It has to generate its own “fees” to pay off what financing is going to go into place,” said Faal.