AFRICA ’ S INFRASTRUCTURE PARADOX . BY TOM JAMIESON , PARTNER , RO LAZAROVITCH , PARTNER , JO EN LOW , PARTNER , AND ONIS CHUKWUEKE-UBA , ASSOCIATE , BRACEWELL ( UK ) LLP AND AFUA A KORANTENG , PARTNER , AND EDWARD KORANTENG , PARTNER , KORANTENG & KORANTENG LEGAL ADVISORS .

Africa ’ s infrastructure needs – including road , rail , ports , transmission and power – are considerable , and will become increasingly pronounced on account of the continent ’ s need for such infrastructure to support its social and economic growth . It is estimated that international investors ’ interested in Africa have as much as US $ 550bn in assets 1 that could be deployed to meet the estimated US $ 130bn – $ 170bn in infrastructure investment required by the continent each year . 2 However , there is a gap to bridge due to the lack of investment opportunities that meet such investors ’ criteria , with a 2018 African Development Bank ( AfDB ) study noting a financing gap of US $ 68bn – $ 108bn . 3

Bridging the gap Despite the clear need and availability of capital , few infrastructure projects in Africa achieve financial close – in fact , according to McKinsey , 80 % of potential projects fail at the feasibility stage . 4 A number of reasons for this have been reported , including inadequate longterm policy plans and frameworks , developers and governments having limited experience in carrying out the relevant feasibility studies and front end work , poor coordination between the various governmental agencies , and community resistance to certain projects . 5

This challenge may be addressed by governments , supported by multilateral development organisations , improving the flow of private-sector financing into commercially viable infrastructure sectors . There is no shortage of private-sector finance , but investors struggle to match these funds against viable projects in Africa . Governments and their institutional partners can take decisive action to improve the commercial viability of projects , including by helping to mitigate political , currency , and regulatory risks , and , akin to some of the more successful procurement programmes , by creating a pipeline of bankable projects that leads to more focused investment . 6

Power and transmission A key area for infrastructure development in Africa is the power sector . While much attention is being given to the generation of power , especially in the context of renewable energy , transmission infrastructure has often been the poor relation , suffering from decades of poor maintenance and under-investment . Modern transmission infrastructure is therefore crucial not only in terms of electrification , but also in providing both the flexibility and reliability needed to integrate additional power generation – especially less predictable sources , such as renewable energy – into the grid , as well as reducing transmission losses .

Transmission infrastructure requires significant investment and , given the depleted state of government finances across the continent , private investment opportunities . It also helpfully amplifies some of the underlying issues that can often drive infrastructure projects off course – land rights , permitting , the interface between state agencies and the private sector ( for example the wheeling of privately generated power ), and the interaction with domestic regulation , to name but a few .

Government programmes in this sector could therefore usefully look to structures , both regional and international , that have successfully mitigated some of these risks . This could be achieved by following the more traditional PPP / PF model , perhaps in conjunction with a structure that places risks , such as obtaining access to the land and permits , with the state , for example , the IFC scaling solar programme . However , other complimentary structures are also of note , such as :

• Operating lease model – A long lease model , used for example in Uruguay , whereby the private lessor constructs and leases the transmission infrastructure to the state transmission company ( which takes on the land risk ). This model is of particular interest where the alternative PPP model is not well-developed in country ;

• Corporate finance – The government or SOE could look to raise a government / SOE loan ( onbalance sheet ), potentially ECA-backed , which could then finance the third party construction of the transmission infrastructure ;

• Institutional investors – While still applicable to the PPP model , noting the desire in certain jurisdictions to encourage local pension funds to invest in infrastructure projects , raising local equity through capital pool companies could help reduce the level of third-party debt ( and therefore the tariff ), provide quasi-political

64 Project Finance International October 20 2021