The AfDB is to start arranging project finance jointly with
commercial banks, and selling maturing debt in its portfolio,
as it battles to bridge a vast gap between Africas
infrastructure needs and lenders weak appetites.
Tim Turner, the AfDBs head of private sector
operations, told Emerging Markets in an interview that
the two initiatives would boost the banks ability to make
projects it is working on creditworthy.
The AfDB will later this year lead a E430 million syndicated
loan deal to finance a wind power project in Turkana, Kenya. It
will lend E100 million itself and arrange a E330 million
syndicated loan, he said. The bank is also developing a
syndicated loan structure for the Egyptian Refining
Our operations are a drop in the ocean given the vast
infrastructure needs so they need to focus primarily on
demonstrating and catalyzing private sector appetite for
African projects, Turner said.
The AfDBs objective in selling to commercial banks
maturing debt in its loan portfolio such as projects in
the operating stage that are generating stable cash-flows
is to free up new capital for infrastructure.
The business model of development finance
institutions will need to change. The classic model of
originating loans and placing them on your books needs to be
adapted to free up resources and encourage private sector
participation, Turner said.
In the 2010 fiscal year, 40% of an estimated $2 billion of
new lending will be in infrastructure, 30% in industries and
services and 30% in financial services.
Turner said the composition of investments will not change
in the next three years, but the AfDBs expected 200%
capital increase will allow it to expand investments by 5% to
10% annually from the projected $2-2.5 billion in 2011.
The AfDB will also seek to increase lending to low-income
countries from 40% to 50-60% of its overall investments in this
three-year period, he said.
Research published in November from the World Bank-backed
Infrastructure Consortium for Africa said that sub-Saharan
Africa needed to double infrastructure spending to $93 billion
a year to upgrade roads, water and power networks. But the high
cost of bank capital and new financial regulations have reduced
Western bank appetite.
Bill Appleby, Citis head of infrastructure and energy
finance for Europe, Middle East and Africa, said: The
most significant change to the project finance market has been
the reduction in the number of players and consequent reduction
Many banks have struggled through 2008-09, and now
they have more aversion to committing long-term capital. The
multilateral agencies and export credit agencies are more
Citing Citigroup and HSBCs African infrastructure
finance business, Turner said: These banks see the
attractive margins and fee-generating opportunities in Africa
and so I expect them to come back and commit financing though
it will take time for them to return.
The African Financing Partnership set up by the AfDB
and the Canadian International Development Agency, to
coordinate project finance initiatives with other development
finance institutions is leading to a greater
harmonization of due diligence and environmental standards that
is speeding up project approvals, its coordinator, Preeti