Speeches & Transcripts

Getting Africa’s Infrastructure Built, by World Bank Vice President for Africa Makhtar Diop

October 10, 2013

World Bank Vice President for Africa, Makhtar Diop Fifth World Bank-Africa Investor Strategic Dialogue Washington DC, United States

As Prepared for Delivery

It is a pleasure to be with you all again and report back on progress we have made in pursuing the PPP agenda in Africa. This series of events with which we have partnered with Africa Investor provides an important opportunity for us to “check in” on our efforts to support the strong desire you have expressed to me to develop PPPs in your countries.

Focus on Transformational Investment

The big question for us is how do we mobilize private finance to support Africa’s infrastructure needs?

For me this is particularly important in the emphasis I am giving in pushing the transformational agenda in Africa. Public capital is insufficient to finance and execute the transformative projects in power, water and transport that Africa needs. This shortfall has been estimated as much as $50 billion per annum. Not only are the top line numbers large – transformational deals such as Inga 3 will cost more than $10 billion. This is beyond any one single institution’s capacity.

Where we are coming from

In our Spring Meetings we got together and heard from the public sector side. We heard we still need to address the basics in terms of the institutional settings for PPPs. We heard about your challenges in getting deals to the market, financing the early stages of PPP deals and the challenges of finding good quality private partners. We heard from the private sector side. In particular the financial sector noted that they did not have the right instruments in place to manage risks and liquidity. They can’t attract the international and local capital they know is out there. We also heard that they were not seeing the necessary quality of deals.

We have spent some time reflecting on why we are not making as much progress as we would like, although we can pat ourselves a little bit on the back as we are making some progress. It’s nice to report an uptick in PPPs in Africa in 2012. In 2012 in Sub Saharan Africa we doubled our best performance ever from any previous year in the energy sector with 22 PPPs, one which in value terms is just under $5 billion. The energy challenge as we all know is a real priority for Africa.

Telecom is still the biggest in value terms but the transport and water sectors continue to disappoint.

How can we make more progress?

While there are many technical reasons there is no question that political economy reasons lie at the heart of driving the PPP agenda. When we look at the entire PPP value chain – the enabling environment in terms of the rules of the game, capacity to prepare and develop transactions, the financial sector, the construction sector and operational capabilities, we find weaknesses. We find that African involvement in the value chain is weak. This makes it very hard to push PPPs through the political system when benefits are perceived as largely flowing to foreigners. When we look at the sponsors of PPP projects in Africa we estimate well over 90% of them are not of African origin. This is not the pattern in other regions where there is much higher local involvement. We need to rebalance this equation if PPPs are to progress in Africa. Not only is this important to “unlock” PPPs but also to develop Africa’s capital and financial markets as well as its private sector in terms of construction companies, building material suppliers and facilities managers.

What are we doing about it?

These messages from you as well as our own analysis provide us with a solid agenda to work on and we have begun to make some progress. Given the importance of transformational projects and their nature—they are often regional in nature—we have maintained our efforts in working with the regional organizations. In early September in partnership with UEMOA, France and PPIAF we met with the eight UEMOA countries on a possible “Feuille de Route” or road map forward on developing common approaches and capabilities that will not only help with regional projects but bolster the individual countries PPP capabilities. The pillars we are emphasizing are developing the legal framework, building capacity, incentives to encourage the pipeline and supporting project development. We plan on launching a similar effort with CEMAC in December. In the East there has been a long-standing engagement with EAC and we stand ready to work with SADEC and ECOWAS if requested. This work will help get the basics in place or what we call the enablers.

We continue to support PPPs with our national programs in Ghana, Kenya and Nigeria which albeit slowly are now showing some positive signs. Our sector colleagues are also developing project-specific PPPs. Also within the wider Bank Group our colleagues in IFC and MIGA continue to make progress. Our IFC Advisory colleagues currently have 17 PPP advisory mandates in Sub Saharan Africa.

Our examination of the PPP value chain suggests this is an area in which we have not focused sufficient attention. Given that much of Africa’s growth is driven out of the natural resource sector and in turn this channels directly into infrastructure – logistics costs are often this sector’s largest cost— or indirectly into infrastructure, there is an important opportunity to build the African capabilities in all aspects of construction, the supply of building materials and the operation of facilities. Just as we have done with other important sectors – agribusiness, light manufacturing and tourism -- we would like to spend some time really understanding the whole PPP value chain.

We have some concrete ideas we are advancing with Africa investor to increase private sector participation in infrastructure investment in Africa. At the same time the whole financing project development nexus is an area we have been working on not only at the Africa level but Bank-wide. The Bank as a whole is actively investigating the establishment of a PPP infrastructure development facility and financing fund. It is clear to us in Africa that we need mechanisms to manage risk and liquidity as well as developing projects. Given the weaknesses of capital markets in Africa there is very little local capacity to manage risk through guarantee mechanisms and liquidity through bond issuances. While the Bank and other development partners can step in as we often do – we only have so much capacity. So it is clear we need to do something with these accelerators. If we don’t, the large pension funds, insurance companies, sovereign wealth funds and infrastructure funds that keep telling us they want to invest but struggle will continue to stand on the sidelines. The numbers are huge – Nigeria’s pension funds have $20 billion.

Closing remarks

In closing we cannot do it all ourselves, we need to work in partnership with you the public sector, the private sector, the financial sector and the other development partners to get PPPs contributing fully to Africa’s infrastructure development.

This Strategic Dialogue platform and process with Africa investor is designed to create a free flowing constructive dialogue on actions to achieve this aim and we look forward to today’s discussion and reporting back again at the 2014 Spring  Meetings here in April.

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