Africa Investment Forum boosts dealmaking

The African Development Bank (AfDB) has often been criticised for the time it takes to approve projects, but it responded at the Africa Investment Forum (AIF) in Johannesburg in November by bringing to the table a pipeline of 61 projects with a value of $40bn.

According to the organisers, of the 61 projects put forward, there was investment interest in 45, representing a total deal value of a little under $32bn, in sectors including energy, transport, logistics, and agriculture. The AIF sent a clear message that demand for bankable projects exists alongside the available capital to finance them. The pipeline was aggregated by the AfDB in collaboration with African development finance institutions, including the Trade and Development Bank, Afreximbank and the Africa Finance Corporation.

In the past, a common complaint has been a dearth of bankable projects and the extended timeframes to deal closure. While the Chinese are able to fast-track projects and add 120 GW of installed power capacity a year, Africa has too few projects it can showcase to reduce its energy gap. A handful of successful flagships projects still command attention, even if they took many years to see the light of day.

Accelerating deals

The AIF aimed to show that the continent can accelerate dealmaking at scale by linking funding to an existing pipeline of projects. Alain Ebobissé, CEO of Africa 50, said that the forum showed that if you bring well-structured projects to the table, an appetite for dealmaking will follow. Financial institutions are often guarded about projects and their pipeline of deals, even if they collaborate on loan syndications and project finance. However, at the forum, they threw their weight behind new projects. The president of Afreximbank, Benedict Oramah, revealed that they had 60 meetings and developed a project pipeline of $15bn.

Yet Admassu Tadesse, the president of Trade and Development Bank, whose own bank’s balance sheet has increased 50% in the past two years to nearly $6bn, said that new sources of finance must be found if the momentum of the AIF is to be maintained.

It is estimated that global funds under management represent $133 trillion, with pension and sovereign wealth funds representing $56 trillion. The AfDB’s High Fives initiative aims to unlock $170bn – less than 0.3% of those accessible assets under management. African pension and sovereign funds alone represent some $1.1 trillion, according to NEPAD, which is planning to boost African funds’ allocations into infrastructure to around 5%.

Africa’s risk profile

Much of the discussion about how to access these funds revolved around Africa’s risk profile, with the perception of risk on the continent thought by many investors to be much higher than reality, leading to a higher cost of capital and difficulty meeting some of the stringent investment criteria that foreign funds are subject to.

In response, AIF delegates discussed the ways in which investments in a number of sectors are often held back by an inadequate policy framework. While some governments are beginning to recognise that the private sector needs to be allowed to take a lead in financing and developing projects, others are too slow to reform. The Ibrahim Index of African Governance 2018 found that the average African score for business environment has declined by almost five points over the last 10 years, showing that the regulatory and policy framework does not always provide the enabling environment to unlock investment in infrastructure and agriculture.

AfDB president Akinwumi Adesina insisted that attitudes are changing among heads of government, who he argued were now encouraging growth through fiscal incentives and engaging the private sector as a key partner.

“[Heads of government] have come to realise that private sector is not the enemy and they can carry the load,” Adesina told the media. “There is a much more friendly tone in their conversations.”

To ensure that the AIF is a platform for the future and that dealmaking momentum is maintained, the AfDB will launch the Africa Investment Forum Marketplace on 1 December, an open-source digital platform that the bank has developed with the Inter-American Development Bank to publish and connect real time projects with developers and investors.

For, now the AfDB hopes that the Africa Investment Forum sent a crucial message: the continent is open to dealmaking. Finance exists and investors are increasingly passionate about the continent, if the right enabling environments can be found. Yet financiers and projects need to be linked together in forums across the continent if Africa is to rise to its huge infrastructure challenge.

Trade and Development Bank president Tadesse says that the AIF was just the first step in an ongoing process of making this happen.

“News travels, and this will help change the narrative out there.”