BY DR. K. MLAMBO DEPUTY GOVERNOR RESERVE BANK OF ZIMBABWE
RAISING CAPITAL FOR AFRICA AND INFRASTRUCTURE PROJECTS
Slide 2
BACKGROUND o Africa has a huge infrastructure deficit : In
terms of supply and access, Africa lags behind other regions Ellen
Johnson Sirleaf has noted that on match day, the Cowboys Stadium in
Texas uses more electricity than Liberia o The little available
infrastructure is expensive Moving freight by road in Africa costs
$0.05-$0.13 per tonne-kilometer in Africa. Elsewhere in developing
regions: $0.01-$0.04 per tonne-kilometer.
Slide 3
BACKGROUND o Yet infrastructure matters for sustained economic
growth and poverty reduction World Bank: if African infrastructure
catches up with that of Mauritius, per capita growth in 2013 would
have been 3.7% instead of 1.5% recorded Catching up with the level
of infrastructure in Korea would have meant per capita growth of
4.1% o Investment in infrastructure is thus key to unlocking
Africas growth potential.
Slide 4
I But finance for African infrastructure remains inadequate
nfrastructure Funding Requirements $48 Billion $30 Billion $15
Billion Funding Gap African Governments ODA+ Private Sector $20
Billion for Operations & Maintenance $10 Billion for new
Infrastructure Total $93 Billion
Slide 5
BACKGROUND o For Zimbabwe, World Bank puts the infrastructure
funding needs at US$33 billion over two decades: Electricity
US$11.3 billion Transport US$13.39 billion Water US$1.81 billion
Telecom US$6.75 billion
Slide 6
Closing the Funding Gap o How should this financing gap be
closed? Remove/reduce inefficiencies in the use of existing
infrastructure Estimated that on average about US$17 billion is
lost each year due to inefficiencies, such lack of rehabilitation,
poor budget execution, etc Improving efficiencies would reduce the
financing gap to US$31 billion a year (still substantial) o
Countries such as Zimbabwe rely on fiscal financing o But capital
budgets insufficient to meet infrastructure deficiencies in the
region o Need to search for alternative/innovative ways of funding
infrastructure
Slide 7
ALTERNATIVE SOURCES OF INFRASTRUCTURE FINANCING Domestic
borrowing International borrowing Enhancing the role of the Private
Sector Sovereign wealth funds Diaspora financing Engaging the new
development partners
Slide 8
Domestic Borrowing o Financing infrastructure development
through domestic borrowing: e.g. local infrastructure bonds o e.g.
Kenya raised about US$1.6 billion (KSH 141bn) through domestic bond
issues, from 2009 to September 2013. Opportunities No foreign
currency risk; Improves intermediation of savings; and Facilitate
monetary policy implementation. Challenges oCrowds out private
sector; and oHigh interest rates.
Slide 9
Accessing Global Capital Markets o Due to improved
macroeconomic conditions, low interest rates in developed
economies, African countries accessing international sovereign bond
markets o Examples: Ghana issued bonds worth US$750 million in
2007; Senegal issued bonds in 2009 and 2011 worth US$200 million
and US$500 million; Zambia issued bonds worth US$750 million in
2012; and Kenya raised US$2 billion in June 2014.
Slide 10
Accessing International Markets contd Issuance reflects Africas
high return potential, owing to its natural resource wealth and
improved macroeconomic policies and development prospects. Helps in
benchmarks pricing of corporate bonds in international markets
Strengthens macroeconomic discipline, transparency and structural
reforms Provides access to long-term funding to help finance
infrastructure Lowers debt servicing costs
Slide 11
PRIVATE SECTOR FINANCING o Specialized infrastructure or
private equity funds - funds created by established infrastructure
firms, including upstream industries that invest in various
infrastructure projects. o According to EY, in 2013, about US$3.2
billion was invested in 98 private equity investments in Africa. o
But SSA still lags behind other regions in attracting significant
amounts of private equity investments o Also average size of
transactions smallbetween US$30million- $60 million
Slide 12
PRIVATE SECTOR FINANCING Advantages o Removes burden from the
fiscus; and o Efficient allocation of resources; Challenges o High
financing costs; and o Difficulties in pricing some public goods
e.g. toll fees.
Slide 13
Securitization of natural resources o Natural resources lend
themselves easily to securitization o Growing trend by Investors
and new donors to adopt this form of financing Chinese investments
in: Angola, Nigeria, and Sudan are backed by oil; Gabon backed by
iron; Ghana backed by cocoa; and Democratic Republic of Congo
backed by copper. o Note: critical for Governments to negotiate
equitable deals that correctly value the resources assigned.
Otherwise, risk of mortgaging minerals at highly discounted
levels
Slide 14
Sovereign Wealth Funds (SWF) o SWF represent a large and
growing pool of savings, esp. in NR rich countries Globally, SWF
control about US$30 trillion o Africa experiencing the strongest
growth in SWFs Some of the countries with SWF include Algeria
($77bn); Libya ($65bn); Botswana ($6.9bn); Angola ($5bn); Nigeria
($1bn); Gabon ($380m); Mauritania ($300m); Ghana ($100m) and Eq.
Guinea ($80m) Potential for more to be set up as countries in east
and west Africa continue to make oil&gas discoveries o Asset
allocation shifting towards long-term investments to close the
infrastructure gap
Slide 15
Sovereign Wealth Funds (SWF) o SWFs from other regions also
beginning to invest in Africa e.g. the Investment Corporation of
Dubai recently invested $300m in Nigerian based Dangote Group focus
will be on agriculture and infrastructure o But challenges remain
The funds are relatively small (the Norwegian SWF is $900 billion).
Governance issues, esp. regarding transparency and accountability
in the admin of the fund. Not all countries can set SWFneed excess
forex reserves
Slide 16
Securitizing Diaspora Remittances o Africa has a large growing
diaspora, estimated at over 140 million by the AfDB o Remittances
by Africans to their home countries exceed ODA flows In 2012 total
remittances to Africa stood at US$60 billion ODA to SSA amounted to
US$44.6 billion o According to the WB, Africa could potentially
raise US$17 billion annually from securitization of future export
flows and remittance
Slide 17
Diaspora as catalyst to develop and deepen local capital
markets Zimbabwe has a large diaspora population living and working
in countries such as South Africa, UK, Australia, and USA, among
others. Diaspora remittances have become a major source of foreign
inflows, amounting to US$750 million in 2013. To improve the
investment instruments available to the diaspora, all non-resident
Zimbabweans are now permitted to invest in any listed counter on
the Zimbabwe Stock Exchange, without any limit (i.e. up to
100%).
Slide 18
Engaging new development partners o New development partners,
such as China, India and Brazil increasingly playing a prominent
role in the global economy o Chinese investments to Africa
increased from $317m in 2004 to $2.5bn in 2012 But only 4.3% of its
global totalpotential to grow Only 5 countries dominate Chinese
investment in Africa South Africa, Zambia, Nigeria, Algeria, and
Angola. o Brazil and India also expanding their reach into Africa:
emphasize shared colonial legacy, shared identity (Brazil) and
longer history on the continent
Slide 19
CONCLUSION o To attract additional financing: o African
countries must institute sound economic policies to attract
investors o Policies that facilitates development and deepening of
capital markets to attract long term capital o Strengthens
governance systems and capacity building in contract negotiation;
and o Addresses adverse factors which increase country risk
profile.
