Plant Equipment and Hire February 2018 | Page 15

BUSINESS also be the sponsor of the project, then a special purpose vehicle (SPV) could be incorporated, to which the bank can provide funding. Not to mention that construction companies, as EPC contractors, can also indirectly benefit from the bank’s funding through the SPV. Normally, the bank’s financing would cover part of the capital expenditure that is to be disbursed through the SPV (according to the milestone payments) to the construction companies. Generally, the bank’s private sector department has developed a financing strategy for infrastructure that aims to increase the resources available for investment. Such a large and complex initiative requires the mobilisation of different sources of capital through a variety of financial instruments, vehicles, and markets. Given the nature of physical infrastructure projects that normally require large-scale and long-term financing in a mix of local and foreign currencies, the private sector window can provide bespoke solutions or instruments that comprise: • Senior loans: with adapted maturities (up to 15 years) in foreign or local currency and limited to one-third of total project costs, with an option to fix or float the base rate. • Guarantees: partial risk guarantee or partial credit guarantee. • Subordinated debt: ranging from sub- debt to quasi-equity products with terms (grace period and basis swap) similar to senior debt. • Equity: direct (maximum of 25pc) or indirect through private equity funds. • Technical assistance: advisory services, capacity building support, SME linkage programmes. The investment eligibility criteria are as follows: • African base: project or entity located and incorporated in one of the 54 African regional member countries (regardless of sponsor’s nationality). • Privately-owned: majority-owned by private investors or publicly-owned with solid financial standing and managerial autonomy. • Productive use: establishment, expansion, modernisation of productive enterprises. • Commercial viability: financial structure; sponsor’s track record, experience and financial strength; strong and predictable cash flows. • Maximum limit: one-third of total project costs and a quarter for equity investments. • Positive development outcomes (employment, use of local content, tax revenues) and strong E&S performance. One of the key objectives of the bank’s private sector financing is to create a catalytic and demonstration effect by assisting entrepreneurs with specific transactions in infrastructure (for example, transport). It helps boost confidence in other lenders and investors to mitigate the risks associated with relative long-term maturity of infrastructure investments. The bank usually partners with other DFIs and commercial lenders and as a result plays a major role in resource mobilisation for infrastructure development. Governments might also consider mechanisms to stimulate market interest and make infrastructure asset financing more attractive so that a relatively small investment by government (for example through co-funding or a guarantee) could leverage much larger private sector financing. Examples include use of partial risk guarantees (PRGs) to de-risk and crowd-in private capital, viability gap funding (VGF) in the case of PPPs to make projects financially viable and attractive for private investment, as well as use of bonds through insurance and pension funds to pay for infrastructure projects. These are some of the innovative financing instruments that are increasingly being deployed to attract private financing into infrastructure projects, including roads. 3. What new road projects are you working on in West Africa? Tables 1-3 list the projects that were approved in 2016-7, as well as the proposed lending pipeline for 2018. 4. What goals has the African Development Bank set for road building across West Africa? The bank’s strategic focus is articulated in its High 5 priorities (Light up and Power Africa, Feed Africa, Industrialise Africa, Integrate Africa, and Improve the Quality of Lives for the People of Africa). Transport plays a catalytic role in supporting these priorities: FEBRUARY 2018 13