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