1 African Development Bank Group AfDB Presentation to the
Economic Growth and Employment Seminar Mozambique, February 10,
2011 Strategies for Regional Infrastructure Development and
Economic Growth Prof. Mthuli Ncube Vice President & Chief
Economist African Development Bank Slide 2 2 Presentation Outline
1.The state of infrastructure in Africa & Implications for
economic growth 2.Financing infrastructure development & AfDBs
Role 3.Lessons learnt from AfDBs interventions 4.Strategies for
infrastructure development and further engagement with the AfDB
Slide 3 THE STATE OF INFRASTRUCTURE IN AFRICA & IMPLICATIONS
FOR ECONOMIC GROWTH Slide 4 Mozambique lags behind the average
coverage for Sub Saharan Africa on all but 2 dimensions (mobile
telephony and internet usage) Ranks 42 out of the 53 according to
the AfDBs Infrastructure Index Slide 5 Regional connectivity
particularly lacking ONRI Presentation on RISPs 05.02.2010 Missing
links for physical integration of the African continent (AICD)
Region Central East Southern Western Total Large hydropower (MW)
1,383 10,968 8,912 3,758 25,021 Power transmission (MW) 1,662
27,755 23,839 11,250 64,506 Road upgrades (kms) 3,700 2,524 11,100
5,804 23,129 Fibre optic links (kms) 2,257 3,565 5,158 1,905 12,885
Slide 6 Source: AUC, AfDB, WB presentation at UN Millennium Summit,
September 2010 Slide 7 Slide 8 Slide 9 Slide 10 10 Why
infrastructure? (i)Good infrastructure creates an enabling
environment for economic activity: Lowers costs of doing business
Improves global competitiveness of local production Promotes FDI
and partnerships Promotes cross border investments and trade Hence
promotes productivity and growth: African firms could achieve
productivity gains of up to 40 percent with adequate infrastructure
GDP growth could be enhanced by as much as 2% per year Slide 11
Mozambiques growth has not been inclusive, in part due to
infrastructure bottlenecks (high transportation and energy costs)
Competitiveness of the economy is low (ranked 131 out of 139
economies Global Competitiveness Index, 2010) Slide 12 12 Why
infrastructure? (ii)Added pressure from consistent growth of
African economies, which has led to: Larger cities and increased
urbanization Growing consumer markets Broader ties to the global
economy Infrastructure stock must increase to support this growth
Slide 13 13 Why infrastructure? (iii)Linkages to local industry
Manufacturing Construction Financial markets Labor Hence growth in
infrastructure development activities has direct GDP growth
implications Infrastructure e xpected to become the 4 th largest
contributor to revenues in Africa by 2020 Slide 14 FINANCING
INFRASTRUCTURE DEVELOPMENT & AfDBs ROLE Slide 15 15 US$ 93
billion required annually to finance infrastructure in Africa
Current expenditure = US$ 45 billion Potential efficiency savings =
US$17 billion Financing gap = US$ 31 billion Slide 16 16 Innovative
Financing Instruments Traditional Design-Bid-Build approaches given
way to new and often long-term arrangements Attracting private
players into infrastructure provision through different forms of
PPPs (DB, DBOM, DBFO, BOO, BOT, BOOT, Full Delivery OR Program
Management) Advantages: Cost savings Fully integrated client
services Transferring risks Innovation Better asset management
Better level of service Partnering potential Developing a new
industry Benefits of economy of scale Slide 17 17 Innovative
Financing Instruments Source: Pekka Pakkala (2002) While long-term
arrangements are attractive they have disadvantages too: Costly
tendering process Longer tendering periods Reduction of competition
(social justice), usually for large contractors Uncertainty of long
term relationships Mobilization issues need to be addressed Loss of
control & flexibility Slide 18 18 Other innovative sources
include Local currency bonds Commodity-linked bonds Diaspora bonds
External sovereign bonds Sovereign wealth funds Require strong
institutions, credible policy environment Yet have benefits
Government maintains control Reduce risk of sovereign debt stress
Reduce instability of financing flows Deepen domestic financial
markets Slide 19 19 AfDBs Support to Infrastructure Lending
Sovereign incl. regional operations pool Non-sovereign (loans and
equity) Grants for technical assistance FAPA (US$ 16 million per
year towards private operations) IPPF (US$ 15 million per year
towards regional infrastructure operations) MIC (US$ 16 million for
operations in middle income countries) Risk Instruments Guarantees
Hedging products Coordination Hosts the Infrastructure Consortium
for Africa (ICA) Executing agency of the Program for Infrastructure
Development in Africa (PIDA) Slide 20 AfDBs Approved Financing by
Sector Ongoing as at 31.01.2011 Infrastructure sectors now attract
the lions share (46 %) of AfDBs financing Slide 21 21 2009
Infrastructure Loans & Grants US$6.05 Billion to Infrastructure
Projects US$700 Million to Regional Infrastructure Recent Key
Regional Projects Funded Kenya-Ethiopia Highway
Mozambique-Malawi-Zambia Highway Kenya-Tanzania Highway
Burundi-Rwanda-DRC-Kenya-Uganda Power Interconnection Recent Key
Regional Projects Funded Kenya-Ethiopia Highway
Mozambique-Malawi-Zambia Highway Kenya-Tanzania Highway
Burundi-Rwanda-DRC-Kenya-Uganda Power Interconnection Other Key
National Projects Funded US$2.3 billion Power Project in RSA Power
Projects in Botswana, Kenya, Uganda, Ethiopia, Lesotho Transport,
power and water projects in Mozambique Other Key National Projects
Funded US$2.3 billion Power Project in RSA Power Projects in
Botswana, Kenya, Uganda, Ethiopia, Lesotho Transport, power and
water projects in Mozambique ONRI Presentation to COMESA-EAC-SADC
2010 Slide 22 22 AfDBs regional infrastructure operations UA 1.17
billion in 2009, an increase of 57.9% over the 2008 level of UA
741.10 million 20 percent of ADF-12 resources allocated to the
Regional Operations pool Increasing participation by private sector
investors widening the resource base But innovations are necessary
Slide 23 23 AfDBs Support for Infrastructure in Mozambique
Communications Water Supply / Sanitation PowerTransport*TOTAL
Historic Operations - 1977-2010 (UA million)
35,230,78792,874,81082,403,884295,112,906505,622,387 Ongoing
Operations as at Jan 2011 (UA million)
18,000,00048,402,00030,100,00096,502,000 Recently Approved
Operations (UA million) 10,250,000 135,350,000140,620,000 *Includes
one multinational project, Nacala Road Corridor (UA 102.7 million)
Mozambiques transport sector historically the biggest beneficiary
of AfDBs funding Project pipeline shows continued strong support to
infrastructure (43 % of total allocation) MZFO, 2011 Slide 24
LESSONS FROM AfDBS INTERVENTIONS Productivity and efficiency gains
from infrastructure investments Cost effectiveness of regional
operations Alleviation of public investment constraints through
private participation Slide 25 25 Case 1: Senegals Infrastructure
PPPs Project objectives and financing: Four public-private projects
approved in energy and transport between 2009 and 2011 The
objective was to improve access and efficiency, and lower costs of
power and transport services EUR 1.1 billion financing mobilized
from private sector, DFIs (including AfDB), and Public sector Slide
26 ProjectKey Development Outcomes Dakar Container Terminal (EUR
210 million) Increased terminal capacity and productivity e.g.
capacity increased by 50% Lower indirect costs of trade e.g.
average waiting time for berthing reduced from 15 hours to 1.7
hours. Dakar Toll Highway (EUR 209 million) Increased road capacity
Lower indirect costs of transport by alleviating congestion e.g.
average travel time from Dakar to Diamniadio from 2 hrs to 45
minutes. Cost saving to the users estimated at EUR 165.2 million in
NPV. Senegal Coal Power Plant (EUR 195 million) Increase power
generation capacity e.g. 925 GWh of electricity generated, about
40% of national consumption in 2008 Improve quality of electricity
services e.g. reduce annual power shortages from the 176 days
reported in 2008 to 40 days by 2014 Improve national
electrification coverage (target: from 46% in 2008 to 66% in 2015)
Blaise Diagne International Airport (EUR 525 million) Increase air
freight and passenger traffic capacity e.g. annual capacity growth
of 3 million passengers and 53,000 tons of cargo freight (x3
capacity increase). Improve quality and cost effectiveness of air
transportation e.g. eliminate over-capacity operation at existing
airports. Slide 27 27 Case 2: Other 3 billion Networks (O3b),
Multinational Project objectives and financing: The project
involved the design, construction, launch and operation of a
constellation of 8 medium orbit satellites Objective: delivering
affordable, high bandwidth, high quality internet and cellular
access to inland markets in developing countries and island
economies One-third of capacity dedicated to Africa including 1 st
wave off-takers from: Nigeria, DRC, Kenya, Tanzania, Malawi,
Zambia, Cameroon, Sierra Leone, and Ghana Financed entirely by DFIs
and private investors (US$1.1 billion) on a limited recourse basis
Slide 28 28 O3b: Key Development Outcomes Reach white areas and
fragile states with high quality ICT infrastructure Improved access
to mobile telephony, broadband and data networks in 9 Africa
countries e.g. connect 18 million households to cellular backhaul
Lower costs of ICT on the continent. Cost savings versus the
equivalent capacity from high orbit satellites estimated at US$1.3
billion net present value Regional integration through expansion of
broadband internet and cellular access across several Africa
countries Slide 29 29 Case 3: North-South Corridor Program Selected
development outcomes: Lower indirect costs of trade e.g. reduce
time for clearance of goods from up to 5 days in 2009 to 37 hours
Improve port capacity e.g. increase cargo handled at Nacala port
from 0.9 million tons in 2009 to 1.6 million tons in 2015 Lower
transport and transit costs by 25 percent in 2015 on Nacala
corridor Slide 30 30 Case 4: Urban Water Supply, Sanitation &
Institutional Support Project in Mozambique Project objectives
& financing: To improve the coverage of water and sanitation in
four towns: Chkw, Xai-Xai, Inhambane and Maxixe Financing of UA
19.06 million (ADF Loan + Grant) Development Outcomes: Improved
access to safe water and sanitary facilities e.g. 284 595 new uses
served with potable water Lower costs of service delivery e.g.
non-technical losses reduced from 55% to about 30% Slide 31
STRATEGIES FOR INFRASTRUCTURE DEVELOPMENT & FURTHER ENGAGEMENT
WITH THE AfDB Mobilize domestic resources Attract private capital
Invest in regional infrastructure Invest in clean energy Slide 32
32 Strategies for Mozambique Performing more of the old functions
better Improve efficiency in use of allocated resources An
estimated 17$ billion per year lost through inefficiency in Africas
infrastructure sectors Increase public allocation to capital
expenditures for both new investments and maintenance The Banks
role: Policy-based lending, e.g. Nigeria power sector reform
program Technical assistance, e.g. FAPA TA grant accompanying a
private sector operation Slide 33 33 Strategies for Mozambique
Domestic resources mobilization Infrastructure bonds in local
currency Example Kenyas long-term government infrastructure bonds
Three bonds valued at (US$1 billion) successfully issued since 2009
The Banks role: Treasury / MFW4A developing financial markets on
the continent e.g. TA for bond issues, plans to invest in local
currency bonds issued in RMCs Policy-based lending for financial
sector reforms Slide 34 34 Strategies for Mozambique Attract
(foreign) private capital PPP model Example: Senegal Dakar Toll
Highway Total cost EUR 223 million (DFIs, foreign concessionaire,
local commercial bank, government) Bankability improved by (i)
long-tenor foreign currency financing from DFIs (ii) viability gap
subsidy from the state The Banks role: Financier Lead arranger e.g.
Lake Turkana wind farm in Kenya Honest broker e.g. Markala sugar
plantation in Mali Risk management through currency and maturity
matching Slide 35 35 Strategies for Mozambique Attract foreign
private capital Private equity funds, external sovereign bonds,
emerging markets investors Example: Africa Infrastructure
Investment Fund 2 (AIIF-2) US$ 500 million fund; US$5 billion in
additional financing mobilized Equity investments of US$ 10 100
million in up to 15 projects Target: power and transport projects
in southern Africa The Banks role: Equity and loan financing e.g.
AIIF-2, Argan Infrastructure Fund Influence geographic reach of
infrastructure PEFs /emerging partners Influence practice and
standards of infrastructure PEFs / emerging partners Slide 36 36
Strategies for Mozambique Invest in regional infrastructure
Regional hydropower projects are the continents least-cost power
development strategy & Mozambique has large potential Transport
corridors capitalizing on coastal access, e.g. North-South corridor
The Banks role: Financier e.g. about US$ 1 billion for N-S corridor
projects. (Already supporting Nacala road corridor with US$150 mn)
Project preparation and TA support, e.g. US$ 11.6mn under
NEPAD-IPPF for N-S corridor projects Honest broker Slide 37 37
Strategies for Mozambique Develop clean energy Capitalize on clean
and renewable energy resource endowment (hydro, wind), bio-energy
potential Tap into clean technology finance The Banks role:
Experience in project structuring and financing e.g. financed
Cabeolica wind farm in Cape Verde, and Markala sugar plantation in
Mali Public and private sector financing Risk management facilities
Slide 38 38 THANK YOU Office of the Chief Economist African
Development Bank THANK YOU Office of the Chief Economist African
Development Bank