The Second Japan-Africa Business Forum

Session 5

Financing for Projects in Africa, PPP and Risk Sharing
Moderator

Charles Boamah
Senior Vice President of AfDB

Mr. Charles began by talking about the huge infrastructure deficit in Africa
which led to a loss of a lot of GDP growth. Some SMEs show that around
2% of GDP growth is lost just because of lack of infrastructure. Hence,
there is an urgency to bridge this issue of infrastructure gap. At the sametime, finance deficit or what it takes to finance this infrastructure is also ahuge amount.
Traditional sources like governments, institutions such as the African
Development Bank, the World Bank, etcetera, do not come close to whatis needed to bridge this gap. The private sector needs to be brought in amuch more significant way. Significantly, the financing for development
conversation that took place 2 years ago in Addis Ababa was really tobring the private sector into the mix.
Here are the estimates from the Infrastructure Consortium in Africa, ICA,
which talks about some 100 billion and then a gap of 50 billion. The
numbers have changed. Frankly, a much larger gap needs to be filled. At
the African Development Bank, when there is a discussion about the High
Fives agenda and what it takes to finance infrastructure, more than $200
billion a year is required. An amount this big is required to finance theinfrastructure in Africa.
Mr. Charles invites the panelist to talk about how one can go from what isneeded to what is available and all the innovative mechanisms needed toessentially bridge the gap.
Nobumitsu Hayashi
COO, Senior Managing Director of JBIC

Mr. Hayashi began by introducing JBIC.
JBIC used to be called Japanese EXIM Bank, like sister ECAs, but now has
been rebranded as Japanese Bank for International Cooperation, as it not
only does export-import but also does more on investment and equity
participation. The letter I in JBIC can stand for investment, infrastructure
or even innovation.
JBIC has around ¥80 billion or US $100 million in total assets. JBIC is awholly government-owned institution and supports Japanese companies’
exports and imports.
This is how the risks and benefits shared by the stakeholders in PPP look
like. Certain country’s government would like to invite private partners,
investors and contractors, who would bring greater efficiency and reliableservices to the project. Financial institutions, which provide long-term
financing and knowhow, are most needed in many African countries.
The commitment of public entities, either central or local government, is
important to prepare proper regulatory framework and implement them ina predictable and reliable manner. The government should have a good
preparation of the project at the outset and conduct necessary support
throughout the project for that particular country’s people to gain benefits.
This can be done through ECA’s and MDB’s, which are like JBIC andAfrican Bank respectively, support to the government and mitigate therisk for private investors and private bankers.
JBIC’s preparation for such a project preparation just does not come at
the financing stage. JBIC continually cooperates with Japanese companies
as well as recipient governments to identify project design and prepareand negotiate for those projects.
JBIC conducts a policy and a regulatory framework discussion for many of
its client countries on a regular basis and for other countries on a case-bycase basis. This is the support that JBIC gives in a seamless manner withthe host governments.
To the host governments, JBIC avails their
network of Japanese companies. JBIC’s participation makes Japanese
investors, engineers and financial corporations more confident about therisks they are facing.
JBIC has done a lot of projects with many Asian and Latin-Americancountries and wants to do more with African countries as they have set up
facility for African trade investment where they conduct equity
participation and two-step loans to support Japanese companies’ businessto facilitate infrastructure development, private sector growth andsustainable growth in Africa.
JBIC has committed US $7 billion on a project and has so far disbursed asmuch as 2.9 billion which means $4 billion still remains on the table. This
forum will hopefully help JBIC to identify bankable projects and work
together with JBIC as well as Japanese companies.
Toshitake Kurosawa
Director – International Finance Corporation, IFC

Mr. Kurosawa talked about the risk mitigation measures used to increase
infrastructure financing in Africa.
Development challenge is a huge colossal demand. The loss is 10 to 20
times larger than the estimated $100 billion globally. To meet the
infrastructure needs globally, several trillion dollars are needed.
This cannot be done through more ODA as it is stagnating. The ODA canbe expected to come by but it has already been marginalized for many
years. In contrast, the soaring Rising Star or the private capital forindirect investment is maybe eight or nine times larger than ODI already.

This is where IFC can get its resources but is the resource out there?
Being a private sector, the answer is, yes, the resource, money, and thecapital is out there in the form of the institutional investor, the large
pension funds, the large insurance companies, the sovereign wealth fundas well as the global bond market. In total, they account for more than$100 trillion, which is ten hundred times larger than the capital that is
flowing into the developing economies these days. An additional 1% or
2% from this private fund can probably meet the finance needed forinfrastructure in the developing economy.
Doing this is a challenge for the World Bank group. Two things have been
proposed. One is the cascade approach to maximize the private sector
flow in the developing economy and selective and strategic use of ODA.
Second is the de-risking instrument, which the private sector windows
have been proposing.
Cascade, in plain English, means a waterfall and this is how a waterfall
cascade looks like. This is how the scarce resources are prioritized andthe private sector money is maximized.
The first is a commercial bankable project. The private sector should beallowed to play a full role here. ODA public sector money should not be
used to crowd out private sector financing. Many of the developing
economy’s financing needs consist of non-bankable projects, which need
to be somehow made bankable to attract private sector money.
The second and the third is where the private sector fund can be
maximized by using de-risking instrument as suggested by the WorldBank.
First is to work on the upstream. The regulatory framework tends to be
wrong and that is why the private sector does not enter many countries.
This needs to be fixed because IFC knows how to work as a government,
which is the problem in a developing country.
World Bank has a policy-based loan. IFC has advisory funding. IFC can
use these instruments to amend the regulatory policy so that the private
sector can come in. Even after doing this, the commercial risk still seems
to be a problem in many of the African countries, where the market canbe very small and risk can be very huge, so the first loss is not affordable
for many of the private sectors. Proposals are being made to de-riskthese.
The private sector window is being proposed as the second tool. The
source is International Development Association, who funds theconcessional loan. Until 2017, this loan was used only for the public
sector but for the first time it was used for the private sector. To de-risk
financing for private sector, concessional loan will be used.

The fourth tool, which totals $2.5 billion and is already in use from July, isthe risk mitigation facility, the blended finance facility, MIGA guarantee
facility, and the local currency facility.
As the name suggests, the risk-mitigation facility is a guaranteed tool,
which would cover the first-loss risk.
In the blended finance, theconcessional rate can make the normal interest rate low and can cover the
first loss as well. The MIGA facility is to enhance MIGA on capacity. The
local currency facility is interesting because many countries, Africancountries particularly, have credibility and local currency problem. Thiscan be fixed up by de-risking this as well.
Charles Boamah stated that the point that is heard all the time is there isplenty of money out there but it needs to match the money required tocomplete the projects and a lot of the other needs that are not being met.
He asked Mr. Muto about his experience in solving this issue of there
being plenty of money on one side but the projects not being able to findthe money.
Tomoki Muto
General Manager, Head of Project Finance Office, Structured Finance Division,
The Bank of Tokyo Mitsubishi UFJ, Ltd.

Mr. Muto began by introducing MUFJ, which has had a presence in Egypt
and South Africa for a long time. MUFJ is also present in the project
finance area. MUFJ was ranked number 1 in terms of Project FinanceLeague Table for 5 years in a row. MUFJ earns its bread and butter fromthe infrastructure and the natural resources sector.
In Africa, MUFJ has been working on core projects in the natural resources
sector, namely, LNG plant or mining projects. MUFJ has also been doingsome things in the power and the renewable sector in countries around
Africa. None of this could have been done without the support ofmultilateral development banks and ECAs, Export Credit Agencies,
because of the absence of private sector in terms of investing money intodeveloping countries.
There are a few issues in financing private sector funding. One of thechallenging things for infrastructure projects in developing countries is thetenure. To start with, amortization is a challenge, as there is a pretty longtenure to provide international funding of long-term financing forcommercial banks.
Since MUFJ are relatively new into the infrastructure space, they need toget familiar with the regulatory framework of the PPPs.
How tocommunicate with the government in terms of the statutory framework
and also the procurement process and also how to develop the risk
mitigation process has been talked about. Some of the challenges being
faced by MUFJ in terms of financing projects in the African region are how
to communicate with the government in terms of the statutory framework

and the procurement process and also how to develop the risk mitigation
process.
More proactive interaction is needed between the local government, theJapanese government and the private sector in the early stage because by
the time financing is being considered, risk mitigation framework has beenpretty much set up. By the time the private sector gets the package andit is considered, maybe the risk mitigation structure is not as acceptable
as it would have been if the involvement was in the earlier stages.
This is one of the things that should be communicated more into theregion. MUFJ can also introduce its experiences around the other parts ofthe globe, to developing countries in the African region and also to
support global and Japanese clients who are actually investing into theregion.
Charles Boamah turned to Gad, and eleQtra had done quite a few projects
in Africa adding up to some 2000 megawatts. Based on the work that
eleQtra has done, what are the key policies and regulatory challenges
associated with it that can obstruct its way in getting the finance and theinfrastructure financing in Africa?
Gad Cohen
CEO – eleQtra

Mr. Cohen stated that eleQtra started in 2005 and focused exclusively on
developing Sub-Saharan African infrastructure. It developed, closed andfinanced about 1.2-1.3 billion worth of infrastructure projects, mostly inthe power sector but also in transportation and a little bit in bulk water.
Today, probably another 1000 megawatts worth of projects are being
developed pretty much across all regions. EleQtra has offices in Akra,
Kampala, Lusaka, and one opened recently in Maputo.
EleQtra has been very much focused on the continent as projects havedeveloped and closed over a period of 12 years. EleQtra has learnt a
couple of lessons in terms of regulatory and policy challenges that thecontinent faces and there are a number of things that need to behighlighted in that respect.
First is when private projects are being developed in Sub-Saharan Africa,
most governments view these projects as strategic assets. As a result
this bias or preference, they finance these projects themselves if they
have the funds.
Private sector participation in the strategic assets from the government’s
perspective is a default and not a primary solution. The private sector is
not coming in with an open door. One of the challenges that the private
sector faces is its role in improving the policies and regulatory frameworks.
The narrative and the work of the private sector becomes a lot easier interms of the benefits of investment in the strategic assets.

One of the challenges is to improve on the narrative because the private
sector clearly provides better value for money for the end users throughinnovation, technology transfer, efficiency, and over the life cycle ofprojects.
The second issue is one of perception and headline perception about thefinancing cost of these projects. It is a fact that private sector cost of
marketing these projects and closing them is actually very expensive. It
is expensive not only in terms of the financing cost but also because it isvery time consuming to bring in the private sector and have structured
transactions. There is also a political cost as a lot of the requirements tomake transactions bankable require the sovereign and the government tomake commitments.
A lot of the work that has been done over the last couple of years is toimprove on the private sector investment case. In that respect, there is
the right balance in the relationship between private sector andgovernment. To some extent, the regulatory and the policy environment
has not got it quite right. If the projects today are favorable to theprivate sector, it is because the risk transfer and the cost have beenshifted almost entirely to the public side. If there is risk after the project
has been built, then there is going to be a renegotiation from thegovernment.
If one is tilted too much on the other side which is essentially a transfer
risk borne 100% or significantly by the private sector without the required
returns, a weak project will be at risk. In worst scenario, the investors
will walk away.
Where these policies and regulations need to be improved to facilitate thework that is being done is to get as close as possible to that balance.
Unfortunately, each project is different and each individual developer ordebt investor, equity investor or the DFI have to get this balance right.
Charles Boamah asked Mr. Klousseh on how Africa50 positions itself inthis whole dynamic of infrastructure financing in Africa?
Koffi Klousseh
Director of Project Development, Africa50

Mr. Koffi stated that Africa50 would like to be of assistance as investors in
the project development and project financing of infrastructure in Africa.
Africa50 was established with the African Development Bank’s mentorship,
which was based on three main observations. The first is that the fundsupply for infrastructure financing is not lacking, as there are plenty offunds. Every year the African Development Bank, IFC and various banks
try to close deals but it is not working out, as the projects are
unfortunately not at the stage where they can get financing.
Second is the issue of bankable projects, which allow all the key
stakeholders like financiers on the equity and the debt side as well as thegovernment, to feel that the balance is right. The balance has to be right,
as the projects cannot tilt too much towards any of the stakeholders. Thismeans risk allocation has to be standard, needs of all the parties should
be respected and procurement processes should be predictable.
Product development is extremely expensive as the money utilized andspent towards the project might not be regained, and there is no surety
that the project would reach financial closure. Hence, predictability isimportant as it provides the knowledge that if one has done a project, it
will be financed and it is critical for it reach the finish line.
The third observation that created Africa50 is that it has been a market
player in African infrastructure, where Africans in the form of financiers,builders, constructors, EPCs, and maintenance were a minority as most ofthem were from outside of Africa. Only a few certain types of projects
that got their interest are the projects they are familiar with or the ones
that are probably led by known entities, so they know how tocontractualize and deal with them. Some other interesting projects might
not get as much interest.
It was important to have an additional African player in the market forsustainability. In 15-20 years’ time, when things change, governments
might renegotiate a deal or the companies receiving concession might end
the deal as most of the return has been obtained. Having a local African
stakeholder is meaningful and sustainable.
The African Development Bank took these three observations into
consideration and 23 African countries invested in Africa50 to develop apipeline of bankable projects under the Africa50 Project Development
mandate, invest in infrastructure under the financing close or long-term
financing mandate, and catalyze public sector capital resources andmobilize private sector money.
Africa50 intends to have investors invest in African projects by its
presence, role in structuring deals and be a bridge between private
players and governments that are its shareholders.
Geoffrey WhiteCEO – Agility Africa

Mr. White started by introducing Agility as one of the world’s largest
logistics companies with over $5 billion in revenue, 24,000 employees,
and 550 offices worldwide. Agility moves goods for a whole range ofmultinational and smaller companies worldwide.
Agility focuses on
emerging markets, with one of its core competencies being operating,developing, and managing warehouse parks. Currently, Agility has 20
million square meters of warehousing parks worldwide. Two years ago,
Agility reached out to its core customers to gain knowledge about Africa
and what it should be doing in Africa.
As a logistics company, Agility has operated in Africa for 60 years. Agility
understands the continent but wanted real feedback on the requirements.

The moment has passed where 5 years ago companies knew very little
about Africa, but a whole range of companies came back as they werekeen to get involved and do business in Africa. The constraint of doing
business in Africa is accessibility to operational infrastructure to carry out
business.
To deal with this, Agility came up with a mainboard strategy 2 years ago
to build a network of warehouse parks across the continent. This was norocket science, as Agility has got the experience and capabilities of doing
this. Agility has embarked on a program to acquire 100 acres in 50 key
locations around the continent to build a network, which is an importantpart of it. The customer feedback was to be able to move goods from one
country to various other countries, same infrastructure quality, same
warehouse management systems, and being able to track and traceability.
This aligns with whatever Agility is saying today about growth andopportunity of regional trade. Agility started the program and chose tobuild the first project in Ghana. It acquired a site at Tema’s Free Trade
Zone Enclave in Ghana, built the first phase and got it up and running.
Basically, it is a 500,000 square meter site which enabled Agility to build
300,000 square meters of warehousing on each of the 50 sites across thecontinent. These sites will be interconnected for goods to move easily
between them.
At its warehouse parks, Agility guarantees three service-level agreementsthat the power will never go off, the IT will never go down, and it will be asecure environment. The concept is to create an enclave, which helps
focusing on doing business. Two clear markets were identified. The best
way to explain this is two Ghanaian case examples.
One is that a multinational company, the largest dairy in the world withrevenue worth €9 billion, was looking to invest in Ghanaian market. Theirplan was to invest $5 million in Ghana, $4.5 million to build the facility
and $500,000 to get it up and running, working capital and processing
equipment. Their investment theory was opposed to taking $5 million risk
in Ghana. Agility was able to change their model by leasing them awarehouse developed and built by it. The warehouses meet international
standards and are run by an international company with a wholemanagement team. The multinational company was able to make theinvestment decision of coming to Ghana at $500,000 risk as opposed to$5 million risk.
The second market that is clearly and arguably larger than themultinational business is SME development and growth. SMEs struggle toaccess capital at good prices to grow their businesses.
One of Agility’s first tenants in Ghana was an SME from the agri sector,
packing and processing agricultural produce. They were unable to breakinto the export market due to lack of a proper facility to bring people toinspect it and see their business model. They went to a South Africanbank that loved their business and agreed to lend $3.5 million to build afacility and charge in cedis an interest of 29% for the lent money. With

that margin, it was a non-starter for a business. As opposed to this, themultinational company took one of Agility’s warehouses and set up theirfacility on 3 months’ deposit without having a heavy balance sheet or
financial guarantees.
Consequently, they got export orders into the Middle East, Europe, andSouth Africa and it transformed their business to the extent that they sold
30% of their business to raise money to meet the working capitals of their
new business model.
Prospectively, Agility creates platforms that enable businesses tofundamentally align with infrastructure growth.
Financially, Agility
acquired the sites, which are currently up and running in Ghana. As
Ghana has moved on to phase two and three and is almost full, Agility has
started under-construction projects in Senegal, Cote D’Ivoire andMozambique. Agility is also doing projects in Angola, Nigeria, Tanzania,
Kenya and Ethiopia which will all start before yearend.
Financially, Agility is sufficiently lucky as a company as it can self-funditself and raise the capital for the business plan for Africa. Agility’s model
can self-fund the initial roll out of the projects and this can be leveraged
on the basis that the site has been acquired and construction is being
done. Agility is business cash positive, which will not only make it easier
but also competitive to bring in extra funding to rule out the program.
Charles Boamah summed up that the above discussions talked about
different types of infrastructure, logistics critical to competitiveness of
African countries, infrastructure related to logistics and energy and leftthem with the basic question of how to tackle the huge finance gap for
funding infrastructure in Africa.
The discussion also touched on the issue of dealing with the lack ofbankable projects and how the regulatory environment and the regulatory
reforms can correct it.
He asked what JBIC was doing to improve or create a better perception of
the regulatory policy environment to attract more infrastructure and PPPs
to Africa.
Nobumitsu Hayashi highlighted two aspects of the risks. One risk is at theinitial stage and the other is in the long run. The risk is highest forinvestors and lenders at the initial stage, when construction is being done
and before the project becomes operational. The government has to bewell prepared and JBIC and the African Bank can help in project
preparation.
The other aspect is that the project has to run long for 20 or 30 years andthe lenders especially feel the risk for the long time duration. It isnecessary for the regulatory framework to be well-planned and wellimplemented. In both short and long term, the government’s role as wellas commitment is very important.

Charles Boamah asked IFC to comment on the challenges and risks thatexist in low-income economies and the solutions to these problems, as IFC
does a lot of work in Africa and in other parts of the world.
Toshitake Kurosawa stated that there are many obstacles and challenges.
He gave a concrete example of a solar project called Scaling Solar, which
has been successful in Zambia, West Africa.
What makes this project bankable from non-bankable in a country like
Zambia is land acquisition needs to be done to put up solar panels. It is
not easy for a private entrepreneur to acquire land as it always
complicates the best of interests. Zambia also does not have a regulatoryenvironment for solar panels and electricity grid. Zambia also does nothave the regulatory authorities in place due to which it lacks an objective
way to set the right tariff. There also needs to be a tender mechanism tohave competitive tendering. All these things need to be set up.
To wait and see people doing all this will take ages. The World Bank andthe IFC came together with the Zambian government to work on theissues of regulation, land acquisition, tariff structure and tendering
mechanism. Towards the end, they identified some commercial, but notpolitical risk, with high first losses.
IFC is doing something with blended finance by proposing something tocounter commercial risk first loss, which the government or the publiccannot cover.
With IDA, concessional loan and climate change issomething very important for IFC’s objective. IFC can probably use IDA’sconcessional financing. IFC has many tools and aspects to deal with themany challenges and obstacles faced in Africa. This example can be
replicated in many other places in the country.
Charles Boamah invited MUFG to comment on their experience of whatneeds to happen for them to invest a lot more in the infrastructure
projects in Africa than they have at this point, keeping in mind theregulatory environment or the difficult negotiation between thegovernment and the state side’s view of where the dial should be and thetypes of reforms that should take place or the tax exemptions provided
not being necessarily good for the states all the time.
Tomoki Muto stated that there are some simple things that can betogether worked on to bring in new private sector money into the region
to build infrastructure. One of the common themes across our panel isthe regulatory framework’s certainty. In terms of certainty, a very strong
commitment from the local or national jurisdiction is needed to show thebroad range of project pipeline.
In the pipeline of multiple numbers of projects, decision needs to be takenon the projects that need to be done on a priority basis and within acertain time frame. Although simple, some of these things are notnecessarily available to the private sector, but if available can attract theprivate sector.

Another challenge for international banks like MUFG is to form
relationships with the local financial institutions. Some jurisdictions givesome priority to the local banking institutions rather than the foreign
financial institutions.
Some of these priorities are very simple likeprocurement processes that are scheduled to bring in new money. To
bring in foreign investment into the country, there are things that can bedone to work together with the local financial institutions.
Another thing is probably related to the project pipeline. When it comesto infrastructure, a lot of the financial institutions worldwide think of megabillion dollar projects. In terms of visibility, they are very important but
there is a cost involved for the new entrants or newcomers into themarket.
The project does not necessarily have to be mega in size. Some countries
in other regions started off with very small financial projects, which led to
big successful PPP Programs. This commitment, visibility or interest for
local institutions to bring in foreign investment needs to be worked upon
to improve the regulatory framework.
Charles Boamah asked Gad about the projects done at PPPs which would
have been successful projects and for those that were not so successful
there were lessons learnt from those. What were the key factors for the
success of these PPPs?
Gad Cohen stated that the unsuccessful projects were worth it because of
the lessons learnt but were eventually closed. One fundamental thing fordeveloping a particular project in a country or in a particular sector is theabsorption capacity, which is not just the sector’s ability, like a power
plant to pay for it through a tariff, but also the human resources.
The question is whether the government actually has the capacity toprocess the transaction. Sometimes the project has actually been slowed
down because there was a queue and the government did not haveenough capacity to actually process a lot of the transactions.
In many markets today, there are queues to get projects done. In West
Africa, Ghana and Kenya have attracted a lot of potential investors but thestate or the government does not have capacity development to actuallyprocess these transactions which takes a long time forcing the private
sector to walk away in some instances. This is critical. From a finance
perspective, the most fundamental aspect of it is absorption capacity.
Many African countries are in serious need of infrastructure. In reality, allthese countries are bankable to that extent over the short term.
Since the economies are much smaller, a lot of the investment isnecessarily going to take place over a much longer period of time thanideally desired.
A successful PPP is one that actually judges theabsorption capacity. In many instances, if not judged properly, the deal
does not close on reaching the finishing line as the government cannot
commit to the degree of contingent liability that it needs to. Worse, if thedeal actually closes, there is an inability on the part of the parastatal of
the government to honor its obligation where there are delays.
A successful PPP discusses about risk sharing and who bears the risk andhigh and low tariffs by looking at the fundamentals and ensuring that thecountry is bankable and can actually support that investment. There aremany examples where small countries bring in big projects, which are
already a red flag and would not make a good PPP. Small countries canalso think big and should think big, if they can afford it. The dynamic
constantly needs to be judged.
Charles Boamah stated that there are huge and urgent needs, like there
are close to 640 million people in Africa without electricity and for them towait for another 10 years to gain access to electricity is not necessarily an
option. Something needs to be done by ensuring that the gap is bridged
notwithstanding some of the existing challenges.
Gad Cohen stated that unfortunately it may not necessarily come from theprivate sector. It needs to come but a lot of it should come from thedevelopment institutions and the public sector as the threshold is imposedby the private sector and it is not high just for the equity investors but
also for the banks and the DFIs.
One of the reasons for not being able to see more bankable projects withthe system is that the bankability standards imposed by the development
finance institutions are not that different from 20 years ago. Yet theeconomies of the countries have improved tremendously. The enabling
regulatory environment has not improved and if the standards and risk
aversion remains, then it is difficult to get that volume. Some of these
constraints need to be loosened up a bit on the part of the financing
institutions funding these projects in Africa.
Charles Boamah asked Mr. Koffi how Africa50, being a relatively new
outfit with a very important mandate, was looking to address the problem
of boosting private sector investment in African infrastructure andpromoting the development of PPPs.
Koffi Klousseh stated that there was a need to restore a better balance inface of the challenges of having different stakeholders upholding very highstandards on countries that are somewhat smaller, have less capacity andless resources. It is difficult to close a project finance deal in Africa as thenumber of contracts, the legal fees above $2-$3 million, and theguarantees requested from the governments are sometimes extremely
high and strenuous while they themselves are facing fiscal challenges thattie them up, with the IMF telling them that their currency is not faring wellto take dollar-based guarantees right now.
This makes it extremely difficult for the government to make it work andactually increases the lukewarm nature of government’s approach towards
PPPs to finance infrastructure.

Africa50 wants to make a difference by bridging this gap. It understands
how these deals get closed and can also speak to both the parties. It cantell the government to be more consistent and coherent in the way they
make regulations and do procurement, by not moving the goalpost every
2 weeks.
If a bankable feasibility study is given, Africa50 will give them the rights
to the project and will guarantee them that they receive what they havebeen requesting. The same holds true for the private parties in terms ofsponsors and lenders, who should not overpromise by stating that they
can give a project for $150 million when they know that it would costthem 20%-30% more and then the goalpost will be moved. This issomething that Africa50 wants to address from the beginning and bereally clear.
The asymmetry of information between governments is not clear withregards to their priorities or priority projects or which projects they want
to see financed and the lenders or the financiers being demanding interms of nuts and bolts guarantees.
A study done by Peter Boshoff and Sam Young on product financing IPPs
in Africa in 2000 shows that the non-performing loans were below 2% or
1%, which is a ridiculous number and shows that the requested number
was over and above what was needed in terms of credit. The African
government today is faced with this problem and is struggling with it.
Africa50 wants to bridge that gap by teaming up with sponsors andfinanciers alike to structure sensible projects that allow bigger numbers tobe achieved.
Charles Boamah summed up by stating that on one hand there are thegovernment policies, stability, and predictability to some extent and on
the other hand there are the persistent issues of risk misperception
despite the fact that the statistics that the returns on risk-adjusted basis
are actually the highest.
He asked Mr. Geoff to elaborate on the role that the DFIs and the private
investors vis-à-vis the private sector need to play in order to addresssome of these issues.
Geoffrey White stated that the overwhelming issue was that ofmisperception about real and perceived African risks.
Interestingly,
Agility’s business model is that of building landscaped warehouses ofinternational standards that are the same throughout the world. It is norocket science. There is a coffee shop for the staff, so it is all about
adjusting the risk.
Agility in coordination with the Ghana Investment Promotion Agency
works on promoting Ghana as a destination for West African hub. GIPC isgreat at bringing people together and then all that is needed is mitigation
mitigate of risk perception.

Firstly, Agility builds an environment that they are comfortable in and thatis the same as their warehouse anywhere in the world.
Secondly, Agility goes way beyond just being a landlord, who leases
warehouses to companies, but it helps people in getting visas to get themin and out of the country and with other things like a good or a bad hotel.
In Africa, there is a massive need to be that safe pair of hands and givethat reassurance.
It actually works in both ways. It encourages the private sector to comeand invest in Ghana, which is a great place, like other countries that
Agility is moving into. Agility also helps in building relationships with thegovernment by getting in contact with the GIPC or the Ministry of Financeand saying that one of Agility’s potential tenants has got a question about
tax or exports-imports and can the client’s warehouse be marked as a free
trade zone or not. Mitigating all these uncertainties makes the investment
process much simpler.
Charles Boamah opened the floor for audience questions.
The point about bankable or lack of bankable projects goes back to thediscussion of there being lots of money out there but not enough bankableprojects. This problem needs to be tackled. More needs to be done tosolve this problem, which appears to be a huge impediment to actually getin the hundreds of billions of dollars needed to finance infrastructure.
Mr. Takeuchi, a Japanese journalist working for International Development
Journal, stated that many people mentioned the financial gap in theinfrastructure investment but did not mention the new banks, new MDBs
such as the AIIB or the other new banks.
It is reported that AIIB will lend money to African countries in the future.
What contribution is expected and how would it be different from Chinesebilateral financial assistance? Are there any concerns about AIIB being
considered as a young and a Chinese bank?
Mr. S. Kuppuswamy, from the Shapoorji Pallonji Group in India,
representing Confederation of Indian industry, stated that his group in
India has substantial experiences in PPP projects, which have been
progressing quite well over the past few years, although there have been
projects which have failed in India.
The angle of financial gap or viability gap funding cannot be missed. The
government has a role to play at any cost and it cannot be ignored.
The viability gap funding cannot be ignored. Since all projects are notviable on their own, a mechanism to fund the viability gap needs to exist.
In African countries, one path that needs to be championed is the bilaterallines of credit that are given to governments. Instead of paying for theentire project cost, it can cover the viability gap, which can be repaid in
two-three decades. This could be an acceptable way of bridging the gap

for the African governments and attracting more and more projects into
Africa. A formula needs to be formed for this.
Eder Sukki, from the Korea-Africa Center, Seoul, South Korea, stated thatthey were planning to organize the Korea-Africa Business Forum, although
on a much smaller scale since it is their first attempt.
He was interested in the financing projects in Africa, especially on thecomments that Africa has changed over time but ECA and the public
sector is maintaining the standard since about 20 years ago. This meansthat the public sector is ready to do business in Africa, but ECA and public
sector still remain conservative.
This holds true for the Korean government as well. Like JBIC, there is the
Korean EXIM Bank, which is supposed to support Korean companies’
interest in doing business in Africa. Although the Korean EXIM Bank
supports and does some lending, the amount of the financial support theyextend to Korean companies and organizations remains inadequate.
He asked Mr. Cohen about how to make some financial projects more
viable in Africa. Should the public sector or donor countries or other
African countries be more forthcoming?
Charles Boamah invited the panelists to answer the question on what the
IFC thinks about AIIB and the New Development Bank.
Toshitake Kurosawa stated that the AIIB is another MDB that IFC
cooperates with. Both the World Bank and the IFC already co-finance a
project in Asia, but not yet in Africa. In totality, AIIB would co-finance theproposed safeguard standards and follow them strictly.
The question is if AIIB’s assistance in Africa helpful. The answer is yes but
not much because the amount of ODA flow is limited. It does not dependon the amount provided by the ODA institution but the amount that theborrowing country can obtain because there is a fiscal constraint toborrow public funds. Although this help is limited quantitatively, AIIB’s
participation might help.
Secondly, the most important question that the African countries and the
public sector are facing is absence of many bankable projects. This issue
cannot be solved by extra financial resources but by fixing the regulatory
framework and by the de-risking instrument. In conclusion, although AIIB
participation is okay, it is far from any solution.
Gad Cohen stated that although the points were valid, AIIB’s participation
was still welcomed. Availability of more financial resources is fine. China
has a huge trade surplus, which is absorbing the demand from world over.
It is fine to invest this money overseas in emerging markets. This isanyway being done through bilateral co-operations. It would also be fine
if it is done more through MDBs like AIIB, which is an internationalorganization.

Charles Boamah stated that Ethiopia and some other countries had
actually joined AIIB and so it is already happening where certain countries
are already member countries of the AIIB.
Koffi Klousseh stated that it is an important and a helpful policy tool forthe government to make sure that certain projects that cannot be fully
privately funded are funded. The issue is that the policy is not wellformalized, which makes the objectives of the governments unclear. The
question is how the viability gap funding is applied and to which project
and whether it is done in a conducive manner to make things work. The
construct or the framework is the issue. The tools are there and can beused properly or improperly.
One of the few success cases is the Dakar Toll Road in Senegal which is
the only PPP toll road in Sub-Saharan Africa, outside of South Africa. The
government funds 70% of the total cost of the road and allows the other
30% to be funded by a private party, in this Eiffage from France who havebuilt the road. They have a concession for 25 years. The development
around the corridor really is extremely important and the traffic grew
30%-40% of what was projected. It is a significant tool that makes theoriginal viability gap funding very small in comparison to the economic
return achieved.
Charles Boamah invited one last question from the audience.
Amadeus Matai, overseeing the SkyPower business for Middle East andAfrica, stated that they are very much into the renewable energy power
sector with a number of projects to be executed in this year.
The panelists talked about the pure vanilla type of financing, which isgreat. What are the innovations that one can have because there is a lotof capital lying around the first losses?
Although the capital around the agricultural sector is being used, can thisfund be used to guarantee the concept of first loss from the sovereign
fund, the JICA, and from the other funds to eliminate the risk element on
those projects? On a more macro level, is there a plan to use those funds
as a backer, not necessarily use the capital but be ready if things gowrong? Can this be structured for Africa to drive the infrastructure
investment going forward?
Charles Boamah stated that the question related to having some kind of
first loss arrangement and why not. All of this is really matching risk
appetites when one looks at all the different players in the infrastructure
spectrum and particularly in the different phases, like the construction
phase where the hold is strong.
In the project development phase before construction, there are different
types of risks and clearly there are different players that are able to takecertain types of risk. The question is why this is happening where there
are certain guarantee instruments, like the partial credit guaranteeinstruments, which are used to essentially play the role of backing losses
should they occur. The answer would be why not.
Knowing the problem and describing it eloquently is the easiest part. At
the same time, there is a lot of money, trillions of dollars, out there andthere are huge unmet needs in terms of the infrastructure gap. Bringing
the two together has not happened at the pace it should happen. What is
the one thing that needs to be done to essentially address this very
important issue of how to bring the money to where it needs to be?
The pension plans and the sovereign wealth funds are frequently referred
to in terms of the money it has, and if there is an investment manager
and if there are investment guidelines, there are things that one cannot
do with the money, as it is a fiduciary responsibility. What can be done inthis regards?
Mr. Charles invited closing remarks from the panelists on the above
questions.
Nobumitsu Hayashi stated that there was discussion about the lack ofgovernment experience and the lack of bankable project. The only thing
to gain experience is try to do it and gain know-how. JBIC did the copower project in Safi, Morocco. This was the first ultra-super critical coal
power plant, IPP type of project finance. JBIC has a lot of experience inAsia. This experience was brought to Africa, where with the African bankthe project was duplicated in many more other African projects.
Toshitake Kurosawa stated that there was over hundred trillion dollar
worth of money out there. Africa needs $100 billion infrastructure. Froma global perspective, financing has become competitive, where all otherregions and countries are competing to get the funds. Latin-America andAsia are doing better as they are good at de-risking and are good at fixing
the regulatory stuff. This needs to be worked out for sure.
From the World Bank’s and IFC’s perspective, Africa deserves to put moreresources to compete with these competitive regions and countries. This
is why the new IDA instrument has been introduced which is mostly
focused on African countries by the way. This instrument would help put
African continent on an equal footing with other more competitive andmore money-attracting regions. This would hopefully take the Africans to
the level they have always wanted to be for a long time.
Tomoki Muto stated that he heard some mixed messages in terms oftaking risk in the private sector, which is considered conservative wheresome people. There is a balance between who should take the risk interms of allocation. Risk allocation is the key.
It is quite simple to decide at which stage the private sector comes in, be
it the stage of the project or the stage of the country, with the support
from the public sector. The projects that are suitable for the private
sector have some grade in terms of granularity to transportation. This
stage happens step by step. All the developing countries come into theprivate sector financing in terms of their gradual growth into the private
sector financing. The point is that each project has its own stage andeach country has its own stage.
Gad Cohen stated that the number of bankable projects in today’senvironment, where a lot of African countries have had a track record, canbe augmented by redefining bankability and allowing more projects to beable to access financing. Redefining bankability is going to come by virtueof competition from different financing sources, like the New AsianInfrastructure Bank or other funding sources that will create somecompetition. At the same time, African governments need to show moreconsistent performance. If it gets to that point, then the things should
start flowing.
Koffi Klousseh stated that the Africa50 side is open for business and would
like to team up with Japanese sponsors and have these conversations todevelop projects in Africa. With regards to the trillions of dollars that canbe taken advantage of to build infrastructure in Africa is something thatcan only be done step by step.
At first, the $50-$100 million plain vanilla-type projects need to be donesuch that it is accomplished without any outside intervention. If the
projects are carried out seamlessly, then one can move on to the billion
dollar and trillion dollar projects. If it becomes a struggle to accomplish$100 million projects, it does not matter whether there are billions ortrillions out there as they will be inaccessible.
Geoffrey White stated that his final observation would be about people
that want to go and transact in Africa. Again, the challenge is not themarket as there is a huge market opportunity. There are huge amountsof funds that are waiting to be invested in Africa. It is a two-way
communication. What is frustrating is that the transaction execution in
Africa takes four times longer than anywhere else in the world. Simple
procedures like coming in to set up a company, leasing a warehouse spaceand start operating is just a tortuously slow process.
There is a big emphasis on investment promotion agencies and one-stop
shops to make this process as templated as possible. It is difficult tounderstand why everything is not templated, without upsetting all thelawyers in the room who probably fly on their private jets. There is astandard contract for a deal which is already 90% accepted bygovernment, the private sector, and by everybody and the other 10%
needs to be tweaked. Months are spent putting it together rather thanevery deal being started on a fresh piece of paper.
Charles Boamah summarized that in order to develop more bankableprojects work needs to be done on policy, stability and predictability.
Conversation and theory needs to be put into practice by actually doing it
and making it happen.

Mr. Charles concluded the session by thanking the panelists for theircomments and insightful sharing of their experiences on this very
important issue of infrastructure financing in Africa.