lending rates exceed 20 percent. This is because it is difficult to find infrastructure projects that generate sufficient returns to cover a cost of debt that is greater than 20 percent.

The share of total bank loans used to finance infrastructure has been on an overall upward trend in recent years (table 2.6). Of the 20 focus countries that reported these figures for the most recent two consecutive years, 12 countries showed an increase in bank loans outstanding to sectors that develop infrastructure. For Lesotho, the increase was particularly dramatic, with the figure rising from 2 percent in 2005 to 43 percent in 2006. In four other countries, the share of outstanding local bank loans for infrastructure remained stable over the most recent two years, at relatively high levels in two of these countries (Niger and Senegal). Three countries (Benin, Côte d’Ivoire, and Rwanda) reported a drop in the last two years. The largest decline in the allocation of local bank loans for infrastructure occurred in Benin (dropping from 18 to 12 percent over 2005–06).

These figures vary widely from country to country—from nil in Chad to 45 percent in Cape Verde. The absolute amount of the lending, except in South Africa and Nigeria, is small compared with the situation in the comparator countries. After Nigeria, which reported just over $2.4 billion in bank loans outstanding to infrastructure sectors at end-2006, the next-largest amount outstanding in a focus country, at $575 million, was in Kenya.

# **Box 2.1 Bank lending to infrastructure sectors in Chile and Malaysia**

The African focus countries compare fairly well overall with comparator countries Chile and Malaysia in terms of the share of bank lending going to infrastructure sectors (table 2.6). However, the total amount of outstanding loans to infrastructure sectors is dramatically lower than corresponding amounts for Chile and Malaysia in all focus countries except South Africa (for example, at $7.2 billion for Chile and $5 billion for Malaysia, and less than $500 million for all but three countries). Excluding South Africa, the total amount of outstanding loans for infrastructure sectors for all African focus countries for which these data are available ($5 billion for the 22 other countries) is equivalent to just under the corresponding amount for Malaysia alone and is $2.2 billion less than the corresponding amount for Chile alone. Moreover, the infrastructure financing needs of many African focus countries are greater than those for upper-middle-income countries.

Sixty-four percent of Chile’s outstanding bank loans for infrastructure ($7.2 billion at the end of 2006) was for the construction of roads, railways, ports, and airports; 29 percent was for electricity generation, water, and sanitation; and 8 percent was for telecommunications. The proportion of electricity generation and water and sanitation loans was up 12 percentage points from year-end 2005 while telecoms’ proportion dropped 6 percentage points; the share of construction of roads, rail, ports, and airports declined 5 percentage points.

In Malaysia, transport, storage, and communication attracted 56 percent of the total $5 billion in bank loans for infrastructure development purposes as of March 2006 (up slightly from just over half a year earlier). Twenty-six percent went to electricity, gas and water supply, down from 30 percent a year earlier.

Nearly three-quarters, or just under $5 billion, of the total syndicated lending to borrowers in Chile went to infrastructure development. As in the African countries, excluding South Africa, transport infrastructure received the most money from syndicated loans in Chile and Malaysia in 2006, attracting 36 percent ($1.8 billion) and 20 percent ($476 million), respectively, of such lending. Electricity generation ranked second in Chile as a destination for syndicated lending for infrastructure sectors, attracting 34 percent of the total in 2006, followed by telecommunications with 22 percent. Telecommunications, driven by mobile-phone service providers, attracted $1.22 billion, or just over half of all syndicated lending for infrastructure in Malaysia.

Source: Bank Negara Malaysia and La Superintendencia de Bancos e Instituciones Financieras de Chile.

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