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Neill_58630 Jun 07

Shifting patterns of funding in Africa will help to address continent-wide infrastructure gap

Shifting patterns of funding in Africa will help to address continent-wide infrastructure gap image
Baker McKenzie’s latest report - New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding – outlined how the state of the African infrastructure market, and how the major global players’ approach infrastructure lending on the continent is changing.


While the IJ Global data showed a decline in the value of infrastructure lending in recent years, it is expected that as economies recover, new types of financing will emerge to help bridge the infrastructure gap. 

 
The report’s data showed that multilateral and bilateral lending into Africa has declined - with investment levels falling successively in 2019 and 2020, compared to peak levels seen after the financial crisis. In 2019, bilateral and multilateral lending into Africa amounted to USD 55 billion, which dropped to USD 31 billion in 2020. Over the last six years, the decline is significant - deal values dropped from USD 100 billion in 2014 to USD 31 billion in 2020. Deal tenor also contracted - from a high of 17 years in 2019 to 13 years in 2020.
 
This funding vacuum is unlikely to be filled by commercial banks. The data showed that in 2020, just 84 projects were supported by commercial bank finance and their involvement in Development Finance Institution (DFI) and Export Credit Agency (ECA) deals continued on a downward trend.
 
The infrastructure funding gap in Africa is so large and of such strategic importance, it remains necessary to encourage international investment to fill it. Addressing vast infrastructure gaps in energy provision, internet access and transportation have created an urgent imperative to identify and enable new sources of finance outside traditional lenders and international partners
 
Local and regional banks, specialist infrastructure funds and private equity and debt are stepping in to collaborate with DFIs and access returns. This outlines the deepening DFI involvement in the infrastructure ecosystem at large, with DFIs increasingly anchoring the infrastructure ecosystem in Africa. African DFIs are very good at collaborating and the new US administration, UK government and New Development Bank, in particular, have expressed their willingness to work with regional institutions in this regard. 
 
You can read the full report here