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Prioritizing and Attracting Private Infrastructure Investments in Africa

May 10, 2013 By Philipp Gerbert , Henrik Emmert , Tenbite Ermias , and Sebastian Büchte

Global infrastructure suffers from significant and growing underinvestment. According to the G24, global demand for infrastructure investment will be $1.8 trillion to $2.3 trillion by 2020, more than double its 2008 level. Public infrastructure financing, however, has become more difficult to obtain as public budgets are strained. Since the financial crisis of 2008, and regulations such as Basel III, it has become more difficult for banks to lend—even as the use of risk mitigation tools such as collateralized debt obligations has been curtailed. Private capital will need to play a larger role in infrastructure financing if development is to keep pace with demand, particularly in the developing world. Private-sector investors will need tools to help them analyze and accelerate worthwhile projects.

In response to this need, the African Union Commission, in partnership with the United Nations Economic Commission for Africa, the African Development Bank, and the Planning and Coordinating Agency of the New Partnership for Africa’s Development formulated a Programme for Infrastructure Development in Africa (PIDA). PIDA’s purpose is to provide coherent, strategic, long-term planning for infrastructure development for all African stakeholders. The heart of PIDA is the Priority Action Plan, a list of 51 cross-sector programs to be initiated by 2020 and aimed at promoting regional integration.

This report, Boosting Strategic Infrastructure in Africa: A Business Approach to Project Acceleration, prepared in collaboration with the World Economic Forum, presents a methodology to identify and prioritize projects that may benefit from accelerated development up to the tendering process. This methodology is intended to accelerate private-sector involvement in infrastructure in Africa and provide a model that can be replicated and scaled up across continents. The report also gives an overview of potential new ways to finance acceleration of infrastructure projects.

The methodology contains a detailed portfolio of analytic tools to be used in four basic steps: unbundling complex programs into individual projects, grouping projects by their potential along three key thresholds (data quality and availability, project environment, and project complexity) to assess the basic project status, using “two-lens clustering” to illustrate candidate readiness and likely value creation and impact, and fine-tuning the shortlist of high-impact and high-value-creation projects on other key considerations, such as public support.

The report, supported by analysis from the African Development Bank, also shows some of the innovations and new products in African project finance, as well as other efforts currently underway to scale up infrastructure delivery in Africa. These include infrastructure bonds raised from the domestic currency markets or international capital markets; project preparation facilities, which are important for increasing the flow of funds available at the critical early stages of project development; equity, which plays a catalytic role in raising debt finance; and guaranteed products, which can mobilize private-sector financing and facilitate the flow of investments to non-sovereign projects in low-income countries.

The original version of the report was published by the World Economic Forum.

BCG is collaborating with the World Economic Forum on multiple infrastructure initiatives. Another report, Strategic Infrastructure: Steps to Prepare and Accelerate Public-Private Partnerships, looks at best practices for PPP preparation.

Download the full report
Prioritizing and Attracting Private Infrastructure Investments in Africa
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