The rapid economic and population growth in most African countries has driven up infrastructure needs and deficit, but there remain little capital to finance it.
Recognising that infrastructure remains critical for Africa to improve the business environment, stakeholders have admitted to challenges, especially in accessing funds.
Speaking at the just-concluded Africa CEO Forum, in Kigali, both government and private sector players said that raising funds for infrastructure is quite often a challenge.
As a consequence of the funding gap, African countries are increasingly raking up debts, which has put their growth at stake.
Collin Coleman, from Goldman Sachs, an American multinational investment bank, said that the absence of capital markets and lack of interest by indigenous financial institutions to lend, has left many African countries heavily indebted to foreign lenders.
Statistics by the International Monetary Fund show that Sub-Saharan Africa was facing a pronounced rise in public debt averaging about 57 per cent as at the end of 2017, which is an increase of 20 percentage points in just five years.
Among the main challenges is the high cost of finances as infrastructure projects are often considered high risk and take long to raise returns.
The Minister for Infrastructure, Claver Gatete, said that there is notable mismatch between the finance needs for infrastructure and available finances.
Gatete decried that, with infrastructure a long-term investment, it requires long-term financing at low interest rates unlike what is currently available.
In the current finance markets, Gatete said that there is more of short term capital which makes its expensive for governments.
On the slow growth of the continent’s capital markets, Gatete said that there are limited sources of funding often limiting the government’s ability to invest due high cost of capital.
Gatete said that among the funds that can serve purpose in public infrastructure funding include pension funds, which are invested over long duration of time.
He said that, as for the case of Rwanda, they had seen the need to de-risk projects which, among other things, serves to encourage private sector investments.
Governments can de-risk projects by providing guarantees, investing in equity, and building an ecosystem around the infrastructure to increase confidence in the projects.
Gatete said that its time governments reduced their involvement in some infrastructure projects by opening them up to the private sector. He said that the model was already working for Rwanda’s energy sector where government was now buying energy from private firms with more projects of the same model underway.
Financing experts said that African countries also have shortcomings that can be addressed by improving technical capacities which would improve confidence of financiers, such as World Bank.
Samaila Zubairu, the President and CEO of Africa Finance Corporation, said that among the approaches that would reduce costs is having the right technical expertise which would improve confidence among investors that the project would be implemented in time.
editor@newtimesrwanda.com