Institutionalising enabling regulatory frameworks
Infrastructure projects are long-term in nature and involve a complex set of key stakeholders with diverse interests, and in certain cases potentially opposing (e.g., financial returns vs. social benefit). This makes it critical for countries in the region to create enabling regulatory frameworks for sustainable infrastructure development complemented by policy frameworks and/or market rules that are enforceable and fair.
Certain project and sometimes sector-wide challenges experienced in the region today illustrate a fundamental need for reforms to policy, legal and regulatory frameworks. For example, streamlining the number of government agencies and/or state-owned institutions with administrative and/or regulatory oversight for infrastructure planning/delivery will eliminate duplication of responsibilities, reduce bureaucracy and improve overall decision-making. This will provide sponsors and financiers with a lot more comfort and confidence to take on risk, given the typical lifecycle of infrastructure investments.
Furthermore, institutionalising reforms and policies by passing the appropriate bills and laws would limit uncertainties that come with a new political regime which might seek to reverse the development efforts.
Integrating national and regional infrastructure master plans
Infrastructure projects require considerable capital investments and the quantum of such investments could have significant impacts on public and private sector resources. To this end, it is imperative that a clear understanding of the prevailing state of infrastructure availability/deficiency is established, and this must precede any major capital investment. Greater infrastructure needs/deficiencies in a region usually indicate an increased likelihood of capital project interdependencies. As such, this necessitates credible master planning and integrated project planning. However, this is often simultaneously done at different government levels (national, state, and municipal/local) operating at cross-purposes. As a result, the project interdependencies across these different levels of government are usually improperly assessed.
Establishing the business case for infrastructure projects should be carried out in a holistic fashion. Integrated infrastructure master plans for the region should be underpinned by a sound evidence base, developed across national boundaries, and must be aligned with local or sub-national sector-based infrastructure plans.
This holistic approach would ensure that infrastructure projects are subjected to rigorous needs tests, thereby avoiding the likelihood of over-/under-development. It will significantly reduce number of projects either abandoned or that do not meet their set objectives.
Capacity building of key stakeholders
Infrastructure development projects require broad mix of diverse skills and competencies including engineering, legal, regulatory, commercial, management, finance, assurance, etc. The level of competence locally available in a region is usually built as a result of the experience which comes with multiple successful project executions. West Africa is challenged in this regard and as such we need to focus in systematically developing/deepening regional expertise in order to successfully build and sustain infrastructure.
Recent infrastructure acquisitions in the region have seen increased technical relationships and agreements between local investors or financial sponsors and foreign/global experienced technical partners or advisers. This is absolutely necessary for credible infrastructure delivery in the region given Africa’s current infrastructure delivery capabilities. However, a keen focus must be maintained on marrying local talent with international expertise right from the start of the project to ensure appropriate skills transfer. Unending importation of expertise on a large scale is an incredibly expensive enterprise for the longer-term infrastructure development cycle in West Africa. Sustainability requires a continued investment in building local/regional competence alongside delivering successful projects.
The development of training centres for both private and public sector stakeholders is one of the easier to implement initiatives that should be adopted by more knowledge-based organisations.
Harnessing private sector investment
Mobilizing private sector funding is crucial given the limitations on government finances across the region. Nearly two-thirds of respondents in the PwC infrastructure survey indicated external private sector financing for capital projects as being critical. There is an increasing drive towards new funding models such as public-private partnerships (PPPs) which are increasingly prevalent in the region. This funding model is in use in the US$2 billion six-lane dual carriageway connecting Lagos and Abidjan via Cotonou, Lomé and Accra. In Sierra Leone, the government recently announced that the China Railway International Company will build a new US$200 million international airport using a PPP framework with financing from China’s Export-Import Bank. The Nigerian government has successfully adopted PPPs for several transport projects. Recent examples include the 2nd Niger Bridge and the Lekki-Epe Expressway.
Leveraging private sector funds and management expertise in the planning, delivery, operation and maintenance of infrastructure projects is only achieved in a transparent enabling political/legal/regulatory environment. Reform programmes should protect both private investors and the populace without discouraging or stifling competition.
The key criteria for successful private sector participation include strong political support, a committed sponsor, a sound regulatory framework, viable off-takers or source of service fees, support from users of the service and appropriate allocation of risk amongst key stakeholders.
Expanding the pie in sourcing infrastructure finance
West African economies in the region are typically dominated by short-term financing provided by local financiers, usually commercial banks. Foreign commercial banks which may be able to provide longer-tenure financing are limited due to perception of regional/country risk and the inadequate hedging instruments for dollar-denominated financing.
There is the clear need to access and exploit alternative means of funding for infrastructure projects. This includes harnessing growing pension funds, sovereign wealth funds and insurance funds. These require the development of structured products tailored for the investment/financing lifecycle of infrastructure projects. Project sponsors and developers must also look to structure their projects appropriated to be able to secure funding from Development Finance Institutions (DFIs) and International Development Agencies (IDAs).
The funding structure of a significant number of projects embarked upon in the West African market clearly indicates a more effective capitalization structure with lower pricing and increased flexibly could be achieved with better project planning and a more structured fundraising process.
The time is now
Infrastructure development’s impact on economic growth and poverty reduction cannot be overstated. The World Economic Forum estimates that every dollar spent on a capital project generates an economic return of between 5 percent and 25 percent per annum. Conversely, the lack of infrastructure affects productivity and raises production and transaction costs, which hinders growth by reducing the competitiveness of businesses and the ability of governments to pursue economic and social development policies.
West Africa is making giant strides towards industrialisation and free regional trade in order to drive inclusive growth. The success of these initiatives, however, depends largely on improved infrastructure. This presents tremendous opportunities for businesses. With expectations, optimism and willingness among stakeholders to embrace new ideas and partners at a high point, there is no better time to invest in unlocking these potentials than now.
Ian Aruofor
