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FINANCING AFRICAN MINING & INFRASTRUCTURE PROJECTS The role of DFIs in unlocking Private Sector Investments EMELLY MUTAMBATSEREECONOMIST, African development bank
OUTLINE1. key CONTRIBUTORS OF financing2. new procurement models / instruments 3. the value of development finance
INFRASTRUCTURE FINANCING IN AFRICA • Africa governments, 47 percent to total commitments ($89 bn) in 2013 • China second largest (15% of total commitment, 28% of external flows in 2013)
COMMITMENTS THORUGH PPP • PPPs have grown in importance as a method of procurement of (economic) infrastructure services in Africa (USD 110 bn between 1990 and 2013) • A mild positive trajectory is evident on investment commitments to Africa
KEY DETERMINANTS OF FINANCIAL FLOWS • Macro: • Global liquidity cycles • Number of prepared bankable projects • Natural resources • Macroeconomic stability (inflation, exchange rates, currency convertibility) • Sovereign risk ratings • Policies, legislation, institutions • Project level: • Cost and quality of capital • Tariff • Nature of off-take contract • Payment guarantee • Predictability of operating costs • Subsidy level and type
INNOVATIVE INSTRUMENTS • Other ‘innovative’ instruments tapping local markets, international markets, and natural resource wealth to finance infrastructure, e.g. • Local currency infrastructure bonds • External sovereign bonds • Resources-for-infrastructure deals • Sovereign wealth funds with infrastructure focus • Private equity funds with infrastructure focus • Important considerations: • Macroeconomic stability, strong debt sustainability monitoring • Development and regulation of domestic capital markets • Enabling environment for private sector procurements of infrastructure • Governance and strength of public resource management framework • Sharing of risks and rewards between the financier and the recipient country
FINANCING MINING IN AFRICA • Financing structure depends on • Degree of vertical integration – large equity share in vertically integrated operations • Global liquidity trends – MDBs mostly play a countercyclical role • Country context – large public investments in given industries & countries • Risk perceptions – sometimes MDBs involved to manage risk (A/B Loan) • Global conglomerates lead • >40% equity for iron group of metals over the period 2005-2010 • Commercial bank covering the bulk of the debt requirements • Investments follow discoveries • High share of FDI flows into Africa destined to natural resources rich countries e.g. 65 % of FDI in 2013 • Bulk of investments resource seeking; but also being leveraged for infrastructure
DFIs’ VAULE ADDED: Improving quality of development results