By Marlene Panara: Le Point Afrique. Published on 23 November 2022
Akinwumi Adesina, President of the African Development Bank, is smiling broadly. In three days, the Africa Investment Forum (AIF), held in early November, brought together 1,800 participants, heads of state, investors and leaders of institutions of all kinds. But above all, the deals were fruitful: nearly 31 billion dollars were put on the table to finance infrastructure, green energy, women's entrepreneurship and sport-related projects on the continent.
At the podium of the Hotel d'Ivoire in Abidjan, the President of the African Development Bank (AfDB) relishes his success. "In Nigeria, we have a song that says 'everything na double double' (humming the famous chorus). Well, here at the AIF, that's what we did! Six months after its last edition, which was completely virtual due to the pandemic, the high mass organized by the AfDB has doubled the bet.
This year, the AIF will have mobilized a total of $63.8 billion for Africa. "Despite the challenges, we were not afraid, we did not despair or lose hope," Adesina said at the closing ceremony, in front of a conquered audience. We are delighted and committed to a collective goal: to transform Africa. A goal that will only be achieved with a strong mobilization of the private sector, "accelerator of African growth", according to him. Behind this fool proof optimism, the challenges remain daunting. How to convince investors in today's difficult economic and security context? Which sectors to choose?
Le Point Afrique: The economic context in which this 4th edition of the AIF took place remains fragile. In mid-October, the IMF announced that sub-Saharan Africa was "walking a tightrope" with a GDP of 3.6% in 2022, a decline of more than one percentage point compared to 2021. Has it been harder this year to attract investors?
Akinwumi Adesina: Africa faces the same challenges as other continents. We are going through a global economic slowdown that is also affecting the United States, China and the euro area. Africa is therefore not alone in this situation. What is very important, I think, what needs to be stressed is that most of our countries have recovered well from the shock of the Covid-19 pandemic. Growth on the continent fell by 1.6% to 6.9%. So yes, this figure has been challenged this year by the emergence of new variants, and more recently by the war in Ukraine. Growth has declined for obvious reasons: energy prices have tripled, effectively impacting the costs of transport and delivering goods and services to people. Difficulties in the supply of cereals have also caused prices to soar and cause shortages. Add to that inflation, monetary tightening policies in the United States and Europe... All of this creates a lot of pressure, but I think African economies are resilient. They proved it. This week, in the meeting rooms and corridors of the Hotel Ivoire, I felt a lot of enthusiasm. Africa is not necessarily synonymous with debt. It is also a territory that is constantly working to find investors to create projects. They are still expected to put their money in the United States. But the fact is that they are also looking to Africa, which is full of assets.
What are the opportunities currently to be seized on the continent?
The energy sector is a very promising sector. Today, nearly 600 million people in Africa still need electricity. The need for investment is substantial. The same goes for infrastructure, where the deficit is still at $108 billion a year. Water and sanitation, digital technology are other areas of the future. Here in Abidjan, we have proven it: the AIF was able to mobilize $31 billion in investments in less than 72 hours. This simply shows that Africa is bankable. Investors are confident. Projects are well developed and risk alleviated. Provoking direct discussion between heads of state and investors in a room is also a whole new way of doing business in Africa. Leaders act as CEOs, they leave the "Your Excellency" in the locker room.
What are the strong trends in terms of investment? For example, do you see a decline in international capital?
Foreign direct investment in Africa increased from about $47 billion in 2019 to $40 billion in 2020, eventually rebounding to $83 billion in 2021. In the infrastructure sector alone, we have invested more than $44 billion over seven years. This is four times more than the amount allocated by the World Bank and two and a half times that of the International Finance Corporation [Editor's note: a World Bank institution dedicated to the private sector].
Despite this, we concede, resources remain insufficient. Moreover, it must be said, the combined investments of all the multilateral development banks compiled will not be sufficient to achieve our development objectives. And even if China plays a very important role in terms of infrastructure financing in Africa, it must also address its internal issues. The question is therefore how, in the near future, infrastructure can be financed in a sustainable way.
So, what alternative forms of financing are available to support this next generation of infrastructure and development projects in Africa?
First of all, I think we have to say that this sector is not only a matter for the state and the public sector. Borrowing and taking on more and more debt is not a sustainable way to finance infrastructure. Many of them can and should be supported by public-private partnerships. But to get the private sector involved, you need to be able to present viable and successful projects. That is why the AfDB has developed the NEPAD Infrastructure Preparation Facility, a special fund to help African countries and regional economic communities develop projects in this direction. And it works. Endowed with $28 million by the AfDB, this fund has leveraged $26 billion in downstream infrastructure investments.
Beyond these funds, Africa must also be able to count on institutional investors. Today, the continent has several, supplemented by pension funds, sovereign wealth funds and other insurance funds, for a total of $2.1 billion in assets under management. To convince all these entities, it is essential to develop innovative financing programs. The AfDB is the lead agency. A few weeks ago, with the support of the British government and two reinsurance companies from Lloyd's of London, we were able to release $2 billion in sovereign assets. This is the kind of effort that Africa needs.
However, I would like to add one thing: African countries should not use their natural resources to support infrastructure loans. This, as President of the AfDB, I will not accept under any circumstances. Now we need to better finance infrastructure. It's not just about how much you invest, it also needs to be used properly.
While the consequences of global warming are already a reality in Africa, what place has been given here at the AIF to investments in green energy?
They have been part of all the discussions, believe me. We are currently developing several renewable energy projects, mainly in the hydropower sector. Africa has about 350 gigawatts of potential in this area. So, we want to make sure it's used. Now, 85% of the AfDB's investments in energy production in Africa are in renewable energy. You won't find that figure anywhere else.
Precisely, how can the AfDB promote green finance and renewable energies while ensuring development and electricity for all? What is your strategy for solving this difficult equation?
On this subject, I remain very pragmatic. What Africa needs to achieve its development goals is an energy mix. And this, so that the population has access to electricity. And this mix will also ensure security of supply that will allow the continent to industrialize. In this regard, natural gas plays a very important role The situation is the same everywhere, in the United States as in Europe. We see it today with the energy crisis that Europeans are experiencing: natural gas is important. For me, this is not an ideological question, but a question of pragmatism. Switching from coal to natural gas, and from natural gas to electricity, would reduce emissions by at least 45 to 48 per cent. Switching from the use of firewood and charcoal, which is the main source of energy consumption in Africa, to liquefied gas would therefore also significantly reduce our emissions.
Providing energy is also a tool in the fight against global warming. Because without energy, Africans will continue to be dependent on wood for heating and charcoal for cooking, resources that are highly polluting and dangerous to health. It is therefore very important for the AfDB to be able to provide energy to the population.
Many projects underway on the continent are aimed at supplying gas to Africans in various forms, for cooking and transport. And then, then, will come the time of the construction of gas pipelines, from Lagos in Nigeria to Morocco, and why not to Europe. Thus, Africa could help secure energy supplies for all.
On October 25, the AfDB released a report entitled "The Nexus between Security, Investment and Development: A Diagnostic Assessment". How does your institution deal with the insecurity affecting some countries on the continent? Does the deterioration of the security situation in these states impact your agenda?
Let me say that there are three sources of insecurity in Africa. The first is the forced displacement of populations due to climate change. Every year in Africa, more than 5 million people are forced to leave their villages, their cities, because of this scourge. I myself was shocked by the situation during a recent visit to Mauritania. The soil is so dry that no one can live in it anymore. I made the same observation in Mali. Lack of access to feed for animals and livestock, and the shrinking space available for agricultural production is also a source of insecurity. This has also increased conflicts between farmers and herders throughout West Africa. In the Lake Chad region too, land scarcity is diminishing the livelihoods of millions of people and producing misery. These people, who feel abandoned, are then at the mercy of violent groups, which easily recruit them to turn them against the state. The high unemployment rate is another factor of insecurity on our continent. This mainly affects young people, even though this youth is precisely our greatest asset. Affected by discouragement, they too may be tempted by violent action.
At the same time, it is a fact, there can be no development without peace and security. So, we need to understand these situations, and address their root causes. That is why the financing gap for climate change adaptation, of about $110 billion, should be closed. That is what the developed countries promised us, and a promise is a promise. This money is essential for us to be able to adapt and, thus, to reduce the resulting insecurity.
What are you doing at the AfDB to fill this gap?
We have created the African Development Fund for the continent, which finances climate change adaptation projects. Today, 37 countries depend on it. The goal is to mobilize up to $13 billion and help adapt these highly vulnerable countries that are suffering from a situation for which they are not responsible. The replenishment of this fund will take place next December.
Original story: https://www.lepoint.fr/afrique/afrique-comment-financer-les-infrastruct…