INSIGHT. Development Finance Institutions Support to Infrastructure Development in SADC and COMESA. About the ECA-SA Office

Transcription

1 E C A - S A Economic Commission for Africa Issue 10, September 2009 The Economic Commission for Africa, Southern Africa Office () is one of the five ECA subregional offices (SROs) serving as vital links between policy-oriented analytical work generated at headquarters and policy making at the subregional level. The office monitors the evolution of regional integration in support of the African Union Commission s regional integration agenda with a special focus on activities vital to the regional integration process. It seeks to strengthen capacity and provide technical assistance to institutions driving the regional integration agenda most importantly SADC and COMESA. The Office undertakes subregional preparation on programmes addressing Africa s special needs and emerging global challenges such as the MDGs, and spearheads subregional followup of global conferences. The Office also serves as a sub regional hub for the dissemination of ECA s policy analytical work-employing extensive public information and outreach activities including workshops, training and publication of the quarterly newsletter. About the Office To Levarage on our multidisplinary analytical skills, convening power and consensus building strength to facilitate the harmonisation of policies and strategies for harnessing regional resources to meet the development priorities of the Southern Africa Subregion Development Finance Institutions Support to Infrastructure Development in SADC and COMESA By Mr. Alfred Latigo, Senior Economic Affairs Officer As part of its mandate to provide advisory services and technical assistance to member States, Regional Economic Communities (RECs), Universities and other institutions, the ECA Office in Southern Africa (), which covers fifteen SADC Member States, is already providing technical assistance to SADC and COMESA Member States, inter-alia in infrastructure and services. ECA recognizes that infrastructure and services are a key precondition for and enabler of private sector development and trade. Economic integration in Africa is hampered by the lack of sound infrastructure. Poor infrastructure prevents the rapid movement of goods and people in the continent and raises transport costs. Africa s transport costs are around double those for a typical Asian country. It is estimated that inadequate infrastructure is holding Africa s economic growth per capita back by 2% each year and reducing firms productivity by as much as 40 percent. Among the objectives of infrastructure development is to enhance regional integration, which will in turn create a wider economic space for the movement of goods and services without tariff and non-tariff barriers.

2 INSIGHT 2 Issue 10, Sept 2009 In order for the SADC and COMESA sub-regions to become more competitive, or realize their productive potential, massive improvements in infrastructure are needed. New evidence suggests that Africa s current infrastructure investment needs are about twice as large as those estimated by the Blair Commission for Africa in 2005, which estimated the continent s needs at $20 billion a year. The more recent Africa Infrastructure Country Diagnostic (AICD) study carried out by the World Bank on behalf of the Infrastructure Consortium for Africa, shows annual infrastructure investment needs in Africa to be in the region of $40 billion per year, with maintenance and operating costs of the same magnitude. Despite the fact that Africa is spending much more on infrastructure today, the funding gap remains huge. The largest deficit is to be found in the power sector. Only one in four Africans has access to electricity. Some 30 African countries are currently experiencing regular blackouts due to power shortages. Firms struggle to cope with the costs of installing their own back-up generators these typically cost three to four times as much as electricity from the national grid. Africa has traditionally depended on official development assistance to meet its infrastructure needs. A growing share of the region s infrastructure finance now comes from nontraditional sources. Leading this trend are non-oecd financiers, mainly China, India, and Arab countries. While Arab funds have been operating in Africa for decades, China and India began to step up their involvement in the early 2000s. Flows from these non-oecd sources are now broadly comparable to traditional development assistance. The largest flows have gone to power especially hydropower and rail transport. Annual financing commitments by these non-oecd financiers jumped from less than $1 billion prior to 2003 to about $8 billion in However, Sub-Saharan Africa receives only a small share of private investment in infrastructure. Reasons for this include the low creditworthiness of most African countries which hampers their ability to secure project finance, low numbers of bankable projects, the limits of local financial markets and the high risk profiles typical of infrastructure projects. Infrastructure projects involving private participation are often financed through a mix of equity and nonrecourse debt. Africa has been less successful in attracting nonrecourse bank debt relative to private investment in infrastructure than other developing regions. Limited access to such debt can severely damage an economy s ability to attract private investment in infrastructure. It has been even less successful in raising project finance in capital markets through project bonds. Whether or not the region can attract more private foreign currency funding for infrastructure will depend in part on their ability to reduce foreign exchange risks. In some countries, the situation is less bleak because local capital markets show good potential. For example, South African projects raised most bond financing from currency issues in local capital markets. Recent studies show that three related sets of factors limit Africa s ability to attract both foreign and local private finance, especially long-term debt finance, for infrastructure. Firstly, most African countries have low or nonexistent sovereign credit ratings. Only 16 of 48 countries have foreign currency debt ratings and only 4 of those have ratings of BB or higher that provide relatively broad access to financial markets. The countries that have obtained (or have an estimated) a foreign currency debt rating of at least BB represent only 43 percent of regional gross national income (GNI) and this share is dominated by South Africa. For most African countries, foreign commercial lending is therefore difficult to access and typically limited to short-term transactions. The ability of infrastructure projects to attract long-term foreign currency lending has depended on a mix of factors that mitigate risk the ability to generate foreign currency revenues and strong support by official (bilateral or multilateral) agencies. Secondly, most local financial markets have limited capacity to finance infrastructure projects. Only South Africa has domestic banks and a local capital market capable of consistently providing local currency financing for infrastructure projects on suitable terms and in significant amounts. In other African countries local long-term financing has been limited, and infrastructure projects require substantial credit enhancement such as through guarantees, provided mostly by official agencies, to attract local currency debt. Thirdly, compared with projects in many other sectors, those in infrastructure tend to have longer payback and build-out periods and to be more susceptible to political and regulatory interference, which increase the regulatory risk such investments may be facing. The above factors characterize infrastructure projects with private participation in Africa the projects have typically been small relative to those in other regions, and many have been financed entirely with equity. Projects with faster payback and shorter-term debt such as

3 in telecommunications have been favoured over those that require long payback periods and long-term financing in order to guarantee services at affordable prices e.g. toll roads. In recent years local banks in Africa have shown interest in providing local currency loans to infrastructure projects. But these loans have required significant risk mitigation. The biggest constraint on the ability of African banks except for those in South Africa to increase funding for infrastructure projects is their difficulty in reliably funding themselves over the long term. Some infrastructure projects in Africa (mostly in telecommunications) have been able to attract long-term local currency funding. However, similar to foreign lenders, local currency debt providers have often required risk mitigation from official agencies. Recent local currency financings outside South Africa include such transactions for telecommunications projects in Kenya and Uganda. The challenge facing the SADC and COMESA regions is how to increase infrastructure project finance and minimize the need for risk mitigation from official agencies. A further challenge is how to leverage the services of the Infrastructure Consortium for Africa (ICA) in tapping infrastructure finance. Whilst the ICA is not a financing agency, it acts as a platform to catalyze donor and private sector financing of infrastructure projects and programmes. Early in 2009, the largest multilateral investors and lenders in Africa pledged to provide an additional US$15 billion to promote trade, strengthen the financial sector, and increase lending for infrastructure, agribusiness and small and medium enterprises in the region that are affected by the global economic slowdown. The institutions participating in the initiative are the African Development Bank Group, the Agence Française de Développement Group, the Development Bank of Southern Africa, the European Investment Bank, the German Financial Cooperation, the International Islamic Trade Finance Corporation and the World Bank Group. The initiative recognizes that pooling resources and expertise will enable governments and institutions to increase lending and investments, promote dialogue, and use a diverse range of instruments to more effectively respond to the crisis and address longer-term structural issues that have traditionally hampered Africa s economic growth. It is against this backdrop that proposes to organize a workshop on Development finance institutions support to infrastructure development in SADC and COMESA. The background document for the multi-stakeholder Workshop will; (i) Review and identify and critically evaluate constraints and challenges faced at both national and sub regional levels in financing infrastructure development programmes and projects to ensure that efforts are on course to attaining regional integration in the SADC and COMESA regions; (ii) Review existing and setting up of the local financial institutions for the financing infrastructure development in SADC and COMESA; (iii) Propose how existing collaboration among financial institutions in Africa can be enhanced to ensure greater access to infrastructure finance; and (iv) Propose institutional structures/systems required to be place for implementing, monitoring and evaluating financial support to infrastructure in SADC and COMESA. Partnerships/Key Stakeholders will collaborate with the national development banks in the two sub-regions, AfDB, DBSA, SADC and COMESA Secretariats, member States and the Trade, Finance and Economic Development Division (TFED) and the NEPAD and Regional Integration and Infrastructure Division (NRID) at ECA Headquarters in organizing the Workshop and implementation of the program on financing infrastructure development. Expected Outcomes The outcome of the workshop will be a programme implementation framework with short, medium and long-term milestones to accelerate sourcing finance for infrastructure development in SADC and COMESA. The report will contain recommendations to address the challenges, a proposed implementation framework developed with suggested benchmarks, performance indicators and a monitoring mechanism to track adherence to commitments by all stakeholders will be the major output. This Workshop will enhance the capacity of the finance institutions to manage and coordinate regional integration initiatives through effectively addressing the current financial challenges for infrastructure development and also to be institutionally prepared to exploit the benefits of regional integration. INSIGHT 3 Issue 10, Sept 2009

4 4 Issue 10, Sept 2009 INSIGHT The participants at the Workshop will be drawn from a mix of representatives of key regional and international financial institutions including DBSA, AfDB, World Bank, SADC, COMESA PTA Bank, government officials, civil society organizations and other development partners from Southern Africa. The Workshop, to be hosted in collaboration with SADC and COMESA, is scheduled to take place in December 2009 in Lusaka, Zambia. Recent Events Experts review, validate Regional Gender Monitoring Tool The Economic Commission for Africa Southern Africa () in collaboration with the Southern Africa Development Community (SADC) Secretariat convened a two day intergovernmental roundtable meeting in Johannesburg, South Africa from September Participants comprised representatives from the SADC troika national gender machineries and experts drawn from UN agencies, SADC Parliamentary Forum, and regional gender and women s rights organizations. The meeting was held to review the draft SADC Regional Gender Monitoring Tool in readiness for the Senior Officials for the Ministers of Gender and Women s Affairs in October The tool was jointly developed by ECA and SADC Secretariat to monitor and track progress on the implementation of the SADC Protocol on Gender and Development. This meeting was in line with implementation of the Multi Year Programme of Collaboration between and SADC. The objective of the meeting was to present the draft RGMT for stakeholder review and validation on relevance, adequacy and focus in facilitating, monitoring and tracking progress made towards achievement of gender equality in Southern Africa and to incorporate stakeholder perspectives and inputs. participation in other meetings/ events World Humanitarian Day Commemoration In 2008, the UN General Assembly designated 19th August as World Humanitarian Day. In Zambia the day was commemorated on 20 August 2009 at Taj Pamodzi Hotel in Lusaka and was organised by the United Nations System in Zambia in consultation with the Government of Zambia to draw attention to humanitarian needs worldwide, acknowledge the great work of humanitarian personnel throughout the world and honour those who paid the ultimate price of their lives in the service. The participated under the auspices of the UN System in Zambia. Messages of the Government of Zambia and UN Secretary General were delivered by Mr. Davis Sampa, Permanent Secretary (PS), Office of the Vice President and Mr. Macleod Nyirongo, UN Resident Coordinator, respectively. The PS reiterated Zambia s commitment to contribute to the betterment of humanity. He indicated that Zambia had continued to provide humanitarian assistance to people from other countries and participate in peace keeping missions. He further commended the UN system for the humanitarian assistance they had continued to render the needy. He seized the occasion to commend, honour and recognise those who in pursuit of humanitarian work had lost their lives and urged that the occasion be used as an inspiration to upscale hard work to improve the welfare of humanity. Some of the Experts during the Gender Monitoring Tool Workshop The UN Secretary General s Message underscored renewed UN commitment to help vulnerable, voiceless and marginalized people. He paid tribute to the 22 heroic humanitarian personnel killed in the attack on the UN

5 Headquarters in Baghdad, including the great humanitarian Sergio Vieira de Mello. He further called for the redoubling of efforts towards humanitarian assistance and ensure the safety, security and independence of people in need. Staff following proceedings at the World Humanitarian Day. L-R, Ms. Matoka, Ms. Kargbo (Director) and Ms. Ngwako Mr. James Lynch, UNHCR Representative and Mr. Pablo Recalde, WFP Representative and Country Director made slide presentations depicting UN Humanitarian Action in Zambia Recent Publications practitioners to continue integrating gender into their programmes and re-dedicated strategies for transforming gender relations in pursuit of the Millennium Development Goals. Experts Group Meetings and Workshops In the quarter covering October to December 2009, the following activities will be organised: 1. Upcoming Events AEGM on Governance of Financial Institutions in Southern in collaboration with SADC and the Committee of Central Bank Governors (CCBG) Secretariat will hold a two-day Ad Hoc Expert Group Meeting (AEGM) to review the draft report entitled The Governance of Financial Institutions in Southern Africa: Issues for an Institutional Convergence for Regional Financial Integration. The AEGM which is part of the ECA- SA and SADC Multi-year Programme (MYP) of cooperation, will run from 5-6 November 2009 in Johannesburg, South Africa. INSIGHT 5 Issue 10, Sept 2009 Wheels of Change: Champions in the Gender Agenda and SADC Secretariat have released a joint publication that has featured regional and national institutions, men and women who are dedicating all efforts to promotion of gender equality and empowerment of women in the SADC region. Champions were drawn from all the 15 countries of SADC. In profiling these champions, and SADC acknowledging the often unseen hard work, selflessness and dedication that go towards linking gender equality with development. The champions profiled in this book are from all walks of life; working in diverse development sectors that transcend age, gender, race, religion and ethnicity. This publication is intended to energize efforts for development The meeting recommendations will be consolidated into the draft report to contribute to the formulation of a SADC framework and also assist in accelerating regional financial integration. Meeting participants will be principally drawn from the financial sector in Southern Africa and will include experts from central banks, ministries of finance and national planning, and regional development banks. The AU, international financial institutions and officials from ECA Headquarters in Addis Ababa, Ethiopia will also attend the meeting. Among many others, the major outcomes of the AEGM would be: (i) clear and precise recommendations on how to strengthen governance of financial institutions in order to support the establishment of a monetary union; and (ii) the identification of issues for consideration by member States as they formulate the framework for a monetary union.

6 2. Workshop on Agri-input Business Development in Africa Agriculture remains a key driving force for economic development in Africa. The sector accounts for about 20% of the region s GDP, 60% of its labor force and 20% of its total merchandise exports. Agriculture is the main source of income for 90% of the rural population in the region. Africa will need a substantial boost in agricultural productivity to achieve the MDG of tackling poverty and hunger. Poor access to agricultural inputs is one of the most significant explanations for agriculture s low performance in the region. This factor has resulted in limited growth in the average yields of key crops and in low labour productivity. African farmers apply only 5-10% of the fertilizer amounts used by their counterparts in other developing regions, such as Asia. Less than 5% of the arable land in Africa is irrigated, compared to more than 40% in Asia. Furthermore, the region commands only 3% of the global seed market. In support of the Comprehensive Africa Agriculture Development Programme (CAADP) efforts aimed at facing these challenges and as part of the /SADC Multi-Year Programme (MYP) for , will organize a workshop on Agri-input Business Development in Africa. The workshop, to be hosted in the framework of the Pan-African Agro-summit and Investment Forum on Agro-industry and agribusiness - linkage with strategic sectors, is scheduled to take place from November 2009 in Abuja, Nigeria. The Workshop will bring together actors from the private sector and other stakeholders to discuss business opportunities within the agri-inputs sector, identify and develop successful alliances and partnerships to address the factors that impede agri-inputs use to jump-start Africa s stagnated agricultural productivity. INSIGHT Staff Issues Sam Kalungia at as Intern Mr. Samuel Kalungia joined as an Intern in August Currently studying Law at the university of Zambia and previously having read Economics and Development Studies, his assignment involves the development of time series data on economic performance and trade in the Southern Africa subregion. In the past, he was involved in economic research work for various organizations including, COMESA and Independent Management Consultancy Services (IMCS). INSIGHT 6 Issue 10, Sept 2009 will collaborate with UNIDO and other UN agencies, the NEPAD and the SADC Secretariats, and member States and work closely with ECA HQ divisions FSSDD, GPAD, ISTD and NRID to organise the workshop. The Economic Commission for Africa, Southern Africa Office () quarterly newsletter to connect ideas and information to its constituencies. We sincerely hope you will find the information useful and enjoyable. We encourage you to please contact us for any further information regarding. Sincerely, Jennifer Kargbo Director, For this and other publications, please visit the following address or contact: United Nations Economic Commission for Africa Southern Africa Office P.O. Box Lusaka, Zambia Tel.: /5 Fax : / srdcsa.uneca@un.org Web: