Horn of Africa ministers seek private sector backing for projects

Tuesday March 14 2023
HoAI ministers

From left: Djibouti Economic and Finance Minister Ilyas Moussa Dawaleh, Kenya's Treasury Cabinet Secretary Njuguna Ndung'u and Head of HoAI Secretariat Dr Kenrick Ayot during the HoAI 15th ministerial meeting in Nairobi Kenya on March 8, 2023. PHOTO | DENNIS ONSONGO | NMG


Finance ministers from the Horn of Africa are seeking ways to attract more private sector backing for projects in infrastructure, energy and technology, to better build economic resilience as drought and inflation bite.

The leaders met under the Horn of Africa Initiative (HoAI) in Nairobi this week and agreed to develop a “comprehensive” private-sector engagement strategy, which is expected to be tabled at the next meeting in October.

This is projected to help bridge the existing funding gap that has slowed down the implementation of the initiative’s priority areas: infrastructure development, trade and economic integration, building resilience and human capital development.

Workers at Thika Cloth Mills factory in Kenya

Workers at Thika Cloth Mills factory in Kenya. The AfCFTA allows enterprises to trade more value-added goods and services more freely driving industrialisation. PHOTO | COURTESY

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Priority areas


Kenya’s Treasury Cabinet Secretary Njuguna Ndung’u, who chaired the closed-door ministerial meeting, said private sector finance will enable the execution of the region’s projects in infrastructure, energy, digital markets, trade and economic integration.

“Public-Private Partnerships (PPPs) may in future provide a potential source of funding that would need to be developed as part of a strategy for private sector engagement in the Horn,” Prof Ndung’u said.

The HoAI was started in October 2019 by the finance ministers from Kenya, Somalia, Ethiopia, Sudan, Eritrea and Djibouti to address shared national challenges in the region. South Sudan joined last year.

It has so far facilitated investments in ‘priority’ projects worth over $7 billion, executed in partnership with the World Bank, the African Development Bank and the European Union.

Read: EU bank to invest $574m in Tanzania

Currently, the region’s biggest issue is the prolonged drought that follows five consecutive failed rainy seasons, putting over 36 million people at risk of dire food insecurity. Others are reduced fiscal space and slower-than-expected growth due to last year’s global downturn.

Drought in Hargududo, Ethiopia

Children walk past a man sitting next to the carcass of a dead cow in Hargududo, Ethiopia on April 7, 2022 amid a biting drought. PHOTO | EDUARDO SOTERAS | AFP

Funding gap

But while the initiative was meant to build capacity to jointly mobilise resources to both address these challenges and boost economic growth and poverty reduction efforts, there is still a huge funding gap for the projects initiated under the programme.

As of last month, $8.7 billion had been committed to the initiative’s priority projects packages, and increase from the $4 billion committed until December 2021, but leaving a gap of $7 billion, about 45 percent of the total amount needed.

At the same time, the individual countries are struggling with debt sustainability, occasioned by the appreciation of the dollar and worsening global economic conditions, leaving them with little fiscal space to finance the initiative’s projects.

“In the short to medium term, the Horn of Africa Initiative member states will focus more on grants support and concessional financing to finance the development priorities in the region,” Prof Ndung’u said.

Diversification of funding sources, however, will itself not be enough to support long-term solutions to the challenges facing the region, the ministers said.

A dispatch released after the ministerial meeting said the deliberations also “focused on digital convergence, policy harmonization, and innovative pathways for building resilience and trade facilitation.”

Prof Ndung’u said the officials agreed that it is important that the investments in the projects will be complemented with policy actions to ensure that highest impact can be achieved in terms of development and on reducing poverty.