Managing risks, financing will boost public-private projects in East Africa

Wednesday September 05 2018

Alain Ebobissé, CEO of the Africa50 Infrastructure Fund. PHOTO | COURTESY

By Allan Olingo

The CEO of the Africa50 Infrastructure Fund spoke to Allan Olingo about the investment platform’s work in East Africa.


What steps will Africa50 take to narrow East Africa’s infrastructure gap?

We are well placed to take action in the East African Community.

Two of the six countries in the region — Kenya (which doubled its shareholding to $100 million) and Rwanda — are Africa50 shareholders and we are in advanced discussions with others to join the platform and extend our reach.

Our strategy is to help finance and develop private infrastructure projects as expeditiously as possible.


We are working through our Project Development Fund to invest in these projects’ early stages and take on significant risk.

This way, we hope to help kick-start projects and act as a bridge between our shareholder governments and private stakeholders such as sponsors and banks.

At financial close, when project development is completed, we can contribute capital from our Project Finance Fund to leverage additional equity and debt from other investors, including development finance institutions.

Why is the uptake of public-private partnerships in the region so slow?

Although there are a number of successful PPPs in EAC, implementation remains a challenge.

Most countries have relevant laws but lack the enabling environment to attract investors.

Investors may also find that “the goal posts move too often,” because PPPs require long implementation periods during which time project terms may be revised.

A 2017 World Bank report notes that the two biggest hurdles for successful PPPs are inadequate project preparation and contract management.

PPP contracts are more complex than public sector contracts since they have to balance the interests of public and private parties, and cover both the construction of the infrastructure and its operation as well as maintenance over the long term.

Private investors need to agree to fair terms and reasonable returns.

This is where Africa50 can make a difference, protecting our shareholder countries’ interests while insisting on fair compensation for investment risk.

The private sector should only carry the risks that it can manage, such as construction and operational, but not those it cannot, such as political risks.

Currency risk can also be a problem, since most PPPs generate revenue in local currencies and private investors’ funds are often in hard currency.

We believe that alternative means of financing through mobilisation of local savings will soon reduce this challenge.

What kind of PPP projects are succeeding in the region?

Three PPPs in Kenya, Uganda, and Rwanda demonstrate both the problems and successes of such ventures.

They are however not exhaustive as there are also successful projects in Tanzania and Burundi.

The Lake Turkana Wind Power project in Kenya should come on line soon after more than a decade of development.

It proves that persistence pays off, and that large-scale wind farms are possible in Africa.

Kenya is dependent on hydropower and recent droughts have forced the country to turn to expensive thermal generation. The wind farm, the largest in Africa, will have a substantial development impact.

In Uganda, the Bujagali hydropower plant was a complex and lengthy undertaking, with financing from 13 different institutions.

But it proves that large hydropower PPPs are also possible in Africa.

In fact, more of such projects would be viable if loan maturities could be extended to better match the long lifespans of hydro plants.

In Rwanda the Kigali Water treatment plant serving 500,000 domestic, commercial, and industrial customers is among the first of its kind to be developed in Africa using the PPP model.

It is also a good example of how PPPs in the most challenging sectors can benefit from blended finance, with concessional finance used to bring down the output price and mitigate risks investors were unwilling to take on.

How is Africa50 supporting the public sector in creating an enabling environment for partnerships to thrive?

This is challenging, since most countries do not have the requisite public sector capacity, revenues or experience to become world-class investment sites.

While much of the effort must come from determined leadership from the countries themselves, international finance institutions and donor agencies have a role to play in financing and advising governments.

Africa50’s role is complementary — to structure projects in a way that facilitates the implementation of PPPs.

We influence regulation and processes by developing and advocating for projects. However, while we provide views on laws and procedures, we are principally investors, and it is important that we stay in that role.

What are your priority investment sectors across East Africa?

Power, transport, ICT and mid-stream gas.

Across Africa, the power sector is the best developed and most active market for PPPs because it is key to economic development.

Many countries now have frameworks in place to bring private investors into their power sectors.

In the electricity sector, power generation attracts the most developers and financiers. We also hope to see more activity in distribution and transmission.

Our interest in mid-stream gas is growing since the continent’s ample gas supplies are just starting to be exploited.

Given the proper infrastructure, gas can become a clean, local power source, and with the recent discoveries of gas fields there will be massive opportunities.

ICT is the star of the EAC, especially in Kenya through the mobile money transfer service M-Pesa and similar applications.

While this is already a relatively mature market, we are ready to support further investments, especially to increase Internet speeds.

For example, we are interested in projects associated with Kigali Innovation City, an Africa-focused innovation hub that is a flagship initiative of Rwanda.

We are also looking for transport projects since regional linkages in the EAC are taking on increasing importance.