Public-Private Infrastructure Finance in Sub-Saharan Africa: No Sign of Upward Trends

Much has been written about yawning infrastructure finance gaps in sub-Saharan Africa, and there is a growing recognition that these gaps have widened during the pandemic. Since the “billions to trillions” vision was launched in 2015, many have stressed that the private sector must be a significant contributor to filling these gaps, with risk-sharing, standard-setting, and capital-cost-reducing help from the multilateral development banks (MDBs) and bilateral development finance institutions (DFIs). The increasingly tight fiscal and sovereign debt constraints of many sub-Saharan Africa countries only reinforce this view.

Six years have passed since the announcement of that vision. It is time to look at what happened to public-private infrastructure finance in this region where infrastructure needs are so great, before and during the pandemic. In the absence of detailed hard evidence, the casual observer might assume that:

• China’s role in transactions with private participation is relatively small, given its statist approach to infrastructure finance.

• Consistent with the “billions to trillions” vision, MDBs significantly ramped up their support after 2015 for public-private infrastructure transactions, boosting flows of private finance.

• Private finance is dominated by local actors familiar with local economic and investment conditions.

Our recent deep dive into financially closed transactions with private participation in sub-Saharan Africa from 2007-2020 suggests that none of these propositions is true.

• Chinese DFIs dominate transactions with private participation.

• Total MDB finance for such transactions averaged only $1.4 b per year from 2016-2020—a small increase from a very low base in earlier years.

• Average annual total private finance fell to $3.7 b in 2016-2020, from $5.1 b in the earlier years of the period.

• Among MDBs, the African Development Bank is the largest source of finance over the period, likely a surprise to some who would have expected the World Bank’s IFC or IDA to rank first.

• And finance from foreign private banks exceeded that from local private banks or local institutional investors.

Moreover, we see no sustained upward trends in overall sub-Saharan African infrastructure finance volumes, MDB finance, private finance, the share or volume of local private finance, participation by international institutional investors, or finance from bilateral DFIs.

A few other salient findings from our report:

• Overall, total domestic and external finance for financially closed infrastructure projects with private participation averaged $9 billion annually for all of sub-Saharan Africa over the period 2007-2020.

• Finance for such transactions rose even during the pandemic from $6.4 billion in 2019 to $9.4 billion in 2020, though this increase would have been largely driven by commitments made prior to the pandemic.

• Bilateral DFIs and international private banks were larger finance sources than MDBs.

• MDB investment in projects with private participation peaked in 2018 at $2.2 billion for all of sub-Saharan Africa.

• Chinese DFIs provided 2.5 times more finance from 2007 to 2020 than all other bilateral DFIs combined.

• US DFI finance was an order of magnitude smaller than China’s finance, and no upward trend is yet evident.

• Local banks dominate local private finance for infrastructure, but local institutional investors and debt and equity funds began to emerge as more important sources in 2019 and 2020.

• Investment in renewable energy from both private and public sources (including China DFIs) is outpacing investment in fossil fuel infrastructure, but MDBs continued to make significant fossil fuel investments.

• Investment in water and social infrastructure sectors together accounted for only about 5 percent of infrastructure finance in 2020.

We draw four broad policy implications from these findings:

1. the urgent need for greater efforts by the MDBs, including IDA (the World Bank’s concessional arm that includes a private sector window), to use their broad toolkits to catalyze more private infrastructure finance in sub-Saharan Africa;

2. the leadership role the African Development Bank is already playing in this area and the case for shareholder support to do more through accelerating capital contributions and a major increase in concessional resources;

3. the importance of growing the US International Development Finance Corporation’s (DFC) efforts in sub-Saharan African infrastructure, which could be supported by expanding the agency’s investment portfolio cap and its administrative budget and fixing the budget treatment of DFC’s equity investments. This is especially important given DFC’s prioritization of transactions in poorer countries and green finance; and

4.  the strong logic for collaboration among infrastructure finance providers to sub-Saharan Africa, including China and development banks from within the region, with MDBs providing not only finance but also fora and mechanisms for collaboration and supporting the policy and institutional reforms that strengthen sustainability standards and reduce risk for all finance actors. 

Read the full paper here.