noTE no. 43 ­ oCT 2008GRIDLINES Sharing knowledge, experiences, and innovations in public-private partnerships in infrastructure The changing landscape of 47213 infrastructure finance in Africa Nontraditional sources take on a growing role Vivien Foster A frica has traditionally depended on offi- each, followed by ODA commitments of more cial development assistance to meet than $5 billion (figure 1). its infrastructure needs. But a growing share of the region's infrastructure finance is now coming from nontraditional sources. China leading the way Leading this trend are non-OECD financiers, Among the emerging financiers of African chiefly China, India, and Arab countries. While infrastructure, China is by far the largest. Its Arab funds have been operating in Africa for commitments to infrastructure projects in the decades, China and India began to step up region are estimated to have risen from about $0.5 their involvement in the early 2000s. Flows billion a year in 2001­03 to about $1.5 billion from these non-OECD sources are now broadly a year in 2004­05--and to at least $7 billion in comparable to traditional development assis- 2006, tailing back to around $4.5 billion in 2007 tance in dollars committed. The largest flows (figure 2). Most of the financing is channeled have gone to power--especially hydropower-- through the Export-Import Bank of China. About and rail transport. half of the confirmed projects involved Chinese commitments of less than $50 million. In some In recent years non-OECD economies have begun cases, large amounts flow to single projects. About to play a growing role in financing infrastructure half a dozen projects had commitments of $1 in Sub-Saharan Africa. Particularly strong growth billion or more. The power and transport sectors has been seen in financial flows from emerging receive the largest shares of infrastructure finance economies, or "emerging financiers," chiefly China from China, followed by telecommunications and, and India. And substantial resources have contin- with a much smaller share, water. This sectoral ued to flow from Arab donor countries. Financing distribution reflects the general pattern of emerg- commitments for African infrastructure by these ing financiers concentrating on infrastructure non-OECD financiers--China, India, and Arab linked to natural resource development. states--jumped from less than $1 billion a year before 2003 to about $8 billion in 2006. In the power sector China's activities have focused on the construction of large hydropower schemes. These resource flows are large enough to make By the end of 2007 China had committed $5.3 a material contribution toward meeting Afri- billion in financing to the sector, including the ca's infrastructure financing needs. Indeed, the PPIAF Approved Logo Usage construction of 10 hydropower projects that, once combined flows from these non-OECD financiers completed, will increase the available hydropower are now comparable in size to traditional offi- generation capacity in Africa by 30 percent. In the cial development assistance (ODA) from OECD Logo - Black rail sector China has made financing commitments countries and to commitments through private of $4 billion so far. They include rehabilitation of participation in infrastructure (PPI). In 2006 the commitments provided for infrastructure projects PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY in Africa by PPI and non-OECD financiers were Vivien Foster is lead economist in the Sustainable Develop- broadly similar, amounting to just over $8 billion ment Department of the World Bank's Africa Region. Logo - 1-color usage (PMS 2955) Helping to eliminate poverty and achieve sustainable development through public-private partnerships in infrastructure PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY 2 FIgurE 1 from that country was identified over the same Non-OECD finance takes off period. And like China, India relies on its export- Annual commitments to infrastructure projects in import bank as the main conduit for infrastructure Sub-Saharan Africa, 2001­06 finance. Most of India's financing is concentrated 20 in a single Nigerian deal struck in November 2005. 15 At that time ONGC Mittal made a commitment of $6 billion1 to build an oil refinery with annual billions 10 capacity of 9 million tons, a 2,000-megawatt power US$ 5 plant, and a 1,000-kilometer cross-country railway. 0 2001 2002 2003 2004 2005 2006 In Sudan, India has financed some $600 million of energy infrastructure, including a 741-kilometer Non-OECD PPI ODA oil pipeline and four 125-megawatt power plants Sources: World Bank­PPIAF Chinese Projects Database, 2008; along with an associated transmission system. And World Bank­PPIAF PPI Project Database (http://ppi. in Angola, India committed $40 million to the worldbank.org); ICA 2007. rehabilitation of the Namibe­Matala railroad in Note: Data for China include only projects that could be confirmed by Chinese sources. PPI data include investment August 2004. commitments to new and existing projects with financial closure in 2001­06. Arab donors also active Arab donor countries too have been playing a more than 1,350 kilometers of existing railway substantial role in African infrastructure. Commit- lines and the construction of more than 1,600 ments averaged just over $500 million a year in kilometers of new railroad. In telecommunications 2001­07, with no discernible year-on-year trend. China's involvement takes the form mainly of Finance from Arab donors is channeled through equipment sales to state-owned incumbents, either special funds or development agencies. Those through normal commercial contracts or through providing the most support to African infra- intergovernmental financing tied to purchases of structure projects are the Islamic Development Chinese equipment. In the road and water sectors Bank, the Arab Bank for Economic Development China has provided financing for a large number in Africa, the Kuwait Fund for Arab Economic China is by of projects, though the sums involved are relatively Development, the OPEC Fund for International small; no more than $900 million has gone to Development, and the Saudi Fund for Devel- far the these two sectors combined. opment. Projects financed by Arab donors are largest of relatively small, with an average value of $22 At least 35 countries in Africa have received million. Activities are broadly spread across 36 the emerging financing from China or are discussing funding countries in Africa, though concentrated more in financiers opportunities. Yet despite this broad reach, the countries with relatively large Muslim populations. finance is heavily concentrated geographically. Of About half the resources go to transport projects active in the confirmed commitments, 70 percent have gone (mainly roads), 30 percent to power projects, and Africa to Nigeria, Angola, Ethiopia, and Sudan. Most of 15 percent to water and sanitation activities. the rest has been spread across some 22 recipients, the largest being Guinea, Ghana, Mauritania, the Republic of Congo, and Zimbabwe. Clear sectoral patterns While the resources for African infrastructure from India's growing role ODA, PPI, and non-OECD financiers are compa- rable in amount, the distribution by sector varies China is not the only emerging financier play- widely (figure 3). ODA is spread relatively evenly ing a major role in Africa. India is also scaling up among transport, power, and water supply and finance for infrastructure projects in the region, sanitation (WSS). PPI is skewed heavily toward with commitments averaging $0.5 billion a year information and communication technology (ICT). in 2003­07. In recent years India has committed And non-OECD finance is skewed heavily toward funding to an estimated 20 African infrastructure power and transport. As a result, each of these projects worth a total of $2.6 billion. sectors receives a different mix of the three sources of finance. For information and communication Like China's financing activities, India's are closely technology almost all the funding is through PPI. linked to interests in natural resource develop- For the power sector about half comes from non- ment, where another $7.3 billion of investment OECD financiers (focused primarily on generation The changing landscape of infrastructure finance in Africa 3 finance. For Guinea, Mauritania, and Zimbabwe FIgurE 2 non-OECD finance amounts to more than 10 A surge in infrastructure finance from China and India percent of GDP. Most of the remaining countries Annual commitments to infrastructure projects in rely primarily on traditional ODA (for example, Sub-Saharan Africa by non-OECD financiers, 2001­07 Benin, Burundi, Cape Verde, Mali, and Niger). A final group of countries draw significantly on 9 both OECD and non-OECD sources (the Central 8 African Republic, The Gambia, Sierra Leone, and Non-OECD 7 Arab donors 6 India Zambia). finance billions 5 China 4 for African US$ Conclusion infrastructure 3 2 The expanding role of China, India, and other 1 is skewed 0 non-OECD financiers in Africa represents an 2001 2002 2003 2004 2005 2006 2007 encouraging trend for the region, which faces an heavily toward enormous infrastructure deficit. The financing Source: World Bank­PPIAF Chinese Projects Database, 2008. power and Note: Data for China include only projects that could be they provide is unprecedented in its scale and in its confirmed by Chinese sources. focus on large-scale infrastructure projects. Other transport nontraditional sources of development funding are playing new or growing roles in Africa as well, and hydropower), with a substantial contribution offering potential new directions for private partic- ipation in infrastructure (box 1). from ODA (which also encompasses transmission and distribution). For transport about 40 percent comes from ODA (focused on roads), with a signif- icant contribution from non-OECD financiers FIgurE 3 (focused on rail). Finally, for water and sanitation A clear pattern of sectoral specialization Annual commitments to infrastructure projects in almost all the financing comes from ODA. The Sub-Saharan Africa by sector, 2001­06 distribution reflects the largely complementary interests driving the different sources of finance. 100 ODA is focused on social concerns and the financ- 80 ing of public goods. Private investors seek the most total of commercially lucrative opportunities in telecom- 60 munications. And non-OECD financiers seek to 40 centage improve the productive infrastructure needed for Per 20 natural resource development. 0 ODA PPI Non-OECD geographic specialization WSS Transport Power ICT Annual commitments to infrastructure projects in A similar pattern of specialization emerges with Sub-Saharan Africa by sector and source, 2001­06 respect to geography, with different countries 100 benefiting disproportionately from different sources of finance. For purposes of comparison, 80 total countries can be divided into four categories: those of 60 relying primarily on PPI for external infrastructure finance, those relying primarily on ODA, those 40 centage relying primarily on emerging financiers, and those Per 20 that have a broad range of external sources. 0 ICT Power Transport WSS The countries most heavily reliant on PPI are Non-OECD PPI ODA Burkina Faso, Liberia, Mozambique, Uganda, Sources: World Bank­PPIAF Chinese Projects Database, 2008; Kenya, and Nigeria, with PPI supplemented in World Bank­PPIAF PPI Project Database (http://ppi. Kenya by ODA and in Nigeria by Chinese financ- worldbank.org); OECD Database (http://stats.oecd.org). ing. The countries that rely predominantly on Note: Data for China include only projects that could be confirmed by Chinese sources. PPI data include investment non-OECD financiers are Guinea, Mauritania, commitments to new and existing projects with financial Zimbabwe, and Ethiopia. These countries also closure in 2001­06. tend to be among the largest recipients of external 4 BOX 1 Emerging and expanding roles for private aid actors non-oECD countries are not the only nontraditional funding sources making an impact in Africa. Philanthropic organizations are estimated to bring roughly $8.3 billion a year to international development causes. And while it is unclear how much of this total relates to Africa, it is clear that Africa is a focus for much of the international development work by private actors. Private aid actors encompass a range of types: ˇ Megafoundations. Among the biggest changes in the private funding scene in Africa has been the rise of "megafoundations" such as the Ford Foundation and the Bill & Melinda Gates Foundation. These foundations contribute resources on the scale of some oECD bilateral donors and are increasingly engaging with the larger development community and pursuing harmonized approaches. ˇ Nongovernmental organizations. nGos often specialize in a particular country or sector and work on small, stand-alone projects. Some international nGos raise their own resources and function much like a private foundation. others rely on funding from donor governments, aid agencies, private foundations, or corporate philanthropists. ˇ Private foundations. The smaller cousins of megafoundations are far more numerous. These private foundations tend to be more specialized than bilateral aid agencies, but less specialized than development nGos. Many of the smaller foundations target certain areas or sectors and channel their international giving through intermediaries. ˇ Corporate philanthropists. Multinational corporations are becoming more involved in poverty and development issues in Africa. The Google Foundation, for example, has focused much of its attention on Africa. These corporate actors use sophisticated strategies, including cash and noncash grants, employee volunteer programs, cause-related marketing, and "bottom of the pyramid" strategies aimed at bringing goods and services to the poor. Some new corporate foundations (such as those of nike and Shell) are pursuing innovative ideas developed in-house with external implementing partners carefully identified through networks or personal contacts. ˇ Market-oriented hybrid actors. A new generation of private actors are considering economic as well as social objectives, seeking local solutions to problems and then trying to make them commercial. These "social venture capitalists" provide financing to projects with a positive poverty and development impact. Source: Adapted from White 2008. With new actors and new modes of financing, Note borrowers and financiers alike face a learning 1. Of this $6 billion, $3 billion is attributed to natural resource process--one that includes learning how to evalu- development. Only half of the remaining $3 billion, or $1.5 billion ate the potential social and environmental risks committed by state-owned ONGC is attributed to infrastructure. of new projects. For African governments the References Foster, Vivien, William Butterfield, Chuan Chen, and Nataliya GRIDLINES key challenge is how to make the best stra- tegic use of infrastructure finance from PPIAF Approved Logo Usage Pushak. 2008. Building Bridges: China's Growing Role as Infrastructure Financier for Sub-Saharan Africa. Trends and Policy Options series. all sources, including non-OECD Washington, DC: PPIAF. Gridlines share emerging knowledge on public-private partnership and give an financiers and other nontraditional Logo - Black ICA (Infrastructure Consortium for Africa). 2007. Annual Report overview of a wide selection of projects from investors. 2006. http://www.icafrica.org/en/. various regions of the world. Past notes can be White, Elizabeth. 2008. "Evolving Aid Landscape in Africa and the found at www.ppiaf.org/gridlines. Gridlines are a Role of Private Philanthropy." Concept note, Office of the Chief publication of PPIAF (Public-Private Infrastructure PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY Economist, Africa Region, World Bank, Washington, DC. Advisory Facility), a multidonor technical assistance facility. Through technical assistance and knowledge dissemination PPIAF supports the efforts of policy makers, nongovernmental organizations, research institutions, and others in designing and implementing Logo - 1-color usage (PMS 2955) strategies to tap the full potential of private involvement in c/o The World Bank, 1818 H St., N.W., Washington, DC 20433, USA infrastructure. 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