Regional Round Table on Financing Infrastructure: Bank Experience

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• Regional Round Table on Financing Infrastructure
  Bank Experience
• by
• Shehu Yahaya and Sande Kanyarubona
• African Development Bank, Tunis
• 30 September 2004

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I African Trends and Characteristics

• Declining Trends in ODA
• FDI only around 2.3 of global share
• Private investment is about 12 GDP and public
  investment had declined to about 5 in the 1980s
• Informal sector share of GDP is about 41 in sub
  Saharan Africa share of employment averages
  75
• Estimated annual infrastructure needs about
  US20 billion in next 10 years in Africa

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ADB GROUP II. Infrastructure Operations

• ADB is concerned about Infrastructure development
  as a major factor in promoting sustainable
  development and reducing poverty.
• Infrastructure sectors include transport energy
  and power WSS Irrigation educational and
  health facilities ICT
• Economic Infrastructure accounted for 32.8 of
  total Bank Group lending approvals in 1967-2003.
  The figure rises to 40-45 if social
  infrastructure is included.

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ADB GROUP II. Infrastructure Operations

• Table AfDB Group approvals (Million UA) in
  support of Infrastructure, to End-2003.

1999 2000 2001 2002 1967-2003
Main Economic Infrastructure AgricultureRural Infrastructure Social Infrastructure 305.26 (23.6) 45.35 33.20 294.68 (14.9) 57.83 56.31 573.44 (24.2) 88.60 32.72 473.85 (23.2) 68.30 63.73 11,139 (32.8) 1,946 1,105
Total Infrastructure Approvals 383.82 (29.7) 408.82 (20.6) 694.76 (29.3) 605.87 (29.7) 14,190 (41.7)
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ADB GROUP III. Orientation of Infrastructure
Operations

• Since 1999 there has been a marked reduction in
  Infrastructures share of Bank Group aggregate
  approvals, notwithstanding a modest recovery
  since 2000.
• Explanations are related to Bank Group Experience
  and the changed international paradigm

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ADB GROUP III Orientation of Infrastructure
Operations

• Lessons learnt from past operations as well as
  the new international development agenda (e.g.
  the MDGs)
• ? Managerial weaknesses and financial
  difficulties have led to poor maintenance,
  reducing potential impact on growth and incomes
• ? Integrated Approach to infrastructure
  development is essential failure to implement
  this has caused enormous problems in Africa
• ? In many cases, particularly with respect to
  subsidised tariffs, the rich have benefited
  more, thereby enhancing inequalities
• ? Soft dimensions of infrastructure are
  critical skills tariff reform corporate
  governance of responsible institutions
  environmental and resettlement issues, land
  rights etc.
• ? Private investment is critical, provided
  there is an enabling environment

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ADB GROUP III. Orientation of Infrastructure
Operations

• Changed international paradigm
• ? Greater focus on poverty reduction
• ? Increased focus on social infrastructure
• ? Promoting renewable energy sources
• ? Much greater concern on the environmental
  impact of infrastructure developments

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ADB GROUP III. Orientation of Infrastructure
Operations

• Changing Approaches of the BankInfrastructure
  still critical but should be more strongly
  oriented towards sustainable development and
  poverty reduction
• ? Renewed emphasis on specific types of
  infrastructure (eg rural infrastructure
• ? Renewed emphasis on long term sustainability
  (promoting financial sustainability,
  capacity,institutional building, OM,
  participatory approaches
• ? Establishing the right balance between
  ensuring access to the poor and cost recovery
• ? Supporting private investment through PPP,
  improving regulations, modernising laws,
  reforming property rights and enforcement of
  contracts
• ? Prioritising environmental protection gender
  mainstreaming
• ? Promoting Regional Cooperation and
  Integration in infrastructure development

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ADB GROUP IV. New Initiatives on
Infrastructure

• A number of initiatives on Infrastructure are
  under way at the Bank
• ? Rural Water Supply and Sanitation Initiative
• ? African Water Facility
• NEPAD Infrastructure Program
• New Approach for the Private Sector Department
• New Urban Development Policy
• Non Sovereign Guaranteed lending guarantees,
  lending in local currencies
• FINESSE Program (Financing Energy Services For
  Small-Scale Energy Users)
• Intensify collaboration with development partners

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ADB GROUP IV. Major Initiatives on
Infrastructure

• ? Rural Water Supply and Sanitation Initiative
• ? Goal To accelerate access to sustainable
  water supply and sanitation for rural
  populations within the framework of the Africa
  Water Vision and MDGs.
• ? Targets to provide access to drinking water
  supply and sanitation to 66 of the rural
  population by 2010, increasing this to 80 by
  2015, from the present 34.
• ? Initiative has commenced on a pilot basis in
  a limited number of countries (five ). It will
  be up-scaled up to additional RMCs,
  incorporating lessons learnt from the pilot
  country programs. Focus on building initiatives
  at the local community levels

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ADB GROUP IV. Major Initiatives on
Infrastructure

• African Water Facility
• An Initiative of AMCOW being hosted and
  implemented by the Bank
• Aims at strengthening the enabling environment to
  attract investments in the water sector in Africa
• Will mobilise USD 615 m to implement medium term
  programme of facilitation activities and
  investment programs
• Implementation Under way local level emphasis

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ADB GROUP IV. Major Initiatives on
Infrastructure

• Technical Support to NEPAD on Infrastructure
• ? Goal To bridge the infrastructure gap in the
  region as an important element in the promotion
  of growth, trade and regional integration
• ? ADB as lead agency, has developed and is
  already implementing a STAP for facilitation,
  capacity building physical capital investments
  and studies
• ? It is developing the MLTAP to prepare regional
  overview, establish Africa infrastructure data
  base establish infrastructure for effective
  coordination, define monitoring framework

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AfDB GROUP IV. Major Initiatives on
Infrastructure

• New Approaches in OPSD
• 2003Lending to public sector without sovereign
  guarantee
• 2002 PPP Initiative to promote efficient
  infrastructure by supporting governments to
  better conceptualise, prepare and negotiate
  infrastructure projects for private
  investment/mngt
• 2003 New Initiative on franchising to support
  SMEs on rapid transfer of know-how and best
  practices a study done toolkit developedpilot
  programmes being developed
• Less direct lending to SMEs support thro fin
  intermediaries
• Prioritising enabling env strengthening
  financial systems by supporting fin interms to
  enable them to lend long to SMEs

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ADB GROUP IV. Major Initiatives on
Infrastructure

• ? FINESSE Program
• ? Goal Formulation of policy, institutional
  framework and capacity development to provide
  technically feasible and economically viable
  renewable energy and energy efficiency services
  to residential, commercial and industrial energy
  users.
• ? Targets to create conditions and mechanisms
  that will allow the credit sector to lend
  capital to small-scale energy users.
• ? Activities will focus not only on technology
  demonstration, but also on the institutional,
  commercial and legal mechanisms to ensure
  dissemination and maintenance of proven
  cost-effective technologies.

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ADB GROUP IV. Major Initiatives on
Infrastructure

• Strengthened collaboration with UN Habitat on the
  Water For African Cities Programme
• Discussion on possible collaboration with USAID
  on supporting local bank credit for infrastructure

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ADB GROUP IV. Major Initiatives on
Infrastructure

• ? Non-Sovereign Guaranteed Lending to
  Public-Sector Enterprises
• ? Goal To finance viable investment activities
  in a distinct group of public enterprises in
  African middle-income countries that are
  commercially run, following the implementation
  of public-sector reforms.
• ? The proposal is for the Bank to finance up to
  30 of the investment or working capital of
  individual viable projects, at market interest
  rates, including objective credit risk pricing.
• ? Public enterprises expected to benefit are
  mostly Infrastructure authorities and public
  utility service providers.

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AfDB GROUP V. Conclusion

• The Bank is now increasing its emphasis on
  infrastructure through a variety of instruments
  designed to increase public sector effectiveness
  strengthen the enabling environment support
  private sector development particularly SMEs
• It has embarked on a number of initiatives which
  embody its new approaches
• In view of the tightness of resources, the Bank
  will seek to increase its leverage by
  strengthening its technical capacities in project
  syndication, promotion of public-private
  partnership (PPP) and joint ventures involving
  African public and private enterprises and
  foreign direct investor
• Greater Collaboration with development partners