Banking & Finance

World Bank announces record US$57bn for sub-Saharan Africa

Sub Saharan Africa definition UNFollowing a meeting with G20 finance ministers and central bank governors, World Bank Group President Jim Yong Kim, announced on 19 March that a record US$57bn in financing for Sub-Saharan African countries over the next three fiscal years


The bulk of the financing, US$45bn will come from the International Development Association (IDA), the World Bank Group's fund for the poorest countries. The financing for Sub-Saharan Africa also will include an estimated US$8bn in private sector investments from the International Finance Corporation (IFC), a private sector arm of the Bank Group, and US$4bn in financing from International Bank for Reconstruction and Development, its non-concessional public sector arm.

Sixty percent of the IDA financing is expected to go to Sub-Saharan Africa, home to more than half of the countries eligible for IDA financing. This funding is available for the period known as IDA18, which runs from 1 July 2017 - 30 June 2020.

"This represents an unprecedented opportunity to change the development trajectory of the countries in the region," World Bank Group President Jim Yong Kim said. "With this commitment, we will work with our clients to substantially expand programs in education, basic health services, clean water and sanitation, agriculture, business climate, infrastructure, and institutional reform."

"This financing will help African countries continue to grow, create opportunities for their citizens, and build resilience to shocks and crises," Kim said.  

The IDA financing for operations in Africa will be critical to addressing roadblocks that prevent the region from reaching its potential. To support countries' development priorities, scaled-up investments will focus on tackling conflict, fragility, and violence; building resilience to crises including forced displacement, climate change, and pandemics; and reducing gender inequality. Efforts will also promote governance and institution building, as well as jobs and economic transformation. 

This World Bank Group financing will support transformational projects during the FY18-20 period. IBRD priorities will include health, education, and infrastructure projects such as expanding water distribution and access to power. The priorities for the private sector investment will include infrastructure, financial markets, and agribusiness. IFC also will deepen its engagement in fragile and conflict-affected states and increase climate-related investments.

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Morgan Lewis: Financing energy and infrastructure projects in Africa

Kenya10shillingbmobvBruce Johnston and Helena Guidolin at Morgan Lewis write for African Review, looking at financing infrastructure projects in Africa, focusing both on the energy and local financial sectors and how they are funded 


Extracts from this piece first appeared on our sister publication's magazine, Oil Review Africa. The full article with exclusive, unseen content will appear in Oil Review Africa's digital copy in January. 

Financing infrastructure projects in Africa will undeniably help to unlock the economic potential of the continent. Finance for investment in African infrastructure is hindered however, by various factors relating to the complexity, size and viability of infrastructure projects generally.

In energy-related infrastructure projects, there are continuing challenges in project planning and preparation that need to be surmounted to ensure a bankable proposal that is attractive to investors.

Local financial markets are less developed, which means more cross-border lending in US dollars.  National oil companies sometimes lack the expertise and financial resources to develop some projects. Undoubtedly, there is a need to accompany physical infrastructure development with other required elements such as upskilling of labour, regulatory adaptation, and streamlining of administrative requirements. Projects can take longer to develop, which may lead to early decisions that impede a later financing. 

Determining viable processes by which funds for project development can be raised is pivotal and requires a clear understanding of the options available for financing, taking into consideration the specific nature of differing projects. In time, however, the methods and sources of financing oil and gas projects worldwide will be used in Africa.

The basic premise of this article is that commercial decisions made early in an oil or gas project in Africa often preclude certain types of financing at later stages.  This is often because decisions about financing are not made at the start of the oil or gas project.  

Equity

The exploration phase in an oil and gas project is the most risky.  The risk/reward ratio therefore needs to be as high as possible.  Equity is the most appropriate tool for financing the exploration phase.

Equity is also more expensive than debt and operates to dilute the ownership of the sponsors.

The traditional model is distorted because big international oil companies can raise equity from the stock markets more cheaply than an oil project can raise debt.  International oil companies therefore have a strong preference to finance oil and gas projects in Africa using equity rather than debt. 

 

Despite this, taxation systems in many countries operate so that interest is tax deductible but dividends are not.  This often means that there is debt financing of oil or gas projects in Africa which, in economic terms, is really an equity financing. 

The full version of this article will appear in the next issue of Oil Review Africa in January. The latest issue can be found here

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