African Development Bank: Q&A with Shem Simuyemba, Division Manager, NEPAD Infrastructure Project Preparation Facility
OREANDA-NEWS. August 26, 2016.
Why is NEPAD-IPPF a critical instrument to bridge Africa’s infrastructure financing gap?
NEPAD Infrastructure Project Preparation Facility, NEPAD-IPPF, was established in response to a call of the G8 countries in Kananaskis, Canada, to address one of the weaknesses of infrastructure development in Africa: the lack of investment-ready, viable projects. NEPAD-IPPF is a multi-donor Special Fund hosted by the African Development Bank (AfDB), which supports African countries, to prepare regional infrastructure projects in energy, transport, ICT and transboundary water to make them bankable for investment. It is aligned to major continental initiatives such as the Programme for Infrastructure Development in Africa (PIDA), the priority framework to bridge Africa’s infrastructure gap. We allocate grants to the AfDB’s regional member countries (RMCs) through Regional Economic Communities (RECs), specialized infrastructure institutions such as power pools, river basin organizations and corridor authorities. Our core business is to prepare pre-feasibility, feasibility, environmental and social impact assessment studies, engineering designs, and provide transaction advisory services to make infrastructure projects across Africa bankable to attract the necessary investments. NEPAD-IPPF therefore responds directly to the African Union’s Agenda 2063, and major continental initiatives such as PIDA, and the African Development Bank’s High 5s.
How effective has NEPAD-IPPF been?
Our role as a Project Preparation Facility is critical in that without upstream technical support to help countries turn project ideas into bankable projects, which can attract public and private capital, bridging Africa’s infrastructure would take much longer. NEPAD-IPPF therefore bridges the critical and often overlooked gap between a project idea and translating that idea into a bankable project proposition. The goal is to attract financing for implementation to achieve the desired development impact, which is ultimately to support sustainable growth and improve people’s lives. Since its inception in 2005, NEPAD-IPPF has prepared over 67 regional infrastructure projects, half of which have reached financial closure resulting in financing of over US \\$7.78 billion and thereby responding directly to increasing Africa’s infrastructure stock which, in turn, is a pre-requisite to Africa’s regional integration efforts.
However, project preparation requires resources and currently, across the continent, not enough resources are being committed to this important function. For example, PIDA alone has projected investments of US \\$68 billion up to 2020 and this will require considerable resources to turn the PIDA Priority Action Plan (PIDA PAP) into a package of investment-ready projects attractive to financiers.
What are some of NEPAD-IPPF’s success stories and what has been their impact on the lives of African people?
A total of 18 projects have successfully reached financial close and are being implemented, among them three have been built. We are very proud of our involvement in the Kariba North Hydropower construction project in Zambia, which supports the local grid and also feeds into the Southern African Power (SAPP) the regional electricity market. A US \\$600,000 grant from NEPAD-IPPF in 2008 helped launch the development of this ambitious US \\$430-million energy project on the Zambezi River, some 165 kilometres from Lusaka, with additional preparatory support from the Development Bank of Southern Africa (DBSA), KfW/Germany and the Zambian National Electrical Supply Corp. (ZESCO).
Since 2014, Kariba North has increased the power generated by the existing Kariba Bank Power Station by 360 MW, through two new 180 MW generating units. For local communities in Zambia, Kariba North has improved capacity at peak times, thereby minimizing power outages. This, in turn, is bringing improved tourism to the Lake Shore areas, including the world-famous Victoria Falls and contributing to the mining sector, which constitutes 10-12% of Zambia’s GDP.
NEPAD-IPPF has also been very instrumental in the preparation of bankable road construction projects. The facility contributed US \\$746,000 towards a feasibility study for a new road linking Burundi and Rwanda. The road includes a One-Stop Border facility and was officially opened in July 2013 by the Ministers of Transport of the Governments of Rwanda and Burundi. The road provides a secure overland link, one with safer traffic conditions, and reduced travel time. It has also improved living conditions around the project area by facilitating better access to basic services, schools and health centres.
Other examples include the Ethiopia-Kenya Power Interconnector Project, which will link to the Zambia-Tanzania-Kenya Power Interconnector and will enable interconnection between the East African Power Pool and the Southern Africa Power Pool grid. This interconnection will result in an expansion of the power market in Eastern and Southern Africa.
It should be noted that increased power availability does not just support large industries, but also medium and small enterprises and households with increased access and reliability to electricity. Ruzizi III Hydro Power Project involving Burundi, DRC and Rwanda is another example of a project where NEPAD-IPPF provided preparation support and the project has reached financial close to move to implementation. By virtue of its work, NEPAD-IPPF generates a lot of direct and indirect business opportunities along the infrastructure value chain, ranging from consulting/engineering services, transaction advisory, to construction and equipment supply. This is an area where there is major potential for African companies as currently, most of these services are provided by international companies from outside Africa.
What are the challenges in developing continent-side projects?
Early stage regional project preparation can be costly and complex as it involves multiple countries, multiple stakeholders, with legal, financial, and regulatory environments that are not always harmonized. At NEPAD-IPPF, we have the ability to work on large-scale multi-country projects, ensuring they are better designed, packaged and delivered.
We have to admit that despite our huge potential and the pressing need to translate infrastructure projects into investment opportunities and attract private sector investors at the early stage, the facility is relatively under-resourced. What we need today are additional funds and allocations to achieve higher development impact and help change the lives of Africa’s most vulnerable.
The Policy Brief released in March 2016 by the Koffi Annan led Africa Progress Panel (APP) on Financing and Banking in Africa cites project development as the weakest link in Africa’s infrastructure development. The report states that, “Current approaches to new and innovative financing are not achieving their aims partly because they are failing to address what may be the single greatest barrier to infrastructure financing in Africa – a shortage of bankable projects.” The APP recommends the building of a “Hub-and-Spoke” Model for Project Preparation under the leadership of the AfDB, by turning NEPAD-IPPF into a US \\$500-million Facility.
Who are NEPAD-IPPF’s donors and what are the opportunities to strengthen the facility?
Over the past 10 years from 2005, resources mobilized for project preparation by NEPAD-IPPF amounted to US \\$110 million and this has largely been from donors. The donors are Canada, Germany, the UK, Spain, Norway, Denmark and Norway.
The opportunities for scaling-up capacity for project preparation are many and they are at three broad levels. The first is to commit more resources to project preparation at all levels; the second is to strengthen the quality of projects submitted for preparation; and the third is to more directly link prepared projects to potential financiers. In terms of the first action, more donors are needed to come to the table so as the help transform NEPAD-IPPF into the centre of the Hub-and-Spoke for infrastructure project preparation in Africa as recommended by the APP.
But the resources should not just come from donors: African countries themselves, through domestic resource mobilization, should commit more resources to support project preparation not least because they are the beneficiaries. On the second aspect, regional infrastructure projects involving two or more countries are complex requiring negotiations and agreement on coordination and implementation arrangements. In the case of power projects, for example, apart from the concerned Governments, respective power utilities in the countries need to be involved as do power pools. Ideally, these issues of implementation arrangements should have been addressed before projects are submitted to NEPAD-IPPF for preparation to reduce the lead time between project concept and bankable project.
Lastly, there is need for a more deliberate linkage between project preparation facilities such as NEPAD-IPPF and potential financiers. This will help to expand the scope of possible financing from traditional sources to new sources, such as equity funds in Asia, Europe, the Americas which may not be so familiar with Africa’s infrastructure landscape. To bridge Africa’s infrastructure financing of US \\$100 billion annually, concerted efforts will be required from all concerned.