From Anshul Rai, Chief Executive, Nigeria Infrastructure Debt Fund, Lagos, Nigeria
It is no surprise that David Pilling’s search for sources to fund African infrastructure was not particularly fruitful (“Wanted: funding models to deal with Africa’s paradoxes”, Special Report, June 1).
He was looking in the wrong places. Even in 2021, the financing model for Africa is stuck in the 1990s.
At its core, the model prioritises hard currency-based financing sourced from international markets. These obligations must be backed by sovereign guarantees, leaving the country to bear nearly all the project risks. Since these investors must also be paid back in hard currency, there is a very low ceiling on how many projects can be financed.
This “myth” of international funding being the route to pursue has been perpetuated by development finance institutions, who themselves lend in hard currency and insist some of the poorest countries bear the consequences (95 per cent of DFI infrastructure funding for Africa is in hard currencies).
So, what should be done? First, the link between infrastructure funding and hard currency must be broken. Governments must insist on foreign investors accepting at least a part of the currency risk (as they very willingly do in countries such as India, Turkey, Brazil and South Africa). The DFIs can take the lead here by offering private investors risk guarantees or synthetic foreign exchange hedges.
Second, Africa must also recognise that its infrastructure can be funded by channelling its own resources, amounts raised domestically from pension funds and insurance companies. This is what the future of infrastructure financing in Africa will look like.
Chief Executive, Nigeria Infrastructure Debt Fund, Lagos, Nigeria