New York, September 25, 2018 – The NEPAD Agency Continental Business Network (CBN) once again gathered international investors, pension funds, stock exchange CEO’s, multi-lateral development banks and G7 representatives at the New York Stock Exchange on 25 September, to follow up of the launch of its 5% Agenda. The 5% Agenda is a campaign to increase the allocations of African asset owners to African infrastructure from its low base of approximately 1.5% of their assets under management (AUM) to an impactful 5% of AUM.
With global regulations reducing the amount of bank capital available for Africa infrastructure, institutional investors (i.e., pension funds, sovereign wealth funds, and insurance companies), have emerged as a potentially mainstream financing source to close the estimated US$108 billion infrastructure finance gap in Africa. As a result, a critical African public sector objective is to mobilise institutional investment for African infrastructure assets, especially those under the Programme for Infrastructure Development in Africa (PIDA), that provide the backbone of Africa’s regional integration, trade, investment, competitiveness.
The meeting, hosted together with Africa Investor, saw dialogue and follow up on the 5% Agenda, recommendation: “The need for the establishment of an African Infrastructure Guarantee Mechanism (AIGM),” aimed at encouraging pension and sovereign investment into Africa’s infrastructure.
The dialogue in New York follows a series of successful CBN high-level Leader’s Dialogues hosted in 2016 and 2017 which examined the role of the private sector in de-risking PIDA projects and built on one of the recommendations emanating from the De-Risking Report. The recommendation is on the need to mobilise Africa’s institutional infrastructure investment community, including African pension and sovereign wealth fund capital, as the key to meeting the financing gap that is currently hindering Africa’s infrastructure development as well as its economic and social progress.
Dr Ibrahim Mayaki, NEPAD Agency CEO, officially opened the event with a key note address. His emphasis was on how African institutions need to do their homework in terms of realistically looking at and tackling the perceived riskiness of Africa’s infrastructure.
Dr Mayaki also brought up the importance of institutional investors such as pension funds in advancing development of Africa’s infrastructure. He also reiterated the importance of basing the approach on partnerships in driving the 5% Agenda.
The Vice-President in charge of Private Sector, Infrastructure and Industrialisation at the African Development Bank (AfDB), Mr Pierre Guislain, also expressed similar sentiments. He stated that the AfDB, active in providing partial and risk guarantees, appreciates the need of setting up a guarantee mechanism and is ready to partner with the NEPAD African Infrastructure Guarantee Mechanism (AIGM).
The Trade and Development Bank represented by its COO, Dr Frannie Leautier, emphasised on the need for a standardised approach and moving away from a project based structuring process.
Mr Jonathan First, Lead Specialist at the Product Innovation Unit of DBSA elaborated on what would be required to reach the 5% mark as: 1) An enabling environment; 2) International investors; 3) Guarantees, and; 4) Assessments of currency risks.
The United Nations Economic Commission for Africa also expressed intention to work with NEPAD Agency on the guarantee instrument.
Mr Symerre Grey-Johnson, Head of Regional Integration, Infrastructure and Trade at the NEPAD Agency, gave an update on the progress that the 5% Agenda is making since its launch in 2017. He also presented the strides that the NEPAD Agency has already taken in mapping out the strategy for the AIGM. This included the breakdown of the 4 options of what the mechanism could look like:
Option 1: Create a new African Infrastructure Guarantee Facility providing institutional investors with 100% financial guarantees for their investment in Africa’s infrastructure assets (including project development and operation and other infrastructure investment vehicles such as bonds, funds, companies, etc.).
Option 2: Crowd-in existing risk mitigation support through an African Infrastructure Guarantee Mechanism that serves as a one-stop shop referral system to existing providers of risk mitigation, facilitating the access of project owners and developers to existing risk mitigation instruments.
Option 3: Request existing risk mitigation providers to implement a joint application process that would be managed by the African Infrastructure Guarantee Mechanism.
Option 4: Blended Market-Based Scheme: This option is aimed at using market incentives to catalyse the creation of an expanded African market in specialist infrastructure risk mitigation and reinsurance, scaling the commercial use of guarantees and credit enhancements that meet the strict investment requirements of institutional investors. The approach implemented through the African Infrastructure Guarantee Mechanism would be to create a one-stop-market aggregating the sources of demand (infrastructure assets) and supply (providers of risk mitigation), crowding in existing public and private providers of risk mitigation, global investment insurers, and credit enhancement leaders and instruments from private and public sector institutions.
Option 4, after technical and consultative deliberations has come out to be the most ideal option to follow through.