Ai CEO Infrastructure Project Developers Summit 2016
Good morning ladies and gentlemen, it’s a privilege to be among such distinguished gathering and to be focused on infrastructure development in Africa. A subject that is of utmost importance to the World Bank Group’s twin goals of eradicating poverty and boosting shared prosperity. Our congratulations and thanks to Hubert and his team at Africa investor, for organizing this forum that has attracted so many key players in the African infrastructure development area. With this address ladies and gentlemen, I will suggest that the current approach to infrastructure project development in Africa and in other emerging markets is not working to its full potential; and will propose an alternative approach on how the development finance community could approach project development to better support all of you. We are observing in several countries including on this continent, that the proposed alternative is showing promise in what could be a roadmap for project development for the future.
We gather today at a time when demand on the continent for improved infrastructure services is growing at an unprecedented rate. The positive economic impact of improved infrastructure is well documented and demonstrated, for example the Tobene Power Plant in Senegal is now operating and providing electricity to 1.5 million people. Government ambitions to serve the increasing demands is perhaps at a scale not seen before in the form of infrastructure reform agendas. Substantial amounts of private and international capital have been raised or have been earmarked for infrastructure development in Africa; and teams with the skills required to support such efforts to develop sound infrastructure projects, are becoming increasingly available to governments in Africa.
In fact I’m proud to acknowledge Alain Ebobissé one IFC’s best, who will soon be fully focused on African infrastructure as the CEO of Africa50; Alain congratulations. Yet despite this progress, infrastructure development in Africa has fallen well short of the objectives of governments, international agencies and private investors. There is considerable agreement on the causes for the shortfall; while it is evident that the solution to the infrastructure gap will involve substantial private capital, there is actually currently more private investment available for the African continent than what the sector in Africa can absorb. So there is broad acceptance that capital is not the issue, at least for now, the issue continues to be project development. Efforts have been made over the last several years to increase the focus on infrastructure project development; governments, multilateral Development Banks, international agencies have made substantial efforts to coordinate and expand project development facilities. This has been a step in the right direction but has failed to produce results on the scale that is required, hence it is timely to question whether new approaches are required.
I will focus my remarks on one such approach that has delivered positive outcomes in several emerging markets. The traditional efforts of project development facilities have focused primarily on individual projects in other words, helping governments push forward one project at a time. This approach has been unable to scale due to long-cycle times of designing and procuring, gaps between government concerns about ensuring a defensible transaction which are often at odds with the private sector requirements to mitigate risks; and then the reality of electoral cycle times.
We are now starting to observe some countries move from what I would call, ‘retail and artisanal project development’ to a ‘wholesale and programmatic approach’, we have seen this approach in renewable energy in several countries. Here in South Africa where it all started, Brazil, India, Mexico and Egypt. Indeed the reduction of solar tariffs from say around 30 US cents per kilowatt-hour a decade ago, to around ten cents 18 months back was led by technology gains. But the reduction from ten cents 18 months ago to the recent bid in Mexico of three and a half cents per kilowatt-hour, was primarily due to smart government procurement.
The wholesale approach is not just about the renewable sector, Colombia is well on the way to 20 billion US dollars in raw PPP’s with the rollout of its 4G program supported by the World Bank Group. Marrying the wholesale project development approach with a pre-packaged toolkit of key reform elements will not only allow project development to happen on a larger scale, but also cut time from initiation of reforms to investment and construction of new infrastructure. An example of this is scaling solar, a cross-country effort to standardize procurement, contracting and financing terms for solar IPPs across Africa supported by the World Bank and IFC. The program is currently live in Zambia, Senegal and Madagascar and will help those governments move from their reform agendas to actually constructed projects within 24 months. So ladies and gentlemen we are actually looking forward to using such new wholesale and programmatic approaches to project development, which will allow you to engage in Africa with not just one transaction but hopefully a pipeline or a series of transactions once some of the main risks are dealt with and we are able to bring solutions too.
Project development has to be replicable, scalable and financeable for us to be able to make a dent in the infrastructure gap in Africa. We look forward to working with all of you on that, our Infraventures team will benefit hopefully from this approach as much as all of you and with that ladies and gentlemen, I’d like to welcome you following Hubert’s welcome to this conference and hope we have some great discussions over the next couple of days. Thanks for your attention.
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