Banking on African Infrastructure
Africa faces a yawning gap between its infrastructure needs and its ability to attract the foreign investment required to finance projects. The continent's leaders must recommit to creating a more favorable investment climate, one that can attract capital while limiting investors’ risk exposure.
JOHANNESBURG – As the US Federal Reserve embarks on the “great unwinding” of the stimulus program it began nearly a decade ago, emerging economies are growing anxious that a stronger dollar will adversely affect their ability to service dollar-denominated debt. This is a particular concern for Africa, where, since the Seychelles issued its debut Eurobond in 2006, the total value of outstanding Eurobonds has grown to nearly $35 billion.
But if the Fed’s ongoing withdrawal of stimulus has frayed African nerves, it has also spurred recognition that there are smarter ways to finance development than borrowing in dollars. Of the available options, one specific asset class stands out: infrastructure.
Africa, which by 2050 will be home to an estimated 2.6 billion people, is in dire need of funds to build and maintain roads, ports, power grids, and so on. According to the World Bank, Africa must spend a staggering $93 billion annually to upgrade its current infrastructure; the vast majority of these funds – some 87% – are needed for improvements to basic services like energy, water, sanitation, and transportation.