Opinion: Why bankable projects are key to win-win US-Africa investment
The United States-Africa relations are back in the spotlight, and investment is the word of the hour. Crafting mutually beneficial relations will depend on developing a credible pipeline of bankable and sustainable projects on the African continent.
The launch of the U.S. Strategy Toward Sub-Saharan Africa and the U.S.-Africa Leaders Summit in 2022 have set the stage for 2023 to be a year of action on infrastructure development. This comes at a critical time for Africa.
The last two decades of engagement have seen marked and welcomed shifts from aid to trade and now to investment. By 2050, a quarter of the world’s population will be African, making the continent an increasingly important global player in shaping the world’s future. The 2022 summit’s agenda included critical issues such as inclusive economic growth, job creation, climate change, and scaling infrastructure development that addresses all three imperatives.
But how can Africa and the United States leverage their respective resources to create the scale that Africa needs?
With the right partnerships, African countries will succeed in finding a balance between infrastructure development, economic growth, and sustainability.
The U.S. government has a suite of tools and services to support African infrastructure projects and facilitate investments, and the U.S. private sector has cutting-edge expertise in high-priority sectors including clean energy, health care, and digital infrastructure. Meanwhile, Africa’s financial institutions understand local markets and have the on-the-ground knowledge to identify suitable project developers and fast-track execution. How these resources are coordinated will shape the success of this Africa-U.S. infrastructure partnership.
Seizing the infrastructure opportunity
Partnering to invest in infrastructure development will be a critical enabler for sustainable growth and prosperity for Africa. While the word “infrastructure” may evoke thoughts of roads and bridges, it has a much more expansive definition that emphasizes its importance: It also includes investments in digital and clean energy infrastructure. Investments in data centers, base stations, transmission towers, and advanced electric grids at all scales, for example, are crucial to continue and bolster Africa's push toward digitization.
With its growing population, expanding the middle class and rapid urbanization, the continent has one of the fastest growing demands for infrastructure. Opportunities for U.S. private sector investment are abundant, as the continent faces an estimated infrastructure funding gap of over $100 billion a year.
One of the most important priorities to solidify investment opportunities in Africa’s abundant infrastructure space is to increase the number of investment-ready “bankable” projects. This will require substantial capital to be injected into the project preparation and development phases, which are critical parts of the infrastructure investment lifecycle.
While many investors are aware of the U.S. government’s financing tools for emerging markets including debt, working capital, and guarantee mechanisms, the U.S. government also funds infrastructure project preparation through the U.S. Trade and Development Agency. Project preparation is one of the riskiest parts in the project life cycle, with 80% of African infrastructure projects failing at the feasibility and business-plan stage. USTDA's grant-based funding for project preparation de-risks and unlocks projects on the continent, enabling a pathway to public and private financing.
Project preparation facilitators such as USTDA are natural partners to on-the-ground leading financial institutions such as Africa50, which identifies projects, pools public and private capital, and accelerates project implementation. Africa50 catalyzes African infrastructure by working with project developers to prepare environmental, social, and governance studies, sounding out stakeholders and end-users, drafting legal and concession agreements, investing, and structuring finance. It has done so across the continent in sectors like power, transport, logistics, and ICT.
By working together, complementary institutions like USTDA and Africa50 can both accelerate and scale priority infrastructure development in Africa. Kenya’s poa! Internet offers a good example. In January 2022, Africa50 finalized an equity investment and led a $28 million financing round to support the internet service provider, or ISP’s, growth in lower-income urban communities in Kenya and across Africa. USTDA subsequently approved grant funding for a market assessment and feasibility study to inform the ISP’s expansion into three countries and facilitate the deployment of its capital into new telecommunications infrastructure for underserved populations. Since then, 42% of poa!’s clients now use the internet for formal education, and 28% of poa!’s clients use the internet to earn an income.
Supporting Africa’s climate goals
This kind of collaboration will be critical for Africa to reach its climate goals. Disproportionately affected by climate change, we are seeing African countries seeking low- and zero-carbon solutions to foster adaptation, resilience, and economic growth. The deployment of innovative technology is imperative to these goals, which is why U.S. companies are eager to partner with Africa’s private and public sectors on their infrastructure priorities.
Fostering these partnerships was a prominent subject of conversation during the U.S.-Africa Leaders Summit and has become a component of U.S. foreign policy, as evidenced in the U.S. Strategy Toward Sub-Saharan Africa and the Partnership for Global Infrastructure and Investment, which U.S. President Joe Biden and the Group of Seven bloc of leading industrial nations’ leaders launched last year.
Partnering on Africa’s climate infrastructure is also seen in the emergence of new initiatives such as the Alliance for Green Infrastructure in Africa. Launched during the 27th United Nations Climate Change Conference and spearheaded by the African Union, the African Development Bank, and Africa50, AGIA aims to raise up to $500 million of early-stage capital for infrastructure project preparation and project development, with a goal to generate up to $10 billion in investment opportunities, to accelerate Africa’s transition to net-zero. AGIA includes public and private international financial institutions from Africa, Europe, and the United States.
AGIA’s resources coordination will help scale private sector participation in Africa’s climate infrastructure development. With USTDA among its partners, AGIA presents an option for leveraging U.S. private sector technology and investment.
While several large U.S. multinationals have been present in Africa for several decades, many U.S. companies are yet to fully engage with the continent. With the business-to-business sector in Africa expected to grow to $3.5 trillion within the decade, investments and partnerships between U.S. and African companies can be a significant source of mutual growth over the next several decades.
There are bright spots worth highlighting. For example, 38% of all investors involved in Africa's venture capital industry in 2021 were from the United States, and the recently concluded U.S.-Africa Leaders Summit yielded partnerships and investment commitments in excess of $15 billion.
Developing a credible pipeline of bankable and sustainable African infrastructure projects will require the coordination of technical and financial resources from the private and public sectors in Africa and the United States. With the right partnerships, African countries will succeed in finding a balance between infrastructure development, economic growth, and sustainability.
Category: Press Release