Why bankable projects are key to win-win US-Africa investment [Article]

Why bankable projects are key to win-win US-Africa investment [Article]

United States-Africa relations are back in the spotlight, and investment is the best word. Creating a mutually beneficial relationship will depend on developing a credible pipeline of bankable and sustainable projects on the African continent.

The launch of the US Strategy Towards Sub-Saharan Africa and the US-Africa Leaders’ Summit in 2022 have set the stage for 2023 to be a year of action in infrastructure development. This comes at a critical time for Africa.

The last two decades of engagement have seen and welcomed a shift 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 agenda includes critical issues such as inclusive economic growth, job creation, climate change, and large-scale infrastructure development that addresses all three imperatives.

But how can Africa and the United States leverage their resources to create the scale Africa needs?

The US government has tools and services to support African infrastructure projects and facilitate investment, and the US private sector has advanced expertise in priority sectors including clean energy, health care, and digital infrastructure. Meanwhile, African financial institutions understand the local market and have the knowledge in the field to identify suitable project developers and execute them quickly. How these resources are coordinated will determine the success of this Africa-US infrastructure partnership.

Take infrastructure opportunities

Partnerships to invest in infrastructure development will be a critical enabler of sustainable growth and prosperity for Africa. While the word “infrastructure” may evoke thoughts of roads and bridges, it has a 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 power grids of all scales, for example, are essential to continue and increase Africa’s drive towards digitization.

With a growing population, expanding middle class and rapid urbanization, the continent is one of the fastest growing infrastructure in demand. Opportunities for US private sector investment are plentiful, as the continent faces an estimated infrastructure funding gap of more than $100 billion annually.

One of the most important priorities for strengthening investment opportunities in Africa’s abundant infrastructure space is to increase the number of investment-ready “bankable” projects. This requires sufficient capital to be injected into the project preparation and development phase, which is a critical part of the infrastructure investment life cycle.

While many investors are aware of the US government’s financing tools for emerging markets including debt, working capital, and guarantee mechanisms, the US government also finances the preparation of infrastructure projects through the US Trade and Development Agency. Project preparation is one of the riskiest parts of the project lifecycle, with 80% of African infrastructure projects failing at the feasibility and business plan stages. Funding is based on USTDA grants to prepare risk reduction projects and unlock projects on the continent, allowing pathways to public and private funding.

Project preparation facilitators such as USTDA are natural partners for leading financial institutions in the field such as Africa50, which identify projects, mobilize public and private capital, and accelerate project implementation. Africa50 catalyzes African infrastructure by working with project developers to prepare environmental, social, and governance studies, identify stakeholders and end users, draft legal agreements and concessions, investments, and financial structures. This has been done across the continent in sectors like power, transport, logistics, and ICT.

By working together, complementary institutions like USTDA and Africa50 can accelerate and scale priority infrastructure development in Africa. Come on! The Internet provides a good example. In January 2022, Africa50 completed an equity investment and led a $28 million funding round to support internet service provider, or ISP, growth in low-income urban communities in Kenya and across Africa. USTDA then approved grant funding for a market evaluation and feasibility study to inform ISP expansion into three states and facilitate the deployment of capital toward new telecommunications infrastructure for underserved populations. Since then, 42% of the clients are poa! now use the internet for formal education, and 28% of clients poa! use the internet to earn income.

Support Africa’s climate goals

This kind of collaboration will be critical for Africa to achieve its climate goals. Disproportionately affected by climate change, we see African countries seeking low- and zero-carbon solutions to promote adaptation, resilience, and economic growth. The deployment of innovative technologies is essential to these goals, which is why US companies are eager to collaborate with Africa’s private and public sectors on infrastructure priorities.

Enhancing these partnerships was an important topic of conversation during the US-Africa Leaders Summit and has become a component of US foreign policy, as evidenced in the US Strategy Towards Sub-Saharan Africa and the Partnership for Infrastructure and Global Investment, which US President Joe Biden and his group Seven leading blocs of leading industrialized countries were launched last year.

Partnerships in Africa’s climate infrastructure are 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 led by the African Union, the African Development Bank, and Africa50, AGIA aims to raise early-stage capital of up to $500 million for the preparation of infrastructure projects and project development, with the aim of generating revenue. 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.

Coordination of AGIA resources will help scale private sector participation in Africa’s climate infrastructure development. With USTDA among its partners, AGIA provides options for leveraging US private sector technology and investment.

While some large US multinationals have had a presence in Africa for decades, many US companies have yet to fully engage with the continent. With Africa’s business-to-business sector expected to grow to $3.5 trillion within a decade, investments and partnerships between US and African companies could be a source of significant mutual growth over the next few decades.

There are bright spots to highlight. For example, 38% of all investors participating in the venture capital industry in Africa in 2021 will come from the United States, and the recently concluded US-Africa Leaders Summit generated more than $15 billion in partnerships and investment commitments.

Developing a reliable and sustainable pipeline of African infrastructure projects requires 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.

The post Why bankable projects are key to win-win US-Africa investment [Article] appeared first on Citinewsroom – Comprehensive News in Ghana.

Read the Full Story