Infrastructure financing in Africa: Overview, research gaps and research agenda

Executive Summary
Africa’s development requires substantial investment in infrastructure systems, such as water, energy, and tele-communications. These systems are essential to ensuring that contemporary processes, like industrialization and urbanization, can be leveraged to create real and sustained value for cities, counties, regions, and global networks. One of the key questions underpinning this infrastructure challenge is how to finance these systems. Often focussing on the need for bankable projects and creditworthy institutions, debates about how to finance African infrastructure reflect an important and well-rehearsed argument that the key to addressing the infrastructure ‘finance gap’—and thus unlocking Africa’s infrastructure challenge—is overcoming the mismatch between investor expectations and the actual risk/return profile of infrastructure programmes and projects. This mismatch frames many useful projects as simply un-bankable, either because short-term returns are too low, or the risks are too high or not easily quantified and costed.

With the SDGs and other global agendas calling for more equality, climate responsiveness, and poverty alleviation, the development sector has been compelled to move beyond the frame of ‘bankability’ and ensure investments are sustainable and just. This requires deeper engagement with how financial logics—such as rating systems and assessment criteria—shape the sustainability of infrastructural outcomes. It also requires a recognition of current knowledge gaps, such as the lack of data on Africa and the weaknesses in our ability to make sense of this data in the context of rapid urbanization, digitization, demographic transition, and other important trends which have unique implications on the continent.

Intended to demonstrate these gaps and provide a scaffolding for future knowledge production, this report is struc-tured into four parts. Part 1 provides an overview of the actors and instruments involved in infrastructure finance in Africa: how much different actors are investing, what kinds of financial mechanisms are used, and into what sorts of infrastructure sectors. Part 2 outlines the research issues that surface when trying to make sense of that data— going on to indicate where improvements could be made to strengthen both documentation and accountability. Building on the insights from Part 1 and 2, Part 3 offers a propositional and forward-thinking research agenda for infrastructure finance research in Africa. The report concludes by presenting two key areas for collective action. Following is a summary of the report’s main sections:

Part 1: Actors and instruments: Although information about investment in Africa is scattered and difficult to consoli-date, this section offers an overview of the actors involved in financing and delivering infrastructure in the continent, and of the emerging trends concerning financial mechanisms and the ways in which they play out in each major sector of investment. This high level overview shows that national governments are key actors in infrastructure finance, leveraging both their own revenue and loans. Multilateral and bilateral lenders are also major players, but they operate in a complex landscape of geopolitical ties and utilize diverse financial mechanisms that are often hard to chart. Blended finance and other emerging instruments which combine concessional and commercial elements reveal an increasing complexity of the project packages through which infrastructure is delivered. This brief map shows that existing available information is heterogenous and cannot be simply portrayed through numbers; richer qualitative reflections are needed to make makes sense of scattered and diverse documentation.

Part 2: Research issues in the African context: The gaps in our understanding of trends and patterns affecting investment in infrastructure in Africa reflect interrelated and systemic issues. Here, the report hones in on three important obstacles to building shared meanings, particularly among key financial actors, of sustainable infrastructure financing in Africa. First, there is an absence of commensurability and thus the interoperability of available datasets. That is, data collected by different actors utilizes different categories and metrics, making comparability difficult. Second, data is not always (in fact, rarely) collected by autonomous agencies. The need for autonomy and transparency of the research underpinning many of the existing outputs on the topic is clear. Finally, but no less importantly, the lack of fine-grained, localized data at the subnational level makes nuanced analysis difficult. This is particularly evident and important in the context of urban infrastructure, which pays the price of unrealized decentralization reforms, competing territorial governance, traditional lenders’ opposition to funding subnational institutions, and an even greater dearth of data and research.

Part 3: Research agenda: There are many priorities whose study would, each in its own way, tackle the knowledge problem of sustainable infrastructure financing. This part of the report attempts to synthesize the most pressing imperatives. The first is capacitating research centres in Africa to engage the questions of infrastructure finance. As we show, African research institutions are rarely involved in setting priorities of international lenders, and could be capacitated to play a vital interlocuter role. A second necessity is understanding the increasingly important role and unique practices of non-OECD actors, such as China, India, and Arab countries. While players like the World Bank were once seen as the leaders of the African infrastructure investment agenda, a diversity of lenders (and donors)— often with divergent and even competing objectives—has proliferated, and needs to be better understood (and coordinated where possible). The third imperative relates to the need to take seriously key continental transitions already underway. Africa is changing rapidly. Urbanization, climate change, demographic transitions (e.g., youth bulge), industrialization, digitization, and other processes have direct and fundamental impacts on infrastructure, and a failure to account for them is at our own peril. The fourth imperative relates to the rise of alternative spatial and territorial formations, which may, over the decades to come, challenge the primacy of the nation state. That is, multi-country corridors, trans-border mega-cities, and/or regional natural systems reflect the interconnectedness of the pan-African infrastructural project, and point to the need for new governance formations that can attend to those infrastructural realities. Finally, the reality of existing infrastructural hybridity and diversity cannot be overlooked. Focussing exclusively on capital intensive mega-projects fails to acknowledge the diverse ways services are already accessed, as well as the wider social infrastructures that support human, cultural, and social wellbeing.

Conclusion: In conclusion, the report identifies two policy responses that would, in our view, serve the Research Agenda identified in this report. First, creating collaboration protocols that help Africa-based research institutions, financial actors (both private and publicly owned), local government, and other stakeholders to join forces, and, through dedicated channels, to design, define, and assess sustainable infrastructure projects over the long term. Secondly, we see a necessity to operationalize urban sustainable infrastructure financing through dedicated tools that respond to the twofold need of using small-scale testbeds and reframing the question of bankability by adopting innovative forms of risk-sharing.