Addressing Africa's infrastructural funding gap

Infrastructure development in West Africa has long been hindered by a lack of access to funds from local banks, according to infrastructure expert Dacport-Olumi Dei. In a recent interview with CNBC Africa's Oyedamola Akinsanya, Dei discussed the challenges that impede private sector investments in Africa's infrastructure. A key issue highlighted by Dei is the limited understanding of long-term infrastructure funding requirements among local banks in the region. While banks offer project financing, they primarily focus on trade finance and lack the capacity to provide funding for major infrastructure projects that require long-term commitments, such as deep seaports. Dei emphasized the importance of long-term funding for infrastructure projects, citing examples like deep seaports that require investments spanning over 20 years. However, local banks in West Africa struggle to provide such extended funding due to limited access to dollars and an inability to collateralize infrastructure projects. Unlike traditional collateral like land titles for homes or car documents for vehicles, infrastructure projects do not offer tangible assets for banks to secure loans against. To address these challenges and facilitate infrastructure development, especially in the transportation sector, Dei pointed to the potential for private sector involvement with government concessions. By partnering with the public sector to provide guarantees and waivers, private companies can secure funding from banks based on the assurance of repayment in the event of default. Dei highlighted the role of sovereign guarantees from central banks or ministries of finance in instilling confidence among lenders and enabling longer-term financing for infrastructure projects. Moreover, Dei underscored the reluctance of private sector investors to engage in infrastructure projects due to the extended timelines for returns on investments. He discussed the complexities involved in funding large-scale projects like deep seaports, which can take up to 15 years for investors to realize dividends. Despite the inherent risks and challenges, Dei noted that investors from Europe, America, and Asia show interest in West Africa's infrastructure sector due to the higher potential returns compared to other regions. In exploring alternative financing measures for infrastructure projects, Dei highlighted the role of the bond market in Nigeria. He mentioned the significant access to funds available through issuing infrastructure bonds, which can provide long-term, low-interest financing for development projects. While acknowledging that the bond market in Nigeria has traditionally focused on treasury bills, Dei emphasized the shifting trend towards investing in infrastructure bonds, albeit with a preference for brownfield projects over greenfield ventures. As West Africa continues to grapple with the infrastructural funding gap, Dei's insights shed light on the pressing need for innovative financing mechanisms and private sector partnerships to drive sustainable infrastructure development in the region.