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Why infrastructure project funding isn’t improving in Africa

Poor infrastructure in Africa has been an ongoing challenge for many years. 

This includes key infrastructure such as transportation, energy, water and sanitation, health, education, telecommunication and more. The impact is visible when you look at the slow growth in the development and overall economies of the countries within the continent. 

The biggest bottleneck is getting enough infrastructure funding to encourage project preparation, planning, implementation and post-maintenance as well as support. The funding gap is caused by many reasons, if you continue to read on below, you’ll learn more.

Why there’s a funding gap in African projects

According to this article, the continent’s infrastructure needs roughly between $130 billion and $170 billion per year. However, the funding falls short by $68 billion and $108 billion each year. This means that there’s funding appetite in the continent but there are factors that contribute to the unmet needs. These include project risks, project bankability, preparation, skills to implement these changes, and of course, access to maintenance.

Project risks

Project risk management refers to the process of identifying and analysing potential risks that may arise during the lifecycle of the project. It also involves preparing response strategies to the risks to ensure that the project remains on track, and is able to come. These risks include disputes, insufficient resources, insufficient costs, technology, manpower, time, communication and many more others that could endanger the capability to reach the project’s objectives. 

Project funding feasibility

A project is implemented with a couple of goals, and one of the main goals is to generate cash flow after completion. The same can be said when it comes to infrastructure. When infrastructure is developed, it’s aimed at providing beneficiaries with a resource they lacked, but also to offer investors the risk capital funnelled through the projects.

Project preparation, implementation and maintenance

The above two factors rely heavily on the project preparation stage, during which various steps are taken to ensure that the project is ready for implementation. This is a full project scope management that includes setting goals, defining deliverables and deadlines, outlining project schedule, identifying project risks, and project bankability. 

While these factors are complex, experienced project managers have the ability to close funding for the development of such projects. However, the challenge is that Africa has a poor track record in driving projects to the bankability stage. These factors, coupled with environmental and social international requirements, make it difficult for project sponsors to learn how to finance a project that’s considered a high-risk capital project.

DBSA’s role in acquiring infrastructure funding solutions

The Development Bank of Southern Africa (DBSA) has many years of experience in accessing infrastructure development finance for South Africa and other Southern African countries within the continent. The Bank has effectively integrated and implemented sustainable development solutions, which have benefitted citizens and the local economy. 

Through our project preparation department, we work with key investors to apply for project funding. Our teams identify desired outputs, plan of action, pre-feasibility studies and more. This department creates an environment which enables the development of bankable feasibility studies. 

This includes all of the administrative tasks such as financial modelling, economic, social, technical and environmental studies. This is done to ensure that projects are structured according to public and private assessments. In addition, it also ensures that the projects meet technical and legal assessments as well as local and international requirements. 

Note, projects need to suit strict criteria before consideration. These include the objective for the sector, the stage of development, the type of beneficiary, the risk of the project requested, the capital structure and the quality or track record of developers.

Furthermore, the Bank, in collaboration with the National Treasury, the Department of Public Works and Infrastructure South Africa, has established an Infrastructure Fund. DBSA will manage this fund with the aim of transforming our approach to the financing of infrastructure projects. We will be doing this by reducing the current fragmentation of infrastructure spend, and thereby ensuring more efficient and effective use of resources and improving the speed and quality of delivery.

Final thoughts

As you can see, Africa is facing an infrastructure funding deficit per year. This is largely due to the poor record of reaching the bankability stage on previous projects. There are also other contributing factors such as social and environmental requirements, which the continent is struggling to meet. 

However, there’s untapped potential to reach the funding appetite Africa requires to develop and grow. DBSA’s experience in project scope management and the recently added Infrastructure Fund portfolio will aid South Africa and other countries in obtaining funds for bankable infrastructure projects.

In this article, we will focus on the preparation process of project funding at DBSA. We will also highlight why, in general, African countries struggle to obtain project funding, and how we can overcome that.