The question isn’t whether Africa needs infrastructure. Rather, it’s about how we structure projects that attract sustainable, long-term investment.
By Dele Kuti, Global Head: Energy and Infrastructure, Standard Bank Group
READ TIME: 5 MIN
KEY TAKEAWAYS:
1. Infrastructure success depends on multiple factors beyond basic economics.
2. The opportunity for infrastructure investment in Africa is compelling, particularly for transportation, energy, and utilities.
3. Public-private partnerships supported by development finance institutions can help address Africa’s core bankability challenges.
Working across the 21 countries that make up our African footprint, I’ve seen the challenges in creating infrastructure projects that deliver the commercial returns private investors need. But I’ve also seen the opportunities to do this – and address countries’ development and economic needs.
The bankability blueprint
A bankable infrastructure project requires a specific combination of factors that many stakeholders in Africa are only now beginning to master. The fundamentals go far beyond basic economics and encompass regulatory stability, currency considerations, and creditworthy counterparties.
The most successful projects have the same three characteristics. Firstly, they rely on clear and stable regulatory frameworks. Long-term infrastructure projects, such as roads, ports, rail networks, or energy facilities, usually take 15 to 30 years to recoup the cost of development. To achieve this over such a long time requires consistent policy-making that will withstand political change.
Secondly, successful projects must tackle the foreign currency challenges that are widespread across the continent. Most construction materials have to be imported while project revenues are typically received in local currency.
As a result, countries such as Nigeria, Mozambique, and Zambia have experienced substantial foreign exchange backlogs, leading to project delays and cost overruns. The most reliable projects either secure foreign currency guarantees or structure revenue streams that offer natural hedging.
Thirdly, creditworthy offtakers or strong government support are non-negotiable. Many African utilities and public agencies struggle with liquidity issues and have poor credit ratings, making long-term offtake agreements for power and water utility projects a risky proposition for private investors.
We have seen successes in South Africa thanks to government support, transparency, and a competitive bidding process for renewable energy.
TWO SIDES OF THE SAME COIN
Despite these challenges, the investment opportunity in Africa’s infrastructure remains compelling. The continent’s infrastructure needs are vast and growing, driven by demographic trends that make an increase in investment opportunities a near certainty rather than a speculative bet.
Consider the practical realities: flying from one African city to another often involves routing through Paris or another international hub due to inadequate airport infrastructure. Road networks remain insufficient for growing economies, while ports and rail networks struggle to support expanding trade volumes.
These are not abstract investment themes; they are daily constraints on economic growth that present clear opportunities for well-structured projects.
The energy sector is a prime example of both the challenges and the opportunities. Several countries across the continent struggle with power shortages that hinder economic growth, yet recent policy changes in some, like South Africa, are creating investment-ready opportunities. South Africa’s remarkably swift progress from load shedding to power stability shows what can be achieved when governments facilitate private sector involvement.
MONEY FOLLOWS THE PATH OF LEAST RESISTANCE
Progress towards creating a favourable investment environment differs significantly across Africa, as reflected in the number of bankable opportunities available and investor interest in them. Southern Africa draws the strongest investor interest, followed by East Africa, while West Africa lags behind despite offering significant potential.
Investors’ preferences highlight the significance of institutional stability and ease of doing business. Countries such as South Africa, Namibia, Zambia, Lesotho, and Botswana typically offer more stable regulatory environments and robust judicial systems. Even with ongoing challenges, the fundamental institutional framework provides reassurance for long-term investment.
South Africa’s energy transformation makes for a particularly instructive case study. The government’s decision to introduce open access and private sector involvement in power generation has drawn up to USD2 billion in renewable energy financing from Standard Bank in the last two to three years, with further investment from partners in Norway, the Middle East, and elsewhere. This policy change, paired with competitive procurement processes, has alleviated the country’s power crisis within a remarkably short time.
“A bankable infrastructure project in Africa requires a specific combination of factors that goes far beyond basic economics.”
The size of Africa’s labour force in 2023
It is expected to overtake China’s by 2034 and exceed
1 billion by 2043.
Source: ISS African Futures
Zambia has followed a similar path, implementing open energy access policies that have attracted private sector investment and alleviated the extreme power crisis that would have stalled growth and exacerbated the food crisis in the country.
These notable examples demonstrate how targeted policy reforms can quickly shift countries from struggling to attract investors to becoming preferred investment destinations.
Lessons are being shared across the continent. We’ve seen Angola improve their oil and gas fiscal to attract investors. Nigeria removed subsidies on refined petroleum products and became significantly more bankable despite ongoing regulatory challenges. Namibia is being urged to learn from Mozambique, where a gas resource discovery made in 2010 remains undeveloped, compared to countries like Guyana, which moved from oil discovery in 2015 to production by 2020.
WHAT MAKES A SUCCESSFUL INFRASTRUCTURE PROJECT?
We’ve found that the most successful infrastructure projects increasingly involve sophisticated public-private partnerships (PPPs). These are supported by development finance institutions that can provide concessional funding at lower rates while mitigating investment risks, alongside commercial banks which create a blended finance approach.
PPPs address many of the continent’s core bankability challenges by sharing risks appropriately between the parties best equipped to manage them. Governments are best placed to handle permitting, right-of-way acquisition, and regulatory approvals, while private partners bring technical expertise, project management capabilities, and access to capital markets.
DFIs play a crucial bridging role by providing lower-cost funding that can be blended with commercial bank financing, reducing overall project costs to bankable levels. More importantly, DFI involvement provides political risk insurance. When governments change, as they have done in Africa, new administrations, which may be tempted to shutter projects, are more likely to honour commitments that involve international development institutions.
This partnership approach is gaining traction across the continent. South Africa’s Transnet is developing programmes that combine government and private sector ownership where the government typically is the majority partner. Similar structures skewed toward private sector ownership are emerging in Kenya’s road development, Angola’s energy sector, and other countries that recognise that government funding alone cannot meet infrastructure needs.
Policy plays a make-or-break role
The transformation of Africa’s infrastructure landscape ultimately depends on continued policy reforms that facilitate private-sector investment while maintaining appropriate government oversight.
I believe the most successful countries will be those that implement transparent, competitive procurement processes that attract the best international partners and financing terms.
This includes removing subsidies that distort markets and create fiscal burdens, implementing transparent regulatory frameworks that survive political transitions, and developing local capital markets that can complement international financing. Countries making these reforms are most likely to see rapid improvements in their ability to attract infrastructure investment.
As success stories emerge from the continent, the infrastructure financing gap that once seemed insurmountable will increasingly be viewed as the gateway to attractive investment opportunities not available elsewhere.
With the right policy frameworks, strategic partnerships, and commitment to transparency, African countries are proving that bankable infrastructure projects are not just possible, they’re becoming the foundation for the continent’s next phase of economic growth.