Innovative Finance to Address Africa’s Infrastructure Needs
By Caitlin MacLean and Harlin Singh
From the viewpoint of Africa as a single economic region, the continent is growing rapidly. Of the impediments to trade and growth, infrastructure scarcity is recognized as the most severe. In most African countries, particularly the lower-income countries, the poor state of infrastructure—electricity, water, roads, and information and communications technology—is found to reduce GDP by 2 percent annually and to lower business productivity by as much as 40 percent, as great an impact as corruption and crime.
Funding infrastructure is a key challenge. Historically, African state governments have financed infrastructure development on their balance sheets, with the result that infrastructure rollout has been constrained by budgetary restrictions. Few local governments have the mechanisms in place to issue bonds, and local banks have typically lacked the capacity to supply loans needed for long-term infrastructure investment.
To help facilitate new types of public-private partnerships, the Milken Institute convened a Financial Innovations Lab® in London in October 2015, bringing together leaders from private equity funds, commercial banks, development finance institutions, and corporations, as well as institutional investors, with the goal of producing specific recommendations about infrastructure finance models. The Lab was one of a series of meetings convened by the Milken Institute in partnership with the US Agency for International Development (USAID), Liquidnet, and Symbion.