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Contributors

James Woodward, Head of Transport & Infrastructure, East Africa, KPMG in Kenya
Judith Nyakawa, Acting Director of the PPP Unit, Kenyan Ministry of Finances
Emilio Cattaneo, Executive Director, Emerging Africa Infrastructure Fund
Janice Kotut-Sang, Regional Director East and Southern Africa, GuarantCo
Philippe Valahu, CEO, Private Infrastructure Development Group (PIDG)

What will it take to unlock capital flows to Africa's project pipelines?

Africa's PPP markets are evolving and local capabilities are rapidly improving, yet the infrastructure investment gap continues to grow. What will it take to unlock capital flows to Africa's project pipelines?

In 2020, the taps will open at the Kigali Bulk Water Project in Rwanda's capital. Forty megaliters of clean water will stream out of the facility per day - enough to supply up to 500,000 domestic, commercial and industrial customers. The impact on Rwanda's biggest city will be massive.

Africa's PPP promoters hope that the flow of clean water from this project will also catalyze a new flow in infrastructure investment. That's because it represents one of the first water projects in sub-Saharan Africa to be developed using a Private Public Partnership (PPP) model. And it stands among just a handful of PPP projects now successfully completed in the Eastern part of the continent. Investors are watching the project carefully.

Africa’s PPP promoters hope that the flow of clean water from this project will also catalyze a new flow in infrastructure investment.

Creating the framework for success

Getting PPPs completed in Africa requires some patience. “Even with all of the work we have done over the past decade, it still takes far too long for projects to get to financial close,” laments Judith Nyakawa from her office in Nairobi. As Acting Director of the PPP Unit under Kenya's Ministry of Finance, she leads the country's efforts to improve the way various government departments implement PPP projects in Kenya.

Kenya is widely viewed as one of the more mature PPP markets in Africa. The country implemented their PPP Act in 2013 and is in the process of passing a number of amendments aimed at improving PPP processing turnaround times. Most other markets across Africa, however, are still trying to operationalize their frameworks.

The water about to flow from the taps in Kigali, for example, would not have been possible without Rwanda first developing the right legislative framework for PPPs in the water sector.

“Our technical assistance team spent years working with the Government of Rwanda and the local authorities to create a framework that would allow a water concession to be tendered. It was a lengthy, but ultimately very successful, process,” noted Philippe Valahu, CEO of the Private Infrastructure Development Group (PIDG), the infrastructure development and finance organization that led the transaction.

Crowding-in local currency investment

While significant effort is being put into attracting foreign investors and global infrastructure funds, the most exciting development in East Africa has been the growing involvement of local investors who - by investing in local currencies - are helping to reduce the overall foreign exchange mismatch that often plagues user-pay projects in the emerging markets.

“Historically, projects would be funded in dollars but user-fees would be collected in local currencies. That meant that either governments or users were left holding the exchange risk. But if part of the funding were to be secured in local currencies - either through banks or through the capital markets - you can start to de-risk a project to a point where it fits within an investor's criteria,” noted Janice Kotut-Sang, Regional Director East and Southern Africa for PIDG company, GuarantCo.

GuarantCo is one of a handful of organizations working across the region to encourage local currency finance for infrastructure projects. GuarantCo uses its Fitch AA- and Moody's A1 ratings to provide guarantees to local banks and institutional investors investing into infrastructure. And that has helped to unlock greater investment flow from local capital markets.

Encouraging local currency investment is also a top priority for Kenya’s PPP Unit. “We’re looking at a range of ways to help crowd-in local currency financing. We believe that PPPs are a great way for Kenyans to invest into a long-term, stable asset class. We want to encourage meaningful participation from Kenyans and Kenya’s institutional investors,” adds Nyakawa from Kenya’s PPP Unit.

Looking for new opportunities

While South Africa is often cited as the most mature market on the continent in the development and execution of PPPs across multiple sectors, there are a handful of markets that are not far behind.

“We are seeing different levels of progress in different markets and different sectors. In Uganda, for example, the government has opened up power distribution to the private sector and that has spawned a vibrant PPP market in that sector. But, at the same time, other sectors are moving rather slowly. Each market is very different,” observes the EAIF’s Emilio Cattaneo.

As PIDG's Philippe Valahu points out, that has led to a range of different green shoots of progress across the continent. “We've been involved in small solar projects in Tanzania, geothermal projects in Ethiopia, social housing projects in Kenya and ferry-boat services on one of Africa's great lakes, Lake Victoria. The opportunities certainly aren't confined to a single market or sector.”

Kenya’s Nyakawa is certainly bullish about the country’s investment climate. “We’re ready. We have a strong and clear institutional framework for PPPs. We have a diverse and dynamic pipeline of projects. And we have the experience and capabilities to get the projects delivered. This is Kenya’s time,” she declared proudly.

In Kigali, the government is eagerly waiting for the water to start flowing from the new Bulk Water Project. The hope in Rwanda is that it will not only help to quench the city's thirst for clean water, but also the continent's thirst for infrastructure investment. Green shoots need water.

While South Africa is often cited as the most mature market on the continent in the development and execution of PPPs across multiple sectors, there are a handful of markets that are not far behind.