144 | The Banker | May 2010

Charlie Corbett
Economics editor at The
Banker and chair of the
round table
Thierry de
Longuemar
Vice-president for fnance,
African Development Bank
aloysius Ordu
Vice-president for
operations, African
Development Bank
nick rouse
Managing director for
frontier markets funds,
Standard Bank
Charlie Tryon
Partner at venture capital
frm, Maris Capital
nicolas Pitiot
Vice-president for
banking, MediCapital
Bank
Torbjorn Caesar
Partner and co-head
of infrastructure, Actis
ade adeola
Head of project fnance,
Africa, Standard Chartered
Bank
The PaneL
Funding AFricAn
inFrAstructure
Leadership series round table
The parlous state of infrastructure in Africa is one of the main reasons the
continent has never achieved its immense potential. The Bankers roundtable
attempts to fnd out how this situation can be rectifed and where the money
will come from to fund it. writer Charlie Corbett
Charlie Corbett, economics editor at The
Banker, opened the Leadership series
round table by quoting a recent report by
the africa Infrastructure Country Diag-
nostic that found that bad infrastructure
in 24 selected african countries cut
national economic growth by two percent-
age points and reduced business produc-
tivity by 40%. The same survey found that
in order to bring infrastructure on the
continent up to a standard whereby true
effciencies could be gained, a staggering
$31bn per year needed to be pumped in.
This prompted Mr Corbett to ask the
question: if infrastructure is so critical to
the development of african economies,
why has it been neglected for so long and
where will the money come from to put
this right? he asked the panel what they
saw as the biggest obstacles to building
and funding infrastructure in africa.
Ade Adeola, head of project fnance, Africa,
for Standard Chartered Bank, said the big-
gest obstacles were affordability and fnding
reliable off-takers. Our analysis across the
market indicates very clearly that there is a
mismatch between the need for infrastruc-
ture and the ability to get a strong off-taker
to be able to support the financing of
projects. Aloysius Ordu, vice-president of
operations at the African Development Bank
(ADB), said access to fnance was by far the
most important handicap to infrastructure
in Africa. When we think of Africa, we think
in terms of 53 countries in a $1100bn econ-
omy, and if we had the right amounts of
money to fund infrastructure in this conti-
nent, you could grow that $1100bn economy
to $5000bn, he said.
Mr Corbett then asked Torbjorn Caesar,
a partner and co-head of infrastructure at
private equity company Actis, what more the
banks could do to help fnance critical infra-
structure projects. He said that private capi-
tal should play a much bigger role than it
does today, but then alluded to Mr Adeolas
point that the problem was fnding reliable
and credit-worthy off-takers. Longer-term,
you need to have deregulation take away
[untargeted] subsidies and you have to have
a transparent sector with cost-refective tar-
iffs, he said.
Nicolas Pitiot, a vice-president for bank-
ing at MediCapital Bank, the European sub-
sidiary of BMC of Morocco, said the key to
improving the state of African infrastruc-
ture was access to long-term fnancing: The
private sector has a huge contribution to
make but, with the credit crunch, a lot of
institutions are having diffculties refnanc-
ing on very long-term maturities. Mr Pitiot
also lamented the fact that in many African
countries, the legal framework required to
put such projects into action was not up to
scratch. If we want to see more public-
private partnerships, the legal framework
has to be strengthened in these countries,
he said. Another diffculty highlighted by Mr
Pitiot was human resources, which he said,
AnAlysis Across the mArket
indicAtes very cleArly thAt
there is A mismAtch
between the need for
infrAstructure And the
Ability to get A strong off-
tAker to be Able to support
the finAncing of projects
Aloysius Ordu
infrastructure

afrICa | rOuND TABLE

rOuND TABLE | afrICa
May 2010 | The Banker | 145
infrastructure
was wanting. The pool of talent [in Africa]
exists, but it is too little now to be able to
cope with a huge pipeline of infrastructure
projects.
Nick rouse, managing director for fron-
tier markets funds at Standard Bank, struck
a more optimistic note: I think there is cause
to believe things have got better recently, he
said. There has been economic growth in
Africa and the number of projects weve been
undertaking has grown. However, he said
that the big issue was fnding quality spon-
sors for projects or, in Mr rouses words,
people who can make these things happen.
Mr Corbett then asked Thierry de
Longuemar, vice-president for fnance at the
African Development Bank (ADB), what
more his bank could do to change the cur-
rent situation in terms of pan-African infra-
structure. Mr Longuemar said the ADB was
in the process of tripling the banks resources
and was in discussions with shareholders.
However, he added that one of the most criti-
cal aspects was local currency funding.
Local currency is an area where we are
doing a lot, but where we could do much
more, because most of our projects generate
revenue in local currency and they need to
avoid currency mismatches, he said.
Charlie Tryon is a partner at a venture
capital fund Maris Capital, which invests in
small and medium-sized enterprises in fron-
tier and post-confict African markets.
Mr Corbett asked him what more the
commercial banks and others could do to
help him get his businesses off the ground
and into proftability. He said one of the areas
of infrastructure most neglected is the roads.
We work in south Sudan and it is land-
locked. The nearest port to the capital of
south Sudan, Juba, is in Mombasa, which is
1500 miles [2414 kilometres] away. The cost
of moving goods from there to Juba is
$10,000 for one 40-foot [12-metre] con-
tainer, which works out as $4 a mile [$6.4 a
kilometre], he said.
Mr Tryon added that another problem
was that often the larger banks tended not to
bother with smaller projects such as road
and rail building in harsher environments.
It is a less attractive infrastructure invest-
ment for a lot of the development banks and
theres a lot more risk, a lot more currency
risk and the cost of business in these mar-
kets is that much higher, he said.

MOBILe MODeL
The panel all agreed that the most successful
model for pan-African infrastructure inte-
gration was the revolution in mobile phone
technology across the continent. Mr Corbett
asked what lessons could be learned from
this. There was light-touch regulation, little
government interference and some very
committed sponsors, said Mr Pitiot.
Mr Corbett made the point that not all
infrastructure investment was going to be a
good commercial opportunity, as mobile
phones have been, so how could investors be
convinced to put money into the less com-
mercially viable, but equally critical, infra-
structure?
Mr Pitiot used the example of toll roads.
He said that outside South Africa, there was
just one functioning toll road in sub-Saharan
Africa, the Lekki Toll road in Lagos, Nigeria,
and even that was not yet fully operational.
There are other toll road projects around
theres the tolling of the Dakar-Kumasi road
between Senegal and Ghana and theres the
Nairobi ring road but all these are
unproven, he said. It is the affordability
issue. Does it actually make sense for the sort
of tolls that need to be paid to make these
projects economic?
Mr de Longuemar responded that
unpopular projects will always remain
unpopular with some private investors so it
was critical that governments took the lead.
There are some projects that require gov-
ernment involvement and this is the only
practical response, he said. There is a
responsibility they have to take. Some are
willing, some less.
GOvernMenT InfLuenCe
Mr Corbett asked the panel what more Afri-
can governments could do to transform
Africas infrastructure. Mr Tryon said that
one of the biggest challenges facing govern-
ments in frontier markets was capacity and
experience. They may be governments who
are in place for very short periods of time
and lack long-term perspective. There is also
the issue of corruption, he said. I have seen
it in a number of countries we work in where
the interplay between the government
MOBILe MODeL
GOvernMenT
InfLuenCe
CO-OPeraTIOn The
key
enTer The CaPITaL
MarkeTs
IMPaCT Of The
DOwnTurn
One MOre ThInG...
The Issues
Watch Now
Watch the debate or
individual chapters visit
thebanker.com/media
if we wAnt to see
more public-privAte
pArtnerships, the
legAl frAmework
hAs to be strengthened
Nicolas Pitiot
146 | The Banker | May 2010
infrastructure

afrICa | rOuND TABLE
helping these countries to make sure that the
procurement practices are back up to scratch,
making sure that their budgets are transpar-
ent. We are helping these countries in state
building, he said.
Mr Corbett asked how Actis balanced its
relationships with African governments, in
particular when there were questions about
transparency and ethics. Mr Caesar
responded that there were multitudes of
ways of managing relationships but that it
was important that development agencies
such as the ADB, the International Finance
Corporation (IFC), the World Bank and oth-
ers were also involved. If you are looking
from a transparency point of view, institu-
tions [such as these] make sure that there is a
proper process [to structuring infrastructure
fnance], he said.
Mr Caesar added that it was critical that
private investors, who are committing funds
for a lengthy period of time, could be reas-
sured that the next government or regulator
was not simply going to reverse all the deci-
sions of its predecessor.
CO-OPeraTIOn Is key
Mr Corbett questioned how African states
could be encouraged to co-operate more
together in order to improve the continents
infrastructure. Mr de Longuemar said he
really believed that the strongest potential for
growth in Africa was through intra- African
trade, but that this was hindered by poor
infrastructure, in particular roads and cross-
ing points. Some countries have already real-
ised that, and you have got organisations such
as SADC [the Southern African Development
and the private sector is poorly managed
and you get contractors building roads and
power or utility producers who are quite
frankly irresponsible and they are not up to
the task to deliver the infrastructure that
they are paid to deliver.
For Mr Ordu, the key to developing good
infrastructure is in developing good institu-
tional frameworks. We have seen this in a
number of countries, especially Lagos state
in Nigeria, where they have put together a
regulatory commission. What that does is to
create a more standard model [with] a
standardised procurement process and a
tender process that allows strong sponsors to
emerge, he said.
Mr de Longuemar said that one of the
most important roles for the ADB was to act
as a broker between governments in Africa
and private fnance. We mitigate the risk of
having to deal with governments and offer a
bridge between the public sector and the
private sector. It is not our expertise, not our
money, nothing else. It is the risk-mitigation
aspect, he said.
Mr Ordu added that the ADB also works
in tandem with governments to create more
sound legal and regulatory frameworks. The
second point, of course, is the business envi-
ronment. In rwanda, for example, now it
takes much less time to open a business,
whereas 10 years ago it used to take years, he
said. Mr Ordu also alluded to problems of
political instability on the continent. He said
there were 14 countries in Africa officially
termed fragile states. These states were mov-
ing out of periods of civil war or unrest and
towards political stability. [The ADB is]
Community] that are very much aware and
meet [to discuss] matters of how to make the
lines of communication between states in this
region much better, he said.
Mr Adeola said it was up to people such
as Mr de Longuemar at the ADB to kick start
such co-operation. The ADB [exists] as a
fair and honest broker that helps to provide a
framework for protecting creator rights
across both sides [of the border]. When you
look at country risk, it gets amplifed once
you cross the border we need the ADB to
take a lead role.
Mr Adeola added that it was not so much
the money that development agencies such
as the ADB provided, but the risk mitigation.
When I look at the diffculty in getting a lot
of these projects bankable, it is not really
money. It is about being able to get a credit
announcement that will enable private banks
such as ours to deploy capital, he said. So,
even if today the ADB stopped deploying any
form of debt in terms of cash and all it did
was to provide country risk mitigation and
credit announcements, it would probably
have as much impact as it does in terms of
writing the cheques. When I look at how
much we could deploy if we didnt have to
worry about country risk, we would probably
be able to double that, he said.
Mr de Longuemar mentioned yet another
challenge to promoting intra-African trade,
which was to harmonise regional economic
communities in Africa. There are, I dont
know how many nine or maybe more [eco-
nomic communities] but the problem is
that there are overlaps everywhere. Many
countries are members of different regional
economic communities, he said.
enTer The CaPITaL MarkeTs
Mr Corbett asked how outside-investors
could be better reassured that their invest-
ments in Africa were safe, given the conti-
nents widespread political and economic
uncertainties. Mr Tryon said that it was pos-
sible to insure investments through organisa-
tions such as the World Bank, but that his
fund had taken the view that such insurance
mechanisms were not necessarily appropri-
ate to smaller investors such as Maris Capital.
He suggested that each deal was individual,
but that the long-term prospects for the con-
tinent were good. Goldman Sachs published
a paper suggesting that the pan-African
growth rate until 2050 could be as much as
6% gross domestic product growth per
annum and I think thats a very reassuring
point for investors, he said.
Mr rouse said that said that Standard
Bank managed funds that ran for 15 years
May 2010 | The Banker | 147
infrastructure

rOuND TABLE | afrICa
tral bank come in and say, we will backstop
[a deal] when it comes to the cost of funding
for a longer-term infrastructure project, is
such a big catalyst, he said.
Mr Caesar added that the universe of
lenders from the private sector had shrunk
considerably as a result of the crisis. If you
take Egypt, where we did a $250m refnanc-
ing just before the crisis, everyone was there.
There was ferce competition and extraordi-
nary terms not so any more, he said.
Despite the difficult economic backdrop,
however, Mr Caesar said that it was still pos-
sible to put together sound deals. You can
use the development agencies and partial
risk-guaranteed products, and [with that]
you can make good, stable, solid returns in
these markets, he said.
One MOre ThInG...
Mr Corbett thanked the panelists for their
contributions and asked them to name one
and had brought to fruition 27 projects. The
fnancial structures you can get in Africa are
very robust compared to other markets, he
said. It is a little bit of a myth that Africa is
high-risk, because actually, when you get
down to it, you get good returns and you get
strong structures. A more important issue,
Mr rouse said, was about how to mobilise
local currency for long-term infrastructure
projects.
Theres a lot [of local currency availa-
ble] in African countries. There are long-
term savings in insurance companies and
pension funds. All that this money does at
the moment is go into government bonds.
The mechanisms should [be put in place] to
enable [that money] to be released for infra-
structure, said Mr rouse. Getting pension
funds to understand the issues and getting
capital markets regulation in place that
releases that money is very important. Mr
Pitiot also made the point that there was an
underlying issue concerning interest rates
when it came to lending in local currencies.
Once you start to do 15-year deals and inter-
est rates are 20%, it becomes quite diffcult
to make such things economic. Local cur-
rency interest rates need to be at acceptable
levels, and thats a bigger macroeconomic
issue, he said.
IMPaCT Of The DOwnTurn
Mr Corbett suggested that it was surprising
that more than 50 minutes of debate had
passed without one mention of the fnancial
crisis. He asked the panel what impact it had
had on investment. Mr Pitiot said there had
been a noticeable withdrawal of commercial
banks, but that development agencies had
stepped into the breach. There has actually
been an international reaction to plug the
gap, but in the long term, the best solution to
all of this is that commercial banks are active
in Africa in the same way they are in devel-
oped markets.
Mr Adeola said that Standard Chartered,
as a commercial bank, had found that the
downturn had made deals harder to distrib-
ute. There was no more underwriting capac-
ity available in the market and we were the
only bank that was still underwriting trans-
actions, he said. According to Mr Adeola,
the maturity of deals to fund infrastructure
fell from seven to 10 years to about three to
fve years. And, of course, for any sensible
infrastructure project you need a longer
tenor than that, he said. Mr Adeola also sug-
gested that central banks in Africa could play
just as big a role as the development agencies
in supporting infrastructure fnance. When
it comes to pricing and tenor, having a cen-
thing that they thought needed to change,
which would go the furthest in transforming
African infrastructure and their ability to
fnance it.
I think for us it would be investment in
power, Mr Tryon said. It is a requirement of
every single business and it is seriously under-
invested in. It affects our bottom line every
day. We would see huge increases in profta-
bility across our investments if we had regu-
lar, suffcient power at an affordable price.
Mr de Longuemar was clear: Broader
and deeper domestic capital markets, he
said. Mr Pitiot wanted less government
interference. This, he said, would allow
affordable tariffs and let the private sector
get on with things more.
Mr Caesar said that the future lay in giv-
ing the private sector a major role. A lot of
capital resources are standing by, waiting to
come in, he said.
Mr Ordu said that the multilateral
banks, such as the ADB, IFC and World
Bank, were critical to building Africas infra-
structure: We need to work much more in
consultation with governments because
thats where the rubber hits the road,
he said. [We need] to create the enabling
environment for the private actors to come
and play.
Mr Adeola was blunt in his response. If
there is one single thing that could change
dramatically that would accelerate the
growth and appetite of commercial banks
and private equity parties into African infra-
structure projects, it will be a situation
whereby they see that the money they invest
gets repaid, he said.
it is A little bit of A myth
thAt AfricA is high-risk,
becAuse ActuAlly, when
you get down to it, you
get good returns And
you get strong structures
Nick Rouse
Question time: Charlie Corbett asks Ade
Adeola, head of project fnance for Africa
at Standard Chartered for his views