Infrastructure Finance

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Infrastructure finance refers to the means of financing the establishment, maintenance, operation and improvement of a country’s physical infrastructure systems - transport, water, communications networks and power. Such projects need long-term funds that can be provided by the issue of bonds and through public-private partnerships.  However, the use of bonds for financing infrastructure has been limited in Africa. In addition, the global economic crisis has constrained financing from international capital markets, resulting in substantial delays or even cancellation of important infrastructure projects across the continent.

Some countries, such as South Africa and Kenya, have issued infrastructure bonds while others, such as Nigeria and Uganda, have either signaled their intentions to do so or started discussions with investors.

In Kenya, the first infrastructure bond was issued in February 2009 to finance roads, energy, water, irrigation and sanitation projects. While this bond was issued with a government guarantee, it is expected that further issues will be backed by the underlying cash flows generated by the projects that they finance.

In Nigeria, the Ogun State Government recently indicated its intention to access capital markets through the floatation of a two-tranched sub-national debt instrument as an infrastructure bond. 

In Uganda, discussions have been underway for the issuance of a bond by the National Water and Sewerage Corporation.

Public-Private Partnerships (PPPs) offer an alternative means of infrastructure financing.  Important pre-requisites for a successful PPP include a clear policy framework, a legal system that ensure contracts are effective and enforceable, a long-term investment plan and an operating framework within government to properly manage the process. African governments have shown growing interest in the opportunities provided by PPPs to help fill the current infrastructure financing gap.