Institutional Investors and Infrastructure Financing in Africa: The Case for “Caisses de Dépots”
According to the Infrastructure Consortium for Africa (ICA) 2017 annual report, Africa’s annual infrastructure financing need is estimated at between USD 130 and USD 170 billion, with a deficit of between USD 53 and USD 93 billion. Overall commitments for infrastructure development in Africa, however, are on the rise, increasing from USD 66.9 billion in 2016 to USD 81.6 billion in 2017. Furthermore, national and sub-national government investments rose by 12% over the same period, which is significant compared to historical trends. The shortfall, nonetheless, is still considerable, and a growing number of countries are focusing on mobilizing domestic resources.
With approximately USD 634 billion of Assets Under Management (AuM) in 2017, African institutional investors - pension funds, insurance companies, Sovereign Wealth Funds (SWFs) and Caisses de dépôts – stand as an important potential source of funding for infrastructure financing. According to PwC, these AuM should practically double by 2020, reaching approximately USD 1.1 trillion. Therefore, two questions arise: (i) to what extent can these investors contribute to bridging the infrastructure financing gap?, and (ii) is a particular type of investor better adapted to such long-term financing ?
Given the nature of their liabilities, comprising inter-generational contractual commitments (pension funds, and insurance companies), public funds (SWFs) and mixed capital (caisses de dépôts), these institutions theoretically depend very little on short-term refinancing capabilities and thus have considerable long-term resources at their disposal.
However, in practice, each of these actors face specific challenges depending on its “raison d’être” and the environment in which it operates. Investment capabilities and strategies are highly dependent on the nature of the resources collected, the mechanisms used to mobilize them and the regulatory framework. Some investors, such as pension funds for example, are under investment regulations that are often more stringent than those applicable to a SWF or a Caisse de dépôts. In addition, there are functioning disparities within the same category of investors depending on the country of domicile. For example, a pension fund in Kenya does not operate in the same way as a pension fund in Côte d’Ivoire. Consequently, the levels of AuM and the investing capacity of each actor vary greatly from country to country. Thus, it is worth examining the variety of models depending on the type of operators and the country.
A unique type of institutional investor is gaining traction in North, West and Central Africa: Caisses de dépôts. A Caisse de dépôts is a public financial institution whose mission is to receive, preserve and manage private resources and transform them to finance public-interest priorities. The model, whose expansion is relatively recent on the African continent, originated in France in the early 19th century. With EUR 151 billion in financial assets in 2017, the French Caisse de Dépôts et Consignations (CDC) is one of France’s largest institutional investor. Sister institutions also exist in Italy, Brazil, Portugal, Belgium and Quebec.
In Africa, eight Caisses are operating: Caisse de Dépôt et de Gestion of Morocco (1959), Caisse de Dépôts et de Consignations of Senegal (2006), Caisse des Dépôts et de Consignations of Gabon (2010), Caisse des Dépôts et de Développement of Mauritania (2010), Caisse des Dépôts et de Consignations of Tunisia (2011), Caisse des Dépôts et Consignations of Niger (2017), Caisse des Dépôts et Consignations of Burkina-Faso (2018), and Caisse des Dépôts et Consignations of Côte d'Ivoire (2019). Cameroon, Chad, Togo, Benin, Congo and Equatorial Guinea have plans to create similar institutions. Within the WAEMU region, it is expected that six out of the eight countries will have a Caisse de dépôts by 2020.
Depending on the country and capacity, resources come from regulated savings funds, guarantees and other deposits, as well as from pension and/or notarial funds and public reserves. The institution acts as both a sovereign fund and a development bank, and even as a commercial bank to finance certain projects.
The fundamental characteristic that distinguishes a Caisse de dépôts from another public or private financial institution is that it collects and manages regulated financial resources, whether mandatory or voluntary. A Caisse then allocates these resources to sectors that are poorly served by the market or to national public-interest projects, sectors where private actors do not necessarily have the capacity or mandate to invest in.
Like pension funds, insurance companies and SWFs, Caisses are vectors for allocating savings to growth-bearing projects. It should be noted, however, that a Caisse holds a different approach as it primarly aims to support the economic and social development of its country of origin. The institution’s economic model serves a dual purpose: an original mission as a guarantor of the savings it mobilizes, protects and grows, and a second mission as a long-term investor serving to bolster the country’s economic and social development.
The operating model of a Caisse de dépôts allows for a different strategy from most market players. The common denominator of these institutions is their high level of equity capital and a low proportion of liabilities due in the short-term, which allows them to partially overcome the constraints related to short term asset price volatility and to develop a long-term investment strategy. Thus, they are able to invest more in illiquid assets, in areas suffering from financing shortfalls such as infrastructure, housing, SME development, or renewable energy and to focus on public-interest projects. By the same token, some have developed additional specialties such as tourism, territorial engineering or digital technology.
In addition, the public and independent nature of a Caisse allows it to complement other actors in the financial system. These institutions generally have equity capital well above the average financial institution, as a consequence of earnings slowly accumulated over the years and are subject to strict management standards, which allows them easy access to financial markets.
For a country, the operating model of a Caisse de dépôts, therefore, offers several comparative advantages in terms of industrial and social development. In Morocco and Tunisia, with a total balance sheet of EUR 20.9 billion and EUR 2.2 billion respectively in 2017, Caisses de dépôts play an important role through the specific missions entrusted to them to meet national priorities. In sub-Saharan African countries, balance sheet sizes vary depending on the seniority of each Caisse and the strength of each country’s economy. The model’s development is more recent in this region and thus the financial capacity of Caisses is more limited than in North Africa.
A Caisse de dépôts pools funds from various sources for investment purposes only. The establishment and sustainability of the domestic resource collection mechanism is a long and complex process that requires federating the synergies of targeted actors (banks, pension funds, public institutions, etc.). Consequently, the volume of funds raised depends on the operational capacity of these actors and the vitality of the environment in which they operate. As these are public and private operators, the challenges are numerous and the processes, lengthy.
In Morocco, a significant share of resources comes from the management of pension fund reserves. In Tunisia, most of the resources come from the savings deposits of the Caisse d'Épargne Nationale Tunisienne (CENT). In Gabon, Mauritania and Senegal, resources come primarily from consignments and deposits collected.
Figure 1 above shows the changes in the consolidated balance sheets from 2015 to 2017 (in EUR billion). In Morocco and Tunisia, AuM are increasingly on the rise. The decline observed in 2017 in Tunisia is linked to the fluctuation of the TND/EUR exchange rate, however, Tunisia’s CDC AuM in foreign currency has risen steadily over the period. In Gabon, despite a decline in 2016 due to the country's challenging political/economic climate, the CDC’s resources have grown from year to year, while the 2018 estimations show an increase of 13.8% over 2017. In Mauritania, the resources of the Caisse des Dépôts et Développement have decreased since 2015, mainly due to the decline in deposits and interbank transactions. In Senegal, the resources of the Caisse de Dépôts et de Consignations rose by 7.20% from 2015 to 2017, despite a very slight contraction from 2016 to 2017 due to a decrease in deposits and consignments. All of the Caisses illustrated show positive net results.
Overall, resources are mainly used for enterprise financing and construction projects determined by the government. The financing of infrastructure projects holds an increasingly important part of investment strategies. In Tunisia, the CDC is establishing new infrastructure funds (AIIF, Hanon and Arkam). In Morocco, since 2002, CDG has relied on its infrastructure-focused subsidiary (MEDZ). The Mauritanian Caisse is financing a project to build several hundred social housing units in Zouerate and Nouadhibou. The Gabonese CDC devotes 40% of its resources to financing the transport, social housing and energy sectors.
Although financial capacities are, at this stage, not well adapted to finance large-scale infrastructure projects, African Caisses have the potential to play, within defined risk limits, a pioneering and priming role. To do this, a Caisse can invest through a dedicated vehicle or by becoming a long-term lender to the public administration. Moreover, by capitalizing on their public nature, Caisses de dépôts can potentially assist government and local authorities in the design, implementation and management of projects, particularly in segments that are less attractive to private investment such as social infrastructure.
Beyond their characteristics as long-term investors, these public institutions can have a leveraging effect on private capital. In Europe, depending on the financial arrangements and the risks they bear, Caisses can generally mobilize between 5 and 15 times the private investment for every euro committed.
Globally, promoting the sharing of knowledge and experience among these actors is crucial. Mediterranean Caisses de dépôts have a long and rich experience on which sub-Saharan caisses can capitalize, both in terms of management and in terms of resource mobilization and investment strategies. There is also a need to foster synergies with other types of institutional investors, as well as with regulatory authorities and development financial institutions.
Potential supporting solutions include initiatives to help create special vehicles dedicated to infrastructure financing, establishing risk-sharing mechanisms, facilitating dialogue with regulatory authorities, establishing capacity building programmes for human resources, together with more traditional co-investment initiatives (investments in funds of funds or specialized funds).
In Africa, strengthening long-term investment in economic and social infrastructure is essential to ensure sustainable and inclusive growth. This can only be achieved through a significant growth in both public and private investment. With a sound, prudent and long-term management strategy, combined with adequate support, African Caisses de dépôts can play a key role in the process.
 ICA members include among others G8 countries, African Development Bank, Development Bank of Southern Africa, World Bank, European Commission and European Investment Bank.
 Source: Africa Asset Management 2020 -‐ Report by PwC examining the asset management industry across 12 African countries (Algeria, Angola, Botswana, Egypt, Ghana, Kenya, Mauritius, Morocco, Namibia, Nigeria, South Africa, Tunisia). http://www.amafrica2020.com/amafrica2020/docs/am-africa-2020.pdf
About the author
About the author
Arnaud Floris is a Financial Sector Development Advisor with the Making Finance Work for Africa (MFW4A) Partnership. He holds a wide range of working experiences in project management, strategic development and resource mobilization roles within development finance and private sector organizations across Europe and Africa. Before joining MFW4A, Arnaud worked within the resources mobilization and allocation unit of the African Development Bank, where he was a lead team member of the African Development Fund's Performance-Based Allocation process, involving over 100 stakeholders, 54 beneficiary countries, and a three-year budget of 7.5 billion Dollars.