As the developed world emerges from the coronavirus pandemic, investors are hungry for returns – and many are considering the gains that could be made by closing Africa’s growing infrastructure gap.

The $ 750 million euro bond issued by the Africa Finance Corporation in April was the latest sign of a strong international appetite to invest in African energy and construction projects. It was 3.5 times oversubscribed and funds came from over 200 investors from the UK, Europe, the Middle East, Asia and the US.

But Samaila Zubairu, managing director of the Lagos-based development finance agency, says robust interest belies a big problem in this market: a lack of what donors call “bankable” projects. “The opportunity exists, but the plans are not there,” Zubairu explains.

This is in part because African projects are subject to higher standards than those in other parts of the world, he says. “We are still plagued by the prejudice of this general perception of the risk of projects on the continent, even if the evidence shows otherwise.”

He adds: “It takes too long to close projects. . .[because]all risks must be identified up front and mitigated before funding can take place. ”

$ 550 billion

Amount of assets international investors interested in Africa could potentially deploy, according to McKinsey

In many cases, the structure of an agreement must mitigate the currency risk that can arise in many countries, include some kind of sovereign guarantee – whether for payment or for the supply of raw materials like gas – and harmonize policies sometimes in the short term. interests of national governments with long-term investment objectives.

AFC, like others in the industry, acts as a project initiator. The institution makes the initial investment to get a project off the ground, then seeks additional funding from investors who are at this stage reassured not to bet on a hypothetical. “Part of how we reduce risk is to raise the capital that allows us to get into construction,” Zubairu says.

Chris Chijiutomi, head of infrastructure at CDC, the UK’s development finance institution, says CDC and other leading donors – such as the World Bank’s International Finance Corporation – are having “a lot of talk. around the preparation of projects. . . basically it’s the capital and resources needed to get the project in a bankable form for that capital that is then available to invest in it ”.

A report last year by consultancy firm McKinsey found that 80% of Africa’s infrastructure projects fail at the feasibility and business plan stage. Less than a 10th financial close. Again McKinsey estimates that international investors interested in Africa – including government agencies, pension funds and investment firms – have up to $ 550 billion in assets they could deploy.

The continent needs this funding. Africa’s infrastructure needs, from road and rail to ports and electricity, are immense and its deficit is growing every day – with a booming population.

The African Development Bank estimated in 2018 that the continent needed $ 130 to $ 170 billion in infrastructure investments per year and that there was a funding gap of $ 68 to $ 108 billion.

Spending has increased in recent years, reaching $ 101 billion in 2018, according to a report by the Infrastructure Consortium for Africa. That’s a third more than the average between 2013 and 2017. The AFC estimates that spending jumped to $ 108 billion in 2019.

It is very unfair for us to work with global standards

Most of that increase came from African governments – Nigeria in particular has repeatedly tapped international markets – but Chinese investment has grown by 10% per year during this period.

African governments now account for 40% of infrastructure spending, development finance institutions around 24% and China around 20%, according to Africa Finance Corporation. The private sector constitutes the rest.

Western development finance institutions have added an additional layer of complexity in recent years. And, as part of their governments’ efforts to tackle climate change, many have restricted funding for projects that use fossil fuels. This has made it even more difficult to raise funds for large energy projects in Africa – already difficult to sell due to decrepit grids and outdated tariff regimes.

Given Africa’s vast untapped gas reserves and the fact that natural gas is a much cleaner source of energy than oil, it must be part of the mix, says Kola Karim, president of Shoreline Natural Resources, a Nigerian energy company.

Currently, sub-Saharan Africa is home to nearly two-thirds of the world’s population without access to electricity, and those 600 million people will not be able to access the grid through renewables alone, says Karim.

“It is very unfair to impose global standards on us when over time you have polluted the environment and your economy has grown and you have gone through your first, second and third industrial revolution, and we are just trying to get our first industrial revolution on the ground, ”he suggests.

“And now you’re telling us that even gas isn’t good enough. . . it’s crazy, and Africa is going to suffer.