Financing Africa's Infrastructure Deficit: From Development Banking to Long-term Investing

This article studies the appropriate financing structure of infrastructure investment in Africa. It starts with a description of recent initiatives to scale up infrastructure investment in Africa. The article then uses insights from the literature on informed versus arm's-length debt to discuss the structure of infrastructure financing. Considering the differences in investors' preferences that Africa faces, the article argues that continent's success to fill its greenfield and hence risky infrastructure gap hinges upon a delicate balancing act between development banking and institutional long-term investment. In the first phase, development banks, which have both the flexibility and expertise, should help finance the riskier phases of large greenfield infrastructure projects. In the second phase, development banks should disengage and offload their mature brownfield projects to pave the way for a viable engagement of long-term institutional investors such as sovereign wealth funds. In order to promote an Africa-wide infrastructure bond markets where the latter could play a critical role, the enhancement of Africa's legal and regulatory framework should however start now.