Contributed by:Theuns Ehlers, Head: Project Finance at Absa CIB
The demand for infrastructure and project finance in Africa is growing on the back of some of the highest economic growth rates on the continent. The International Monetary Fund expects growth in sub-Saharan Africa to reach 3.5% despite sluggish performance of Africa’s two largest economies, Nigeria and South Africa.
The appetite for funding is also in response to economic reforms being undertaken by several governments to attract job creating foreign investment and inject open key sectors once controlled by the state to private sector participation.
It is against this background that we are witnessing continued growth in the infrastructure and project finance market in Africa, with 2018 recording more than double the number of deals (43) reaching financial close compared to the previous year. The Sub-Saharan African region is following the global trend where globally, more than half of all projects reaching financial close came from the renewable energy sector alone, or equivalent to about 30% by value, according to IJ Global.
The emergence of renewable energy as an affordable source of new power generation globally, is indeed also an exciting development for Africa, where an estimated two thirds of the people still don’t have access to power. In South Africa alone, more than 2GWs of projects reached financial close as part of the governments’ Independent Power Producer Programme, at tariff levels in line or lower than conventional base load power.
An interesting trend has emerged over the past few years where we are witnessing the increasing involvement of Development Financing Institutions (DFIs) in providing infrastructure and project finance in sub-Saharan Africa. These include the International Finance Corporation (IFC), the African Development Bank (AfDB) and the World Bank.
DFIs have almost doubled their participation in projects to over US$ 5 billion out of the total of about US$13 billion closed in 2018. This trend is expected to continue, specifically as DFI’s have shown significant appetite to finance the most active sector – renewable energy.
What is very positive for Africa is that funding from the DFI’s are provided at very competitive rates and also for long tenors, which commercial banks are often not able to match. The end result is competitive power tariffs in line with the best achieved globally.
Outside of the power sector, the transport and oil and gas sectors have been the most active globally, accounting in 2018 for 24% and 19% of deals respectively by value. Africa also benefits from these sectors, particularly the oil and gas sectors where deal volumes have increased over the past year.
The significant gas discoveries offshore Mozambique, will result in two of the single largest project financing deals ever on the continent to reach financial close during 2019. These projects present significant opportunities for the local economies, as well as for international and regional banks and export credit agencies to provide financing to the projects and related infrastructure developments.
Absa CIB is excited about these developments and will continue to play a leading role in structuring and arranging deals in the project finance space, particularly in infrastructure, the oil and gas sector as well as renewable energy.
We have been one of the most active commercial banks in providing funding for renewable energy projects during the past five years, having closed more than 3 GW of renewable energy projects in Sub-Saharan Africa across key technologies including wind, PV, CSP, biomass and hydropower.
We hope to maintain our leading position on the Sub-Saharan African Project Finance league tables (currently ranked 1st according to IJ Global’s 2018 full year league tables).
We therefore remain committed to funding projects that can facilitate economic growth and environmental sustainability in sub-Saharan Africa.