There can be little doubt that the start of the third decade of the 21st century will be forever known to history for two momentous events. The first of course is COVID19. The other will be the outcome of COP26, the gathering of world leaders taking place in Glasgow, Scotland in November 2021. 197 nations and territories will come together to seek to agree a compelling global agenda to tackle climate change. Few now doubt that failing to take urgent action on climate change threatens devastating consequences for many millions of people across the world. The urgency of slowing climate change is one of the biggest political and economic challenge of our time.
One of the unanswered questions of the post COVID world is where capital will flow? Which sectors and geographies will it favour and what risk parameters will it adopt? One of the questions that COP26 is expected to answer is how more private capital can be encouraged to invest in the places in most urgent need of infrastructure to stimulate growth, while minimising the climate impact of enhanced economic activity? Investment cannot be short-termist. It needs to seek to deliver long-term climate resilience and have a sustainable impact on economies.
For the Emerging Africa Infrastructure Fund (EAIF), which is part of the Private Infrastructure Development Group (PIDG), mobilising private sector capital is central to its mission. We are a public/private partnership that for nearly 20 years has been providing debt capital by way of flexible and patient terms to mainly private sector infrastructure businesses across Africa. EAIF is a specialist in project debt finance (from around US$10 million to as much as US$65 million). We lend, we arrange and structure debt finance and we reinvest our profits back into the business.
EAIF’s core equity capital comes from the governments of the UK, The Netherlands, Sweden and Switzerland and we borrow from other development finance institutions and from private sector banks and financial institutions. A clear benefit to institutional investors is that EAIF has shown strong credit performance over the last 20 years, resulting in a low loss rate to date. In addition, EAIF’s blended finance model is attractive for institutional investors as owner’s funds provide a significant anchor risk capital..
EAIF, which is managed by Ninety One, is empowered to invest in 9 infrastructure sectors. They include transport projects like ports and roads, bulk logistics; digital communication infrastructure; power/energy, affordable housing, water and certain types of manufacturing. Every project we consider for funding must pass a stringent series of tests on climate mitigation. Energy generation and supply infrastructure projects are by far the biggest destination sector for EAIF funds. It is, of course, the sector that is seeing the most profound changes.
The Fund’s energy portfolio is inevitably heading towards being overwhelmingly in the renewables arena. In March this year we announced EAIF’s support for a 30MW solar plant in Burkina Faso, the 20th green energy project EAIF has enabled. Over US$350 million has been loaned to independent power producers of green energy. The 21st and 22nd clean energy projects supported by EAIF will soon be announced. They will bring the installed renewable energy generating capacity backed by the Fund to nearly 900MW.
EAIF’s loan book topped the US$1 billion mark in 2020.
After nearly 20 years in business and being at the core of bringing over 80 infrastructure projects to life in over 20 African nations, EAIF and PIDG have demonstrated the viability and efficacy of its public/private partnership model. It’s a model being closely examined by the private finance industry and a model that’s likely to be discussed at COP26. It not a model that claims to be the answer to all of Africa’s infrastructure needs, but it is a model that can be replicated. Successful replication means clear direction and assured long-term support from founding governments, skilled management teams with high levels of autonomy and commitment by all involved to high standards in environmental, social and governmental matters.
Most of all, the single biggest requirement is the ability to combine patience and urgency. Things can be done and must be done, but they can only deliver lasting benefit if they are done well. That means good infrastructure companies, solid legal and regulatory frameworks, enabling government policies, good civil, mechanical, electrical and environmental engineers, skilled and progressive management teams and finance businesses that believe that doing good is good for business. Part of that is seeing economic development finance in horizons of decades.
AUTHOR: Martijn Proos is a Director of Ninety One, EAIF’s investment managers. He has over 15 years of infrastructure finance experience gained in various advisory, project, corporate and structured finance roles in both emerging and developed markets.