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Regional Round Table on Financing Infrastructure Bank Experience

This article discusses the trends, challenges, and initiatives related to infrastructure financing in Africa, with a focus on the African Development Bank's role in promoting sustainable development and reducing poverty.

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Regional Round Table on Financing Infrastructure Bank Experience

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  1. Regional Round Table on Financing Infrastructure: Bank Experience by Shehu Yahaya and Sande Kanyarubona African Development Bank, Tunis 30 September 2004

  2. I African Trends and Characteristics • Declining Trends in ODA • FDI only around 2.3% of global share • Private investment is about 12% GDP and public investment had declined to about 5% in the 1980s • Informal sector share of GDP is about 41% in sub –Saharan Africa; share of employment averages 75% • Estimated annual infrastructure needs about US$20 billion in next 10 years in Africa

  3. ADB GROUPII. Infrastructure Operations • ADB is concerned about Infrastructure development as a major factor in promoting sustainable development and reducing poverty. • Infrastructure sectors include transport; energy and power; WSS; Irrigation; educational and health facilities; ICT • Economic Infrastructure accounted for 32.8% of total Bank Group lending approvals in 1967-2003. The figure rises to 40-45% if social infrastructure is included.

  4. ADB GROUPII. Infrastructure Operations Table:AfDB Group approvals (Million UA) in support of Infrastructure, to End-2003.

  5. ADB GROUPIII. Orientation of Infrastructure Operations Since 1999 there has been a marked reduction in Infrastructure’s share of Bank Group aggregate approvals, notwithstanding a modest recovery since 2000. Explanations are related to Bank Group Experience and the changed international paradigm:

  6. ADB GROUPIII Orientation of Infrastructure Operations Lessons learnt from past operations as well as the new international development agenda (e.g. the MDGs): Managerial weaknesses and financial difficulties have led to poor maintenance, reducing potential impact on growth and incomes  Integrated Approach to infrastructure development is essential; failure to implement this has caused enormous problems in Africa  In many cases, particularly with respect to subsidised tariffs, the rich have benefited more, thereby enhancing inequalities  Soft dimensions of infrastructure are critical: skills; tariff reform; corporate governance of responsible institutions; environmental and resettlement issues, land rights etc.  Private investment is critical, provided there is an enabling environment

  7. ADB GROUPIII. Orientation of Infrastructure Operations Changed international paradigm:  Greater focus on poverty reduction;  Increased focus on social infrastructure; Promoting renewable energy sources;  Much greater concern on the environmental impact of infrastructure developments

  8. ADB GROUPIII. Orientation of Infrastructure Operations Changing Approaches of the Bank:Infrastructure still critical but should be more strongly oriented towards sustainable development and poverty reduction: Renewed emphasis on specific types of infrastructure (eg rural infrastructure Renewed emphasis on long term sustainability (promoting financial sustainability, capacity,institutional building, O&M, participatory approaches  Establishing the right balance between ensuring access to the poor and cost recovery  Supporting private investment through PPP, improving regulations, modernising laws, reforming property rights and enforcement of contracts  Prioritising environmental protection; gender mainstreaming  Promoting Regional Cooperation and Integration in infrastructure development

  9. ADB GROUPIV. New Initiatives on Infrastructure A number of initiatives on Infrastructure are under way at the Bank Rural Water Supply and Sanitation Initiative;  African Water Facility • NEPAD Infrastructure Program • New Approach for the Private Sector Department • New Urban Development Policy • Non Sovereign Guaranteed lending; guarantees, lending in local currencies • FINESSE Program (Financing Energy Services For Small-Scale Energy Users) • Intensify collaboration with development partners

  10. ADB GROUPIV. Major Initiatives on Infrastructure  Rural Water Supply and Sanitation Initiative: Goal: To accelerate access to sustainable water supply and sanitation for rural populations within the framework of the Africa Water Vision and MDGs. Targets: to provide access to drinking water supply and sanitation to 66% of the rural population by 2010, increasing this to 80% by 2015, from the present 34%.  Initiative has commenced on a pilot basis in a limited number of countries (five ). It will be up-scaled up to additional RMCs, incorporating lessons learnt from the pilot country programs. Focus on building initiatives at the local community levels

  11. ADB GROUPIV. Major Initiatives on Infrastructure African Water Facility • An Initiative of AMCOW being hosted and implemented by the Bank • Aims at strengthening the enabling environment to attract investments in the water sector in Africa • Will mobilise USD 615 m to implement medium term programme of facilitation activities and investment programs • Implementation Under way; local level emphasis

  12. ADB GROUPIV. Major Initiatives on Infrastructure Technical Support to NEPAD on Infrastructure: Goal: To bridge the infrastructure gap in the region as an important element in the promotion of growth, trade and regional integration ADB as lead agency, has developed and is already implementing a STAP for facilitation, capacity building; physical capital investments and studies  It is developing the MLTAP to prepare regional overview, establish Africa infrastructure data base; establish infrastructure for effective coordination, define monitoring framework

  13. AfDB GROUPIV. Major Initiatives on Infrastructure New Approaches in OPSD • 2003:Lending to public sector without sovereign guarantee • 2002: PPP Initiative to promote efficient infrastructure by supporting governments to better conceptualise, prepare and negotiate infrastructure projects for private investment/mngt • 2003: New Initiative on franchising to support SMEs on rapid transfer of know-how and best practices: a study done; toolkit developed;pilot programmes being developed • Less direct lending to SMEs; support thro fin intermediaries • Prioritising enabling env; strengthening financial systems by supporting fin interms to enable them to lend long to SMEs

  14. ADB GROUPIV. Major Initiatives on Infrastructure  FINESSE Program: Goal: Formulation of policy, institutional framework and capacity development to provide technically feasible and economically viable renewable energy and energy efficiency services to residential, commercial and industrial energy users. Targets:to create conditions and mechanisms that will allow the credit sector to lend capital to small-scale energy users. Activities will focus not only on technology demonstration, but also on the institutional, commercial and legal mechanisms to ensure dissemination and maintenance of proven cost-effective technologies.

  15. ADB GROUPIV. Major Initiatives on Infrastructure • Strengthened collaboration with UN Habitat on the Water For African Cities Programme • Discussion on possible collaboration with USAID on supporting local bank credit for infrastructure

  16. ADB GROUPIV. Major Initiatives on Infrastructure  Non-Sovereign Guaranteed Lending to Public-Sector Enterprises: Goal: To finance viable investment activities in a distinct group of public enterprises in African middle-income countries that are commercially run, following the implementation of public-sector reforms. The proposal is for the Bank to finance up to 30% of the investment or working capital of individual viable projects, at market interest rates, including objective credit risk pricing. Public enterprises expected to benefitare mostly Infrastructure authorities and public utility service providers.

  17. AfDB GROUPV. Conclusion • The Bank is now increasing its emphasis on infrastructure through a variety of instruments designed to increase public sector effectiveness; strengthen the enabling environment; support private sector development particularly SMEs • It has embarked on a number of initiatives which embody its new approaches • In view of the tightness of resources, the Bank will seek to increase its leverage by strengthening its technical capacities in project syndication, promotion of public-private partnership (PPP) and joint ventures involving African public and private enterprises and foreign direct investor • Greater Collaboration with development partners

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