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NEPAD 5% Agenda: Mobilizing domestic pension and SWF capital for PIDA and other African infrastructure projects


NEPAD 5% Agenda: Mobilizing domestic pension and SWF capital for PIDA and other African infrastructure projects

NEPAD 5% Agenda: Mobilizing domestic pension and SWF capital for PIDA and other African infrastructure projects
Photo credit: Reuters | Thomas Mukoya

Concept Note for the launch of the 5% campaign, 18 September 2017 in New York

At the 18th ordinary African Union Summit in Addis Ababa, Ethiopia in January 2012, the African Heads of State and Government adopted PIDA, the Programme for Infrastructure Development in Africa.

The PIDA Priority Action Plan (PAP) comprises 51 cross-border infrastructure programmes of more than 400 actionable projects in four sectors, energy, transport, trans-boundary water and ICT to be implemented until 2020.

Global consensus on the imperative of addressing the large finance deficit for PIDA-PAP implementation and infrastructure development in general in Africa is well documented. This is clear in the variety of academic literature on the topic, as well as the many high-level policy forums at the United Nations, World Bank, International Monetary Fund, the Organization for Economic Cooperation and Development (OECD), the G-20 initiative on “Compacts with Africa”, the African Union and many others.

As stressed by the Dakar Financing Summit (DFS) in 2014, an increased form of collaborative public-private initiatives is necessary to mobilize risk capital that accelerates PIDA project implementation. Accordingly, the NEPAD Agency was mandated by the DFS to increase and coordinate the private sector participation in PIDA projects through the establishment of the PIDA Continental Business Network (CBN).

The CBN is a NEPAD and AU initiative that enables private sector members to communicate recommendations to high-level African policy makers on how to improve the investment climate for infrastructure. Furthermore, PIDA projects are marketed to the CBN for increased private sector involvement in project preparation and implementation. This process aims to promote PIDA projects that are bankable to the private sector and thus, qualify for private finance.

The German Government via GIZ has supported NEPAD in the launch of the CBN and the marketing of PIDA projects. Germany as the current Chair of G-20 is also spearheading the initiative on “Compacts with Africa” to increase investment in African infrastructure. One of the key recommendations of this initiative is to unlock institutional investment from pension and sovereign wealth funds for infrastructure development in Africa.

With global regulatory regimes shifting and diminishing the ability of traditional capital to be invested in assets in Africa, institutional investors in the form of pension and sovereign wealth funds (SWF), have emerged as a potentially ideal financing source to close the estimated USD 68 billion infrastructure finance gap in Africa.

Thus, the declared public objective is to mobilize institutional investors to finance infrastructure projects, which are foundational to sustainable and inclusive development on the continent. Against this background, the PIDA CBN in its last report on de-risking large-scale infrastructure projects in Africa recommended to create an African Pension and Sovereign Wealth Fund Infrastructure Co-Investment Platform.

For pension and SWFs to be able to invest in large-scale infrastructure projects in Africa, a variety of issues need to be addressed to strategically and intentionally facilitate long-term allocations. Chief amongst these matters is the need to reform national and regional regulatory frameworks that guide institutional investment in Africa. Likewise, new capital market products need to be developed that can effectively de-risk credit and hence, allow these African asset owners to allocate finance to African infrastructure as an investable asset class to their portfolio.

Building on the guidance and recommendations of the CBN, NEPAD will initiate a campaign to increase the allocations of African asset owners to African infrastructure from its low base of approximately 1.5% of their assets under management (AUM) to an impactful 5% of AUM.

Objective of the 5% Agenda

The overall objective of this agenda is to develop a concrete and feasible roadmap to increase allocations of African institutional investors to African infrastructure to the declared 5% mark. This roadmap after engagement with key stakeholders, will outline very concrete steps and expected outcomes to notably increase institutional investment in Africa’s infrastructure, with a focus on regional/PIDA infrastructure projects as a key mandate of the NEPAD Agency.

The NEPAD Agency will steer a dialogue that convenes key stakeholders responsible for investment allocation decisions (e.g. investment banks, pension funds, SWFs, credit rating agencies, financial policy experts and regulators, policy makers, project owners etc.). These stakeholders will provide input to the above roadmap and shall be convinced to support the implementation of this roadmap.

The roadmap will be the backbone for the official launch of the 5% campaign in New York in September 2017. It is foreseen that the roadmap and the campaign will have the following impact:

  1. Unlocking notable and measurable pools of needed capital to implement regional and domestic infrastructure projects on the continent.

  2. Broadening and deepening the currently very shallow African capital markets, whilst at the same time contributing significantly to regional integration and job creation.

  3. Promoting the development of innovative capital market products that are specific to the continent’s challenges and potential in regards to infrastructure development.

  4. Raising the investment interest of other institutional and non-institutional financiers that so far have been hesitant to include African infrastructure projects as an asset to their investment portfolio based on specific, concrete next steps and project suggestions.

Download:  pdf AU-NEPAD Continental Business Network 5% Agenda Report, 2017 (1009 KB)


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