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Creating the foundations for progress and prosperity in fragile states

The work of the Emerging Africa Infrastructure Fund

By David White, Chairman, Emerging Africa Infrastructure Fund

On 1st May, the Emerging Africa Infrastructure Fund (EAIF) announced it had been the anchor investor in a $600 million bond issue by Helios Towers Africa, one of the continent’s leading telecommunications infrastructure businesses. HTA operates c 6,500 communications towers in Tanzania, The Democratic Republic of Congo, Ghana and Congo Brazzaville. The HTA transaction is just the latest success EAIF has helped enable in its 15 years in business.

Apart from Ghana, these countries are all viewed as fragile states by the international community; countries recovering from armed conflict, famine, disease and natural disaster. In some countries, the reasons for embedded difficulties is clear. In others, the causes are immensely complex and fluid.

In fact, there is no easy definition of what constitutes a fragile state. They often have in common chronic economic underperformance, entrenched poverty, poor personal security, inefficient utilities and infrastructure, weak public administration, political unrest and, sometimes, outbreaks of armed conflict.

Working in fragile states makes EAIF unusual. We are a debt fund, set up to use public money from a number of Western government to attract and mobilise private sector capital to bring vital infrastructure to Africa. Conventional lenders either decline to do business in fragile states or offer terms that significantly increase the cost of private infrastructure development, which makes many projects unviable. We help make projects viable.

In the past year, in addition to the DRC, Congo Brazzaville and Tanzania, EAIF has also done business in the fragile states of Chad, Mali and Sierra Leone.

15 years and US$10 billion later

2017 marks the 15th anniversary of the founding of the Emerging Africa Infrastructure Fund. EAIF is rapidly heading towards its 80th project in Africa and mobilised over US$10 billion private sector capital.

How can EAIF do what so many others won’t do? The answer is that our anchor funding comes from four governments that all understand the critical importance of helping fragile countries first achieve a measure of political and economic stability and then attract investment to build infrastructure that stimulates economic development.

EAIF is member of the Private Infrastructure Development Group (PIDG). Seven governments (and The World Bank) currently contribute funds to PIDG. In the case of EAIF, support comes from the governments of the UK, The Netherlands, Sweden and Switzerland, as well as private sector banks, the German development finance institution, KfW and its Dutch equivalent, FMO.

Infrastructure is the key to progress. With electricity, telecommunications, water and transport comes confidence and opportunity. The more confidence people have that their country’s economy will provide work and a stable place for families to grow, the more their confidence grows and the more business is willing to invest. It is a virtuous circle.

Long-term and strategic

Like all good ideas, the creation of EAIF was based on a simple proposition. In this case that private sector infrastructure businesses could be persuaded to invest in Africa in greater numbers if the risks were more widely shared and if backers had a more long-term and strategic view of financing. EAIF’s backers are firmly in the category of long-term and strategic, because they want to achieve not only commercial success for EAIF’s clients but also have a profound effect on the economic and political stability of the countries EAIF works in.

Infrastructure building can only happen when capital is available. In many parts of Africa, traditional mainstream lenders offer only expensive, medium-term lending, fenced with onerous conditions. In other parts of the continent, physical conflict and its bedfellows of political, economic and social instability stand in the way of conventional lenders.

We’ve financed solar, hydro, methane and conventional power stations. Brought millions into the digital world via oceanic cables, satellites and communications towers. Helped bring the world’s largest specialist fertilizer plant into being. Revitalised agricultural land left redundant by war and neglect. Enabled new passenger and car ferries that have profoundly changed the lives of very poor people. Made possible turning Nigerian scrap metal into reinforcement bars for the construction sector and been part of the finance for one of Africa’s largest cement plants.

Focused on debt funding

Over its fifteen years in business, EAIF has developed a sophisticated understanding of the types of companies and the types or projects that make investment sense. Part of the reason for that is that we are focused only on debt funding. That is our specialty, so we are not burdened with offering equity or any other financial products. Our reputation, track record and commitment of our funding governments and partners brings added confidence to a project. The greater the confidence the more the private sector is willing to invest in difficult places.

When a project has the support of an investor like EAIF, the government of a fragile state has reasons to believe that progress is on the way. Where there is as strong partnership between a promoter and the finance providers government is even more motivated to assist. People are more motivated to overcome barriers and difficulties. There comes a glorious moment in all projects where the momentum is such that everyone knows that financial close will happen and that soon there will be earthmovers and builders creating a new piece of transformative infrastructure.

The expertise of our manager

Our expertise – through our mandated mangers – Investec Asset Management – includes structuring and arranging finance, focused and rigorous due diligence, added-value knowledge of the planning and regulatory regimes in many countries, extremely efficient administration and legal processes and perhaps the most important element of all – patience. If we think a project is right, its promoters are right and the business and economic development case is strong we will work long and hard to translate vision into reality.

And we know the types of companies we prefer to work with. They must be fit and proper people who manage their businesses and affairs with serious attention to high standards in financial management and corporate governance. They should have a track record of success as business creators, project managers and operators. They have to value the contribution made by everyone who works with them and have a strong instinct for helping to improve life for some of the world’s poorest people. Above all, they must be commercial, because we operate on commercial terms and our funders expect us to get our money back.

Our terms of doing business can be more flexible than mainstream lenders. Flexibility can be the difference between a transformational project coming to life in a fragile state or not happening at all.

Doing business in fragile states can be challenging and is rarely smooth. It helps that EAIF has senior people who understand that every place has a mixture of sensitive issues; political, historic, cultural, ethnic, religious, territorial, tribal and more.

Many countries have underpaid and overworked officials who often work in a very delicate political environment. Things that can be quickly done in some countries take days, weeks or months in another. EAIF understands how to work under such constraints.

We know what it is like to bring projects to life where there are shortages of high level construction and project management and plant operation skills. All these things need to be overcome, as do issues like weak local currencies, lack of foreign currency loans, bureaucratic slowness in issuing construction visas and work permits, poor roads and seasonal rains and storms.

We have the patience, motivation and tenacity to see projects through. Today, every one of our projects where construction is complete is in operation. They’ve all created jobs in construction and long-term jobs in operational roles. More importantly, they have been the catalyst to unlock human potential, improve business productivity, stimulate new economic activity, attract international investment and simply make the daily lives of millions of people better.

We see the companies we invest in as partners in the great enterprise of making African countries more successful, so that the day can come when they don’t need outside help to succeed. With Africa needing around $90 billion of investment in infrastructure every year for the foreseeable future, it looks like EAIF will be around for at least another 15 years.