By Martijn Proos, director of Ninety One, managers of Emerging Africa Infrastructure Fund
Project finance for infrastructure in emerging economies is one of the central issues of the upcoming COP26 agenda.
For two weeks in November, at the culmination of the UK’s presidency of COP26, the Scottish city of Glasgow will play host to what many believe will be the biggest gathering of world leaders ever held. They will be there to try to reach a global accord on fighting climate change.
For the Emerging Africa Infrastructure Fund (EAIF) and its parent organisation, the Private Infrastructure Development Group (PIDG), COP26 is likely to bring considerable global focus on what it does and how it does it.
EAIF’s primary job is to provide long-term debt capital to support the development of infrastructure projects in Africa and mobilise private capital to invest in those projects. By the end of 2020, it had invested $1.9 billion and mobilised $14bn of private capital. It lends between $10 million and $65m to qualifying projects, most of which are promoted, built and run by private sector businesses.
By the numbers
EAIF has a current project loan portfolio of over $1bn. The fund operates across nine infrastructure projects, with some 50% in energy. To date, it has backed 23 renewable energy projects in hydro, geothermal, biomass, and solar.
Established and productive solar projects are to be found in Mali, Mozambique, Rwanda, and Uganda. More green energy projects are in the fund’s pipeline. Later this year, the fund expects to reach two milestones: investment in renewable energy will exceed half a billion dollars and 1,000MW of renewable energy will have been financed.
Some new projects have already been announced, including in Burkina Faso, where EAIF has loaned $34,039m (€29m) to Urbasolar, which is ultimately owned by Swiss company AXPO. Urbasolar’s $41,54m (€35.4m), 30MW plant will supply all its power to Burkina Faso’s national power utility. EAIF expects to announce its second solar financing in Mozambique shortly, where a new 15MW plant will be owned and operated by Central Electrica de Tetereane SA. Its majority shareholder is Globeleq, the London-based business that specializes in the African power sector.
Project financing for infrastructure development in emerging economies is central to the COP26 agenda
The reason there will be focus on EAIF and PIDG at this year’s COP26 is because project finance for infrastructure in emerging economies is one of the central issues on the agenda. The COP26 official website says: “Developing countries in particular need support. Developed countries must deliver on their promise to raise at least $100 billion every year in climate finance to support developing countries.
“To achieve our climate goals, every company, every financial firm, every bank, insurer and investor will need to change. Countries need to manage the increasing impacts of climate change on their citizens’ lives and they need the funding to do it.
“The scale and speed of the changes we need to make will require all forms of finance: Public finance for the development of infrastructure we need to transition to a greener and more climate-resilient economy. Private finance to fund technology and innovation, and to help turn the billions of public money into trillions of total climate investment.”
What COP26 proposes is an enormous global public/private partnership to unlock the funds to promote and enable the climate change agenda and find it sufficient capital to really make an impact. To first slow the rate of global warming and then, over decades, to pull the world back from potential catastrophe.
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Paving the infrastructure path one project at a time
Closing the infrastructure gap in emerging economies is good business
Nearly 20 years ago, EAIF was set up to help close the huge project infrastructure gap that existed in Africa, and which still exists today. In many parts of the continent, long-term debt finance is rarely available at a price or with terms that are affordable for private sector project developers.
EAIF has been a pioneer in public/private partnerships. Its core funding – equity – comes from four governments: the UK, The Netherlands, Sweden and Switzerland. It has raised capital to lend from private sector finance organisations, for example Allianz Global Investors and Standard Chartered Bank.
It also borrows from development finance institutions such as the African Development Bank, Germany’s KFW and FMO of The Netherlands. The fund is managed on behalf of PIDG by the international asset management business, Ninety One. Borrowing from EAIF is on commercial terms, though it is often a flexible lender and one with long horizons. “Patient capital,” is perhaps the most accurate description.
The climate change agenda is now firmly embedded in the work of EAIF, as it is in all the PIDG companies. Project sponsors, contractors and equipment suppliers are expected to have robust environmental and climate mitigation policies in design, specification, procurement and operations, before and during construction and in long-term operations.
Applying high standards have serious long term benefits in the reliability and productivity of plant, the skills and rewards of local employees, the impact on economic resilience the reduction in poverty and the long-term health of the planet. In short, being good is good business.
What happens next?
If, as the world hopes, COP26 does result in $100bn raised annually from public and private sources for investment in emerging economies, those funds will need to be deployed and managed by organisations with the established machinery and the corporate culture that understand the needs of developers to see a return on capital, the needs of nations to bring the benefits of clean energy to economic development and the needs of the global population to see funds invested wisely.
As the world addresses the urgency of climate change, organisations like PIDG/EAIF will increasingly work with financial institutions and project developers who recognise the need not only for flexible long-term capital, but also that we may not get a second chance to hold off the worst effects of climate change. Getting it right may be more than simply an ambition. It may be a burning necessity.