The World Bank has approved US $425m in International Development Association (IDA) financing to support the provision of infrastructure finance in Eastern and Southern Africa. The Regional Infrastructure Financing Facility project (RIFF) aims to expand long-term finance to private firms in selected infrastructure in the power sector, as well as in the transport, logistics and social sectors. This is the first regional facility of this kind in Africa.
Eastern and Southern Africa suffers from ailing infrastructure, especially in the power sector. Effective power generation in the region is less than the installed capacity by 20-30% due to drought, lack of maintenance, and general system losses of electricity in both transmission and distribution. Such deficits cause about 2% of GDP growth in most of the countries, impeding a large number of the region’s population from access to energy. Heavy public financing of infrastructure contributes to rising debt vulnerabilities and, before the outbreak of COVID-19, nearly half of the countries in the region were in debt distress.
Providing long-term infrastructure finance
Through the Trade Development Bank (TDB), a commercially-driven regional development bank, the RIFF will provide long-term infrastructure finance that would contribute to job creation and would present cross-border benefits in terms of trade and investment flows or transfers of technology. It will facilitate access to debt financing for SMEs in infrastructure value chains and off-grid, by helping them to keep running and expanding to underserved markets. In the context of the COVID-19, the RIFF’s focus on off-grid solar solutions will contribute to preserve households’ livelihoods by supporting micro-entrepreneurial activities that play a critical role in income generation in poor communities.
The Project harnesses a regional approach to address the financing needs of private sector infrastructure companies, by building capacity in regional institutions, TDB and the Common Market for Eastern and Southern Africa (COMESA), to provide a longer and sustainable source of infrastructure finance and to support the enabling environment for infrastructure finance. Infrastructure is expected to be a key driver of economic recovery post COVID-19.
According to Ms. Deborah Wetzel, World Bank Director of Regional Integration for Sub-Saharan Africa, the Middle East, and Northern Africa, the COVID-19 pandemic threatens the development gains made over the past years. “The new operation will help address the long-term infrastructure funding gap through a regional approach focused on private financing, with the objective to mobilize about $975 million of private finance in addition to the funds provided by IDA. This requires a broader approach, including an enabling environment for private capital mobilization, sound public debt management, bankable projects, long-term finance, and risk mitigation,” she said.