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Supporting Public Private Partnerships in Africa: African Development Bank Ready to Scale up

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The African Development Bank Estimates Africa’s Infrastructure Financing Needs at up to $170bn a year by 2025

Representatives of the African Development Bank, governments, Development Finance Institutions, the private sector and professional associations joined a September 8 workshop to discuss how the Bank can strengthen support for Public Private Partnerships and channel greater investment toward economic and social infrastructure. The event, titled Designing the African Development Bank’s PPP Framework, was hosted virtually by the Bank.

The workshop took place against the backdrop of the ongoing COVID-19 pandemic and the ensuing economic slowdown, which has sharpened an already urgent need for investment. Five African countries accounted for more than 50% of all successful PPP activity from 2008 to 2018: South Africa, Morocco, Nigeria, Egypt and Ghana. Several other countries have multiple PPPs in the pipeline– Burkina Faso has 20, and Botswana, 8.

“Before the COVID-19 pandemic, African infrastructure was already struggling to structure projects tailored for the private sector and at the same time achieving value for money for the public sector including affordability for users. It is therefore imperative that hybrid solutions such as PPPs must be seen and promoted as a way of building back better, stronger, greener, by clawing back private capital to infrastructure while creating much needed fiscal room for governments to address multiple other demands including building health systems’ resiliency.” Bank Vice President Solomon Quaynor said in his opening remarks.

The African Development Bank estimates Africa’s infrastructure financing needs at up to $170 billion a year by 2025, with an estimated financing gap of up to of $68 to $108 billion a year. PPPs are seen as a key element in narrowing this gap by crowding in private sector investment in infrastructure and African Development Bank is playing a critical role in scaling up that effort.

Amadou Oumarou, Director for the Bank’s Infrastructure and Urban Development department presented several rationales for the Bank’s effort to develop a PPP framework, including its Ten-Year Strategy (2013-2022) and a recommendation from the Bank’s Independent (IDEV) evaluation unit to scale up PPP interventions.

Webinar participants expressed a desire for the Bank to play an expanded role in supporting PPP development in Africa by strengthening policy and regulatory frameworks, building government capacity; project structuring and advisory services; and the provision of financing instruments such de-risking, guarantees, credit enhancements and local currency financing.

“Countries need to learn from each other’s achievements and mistakes, they need to have standard documents and checklists that will guide institutions in these countries through the PPP lifecycle,” said Shoubhik Ganguly of Rebel Group International, which is partnering with the Bank to develop the framework.

Mike Salawou, Division Manager; Infrastructure Partnerships, said “Policy dialogue is something the Bank places a lot of premium on, and that has proven to be very efficient in informing decision making.”

“One of the challenges RMCs are faced with is selecting the right project for implementation, therefore support should start from there, then going through to actual project preparation makes it a lot easier,” said Michael Opagi, Division Manager for Sub-Saharan Africa, IFC.

Private sector representatives praised DFIs as indispensable in securing financing for PPP projects in Africa. One example of a successful PPP project cited during the workshop is the Kigali Bulk Water project, which received significant backing from the African Development Bank, the World Bank, as well as private sector players.

According to Phillipe Valahu, CEO, PIDG the Kigali Water project is a perfect example of having an integrated support to a PPP project by using the three pillars proposed in the Bank’s PPP Framework. The project benefited from debt funding from PIDG alongside the African Development Bank which each provided $19 million of senior debt on commercial terms.

“The African Development Bank has unparalleled trust relationships with African governments, and we need to take advantage of that to speed up implementation of PPPS,” Quaynor said in closing.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Goldman Sachs Urges Bold Rate Hike as Naira Weakens and Inflation Soars

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Central Bank of Nigeria (CBN)

As Nigeria grapples with soaring inflation and a faltering naira, Goldman Sachs is calling for a substantial increase in interest rates to stabilize the economy and restore investor confidence.

The global investment bank’s recommendation comes ahead of the Central Bank of Nigeria’s (CBN) key monetary policy decision, set to be announced on Tuesday.

Goldman Sachs economists, including Andrew Matheny, argue that incremental rate adjustments will not be sufficient to address the country’s deepening economic challenges.

“Another 50 or 100 basis points is certainly not going to move the needle in the eyes of an investor,” Matheny stated. “Nigeria needs a bold, decisive move to curb inflation and regain investor trust.”

The CBN, under the leadership of Governor Olayemi Cardoso, is anticipated to raise interest rates by 75 basis points to 27% in its upcoming meeting.

This would mark a continuation of the aggressive tightening campaign that began in May 2022, which has seen rates increase by 14.75 percentage points.

Despite this, inflation has remained stubbornly high, highlighting the need for more substantial measures.

The current economic landscape is marked by severe challenges. The naira’s depreciation has led to higher import costs, fueling inflation and eroding consumer purchasing power.

The CBN has attempted to ease the currency’s scarcity by selling dollars to local foreign exchange bureaus, but these efforts have yet to stabilize the naira significantly.

“Developments since the last meeting have definitely been hawkish,” noted Matheny. “The naira has weakened further, exacerbating inflationary pressures. The CBN’s policy needs to reflect this reality more aggressively.”

In response to the persistent inflation and naira weakness, analysts are urging the central bank to implement a more coherent strategy to manage the currency and inflation.

James Marshall of Promeritum Investment Management LLP suggested that the CBN should actively participate in the foreign exchange market to mitigate the naira’s volatility and restore market confidence.

“The central bank needs to be a more consistent and active participant in the forex market,” Marshall said. “A clear strategy to address the naira’s weakness is crucial for stabilizing the economy.”

The CBN’s decision will come as the country faces a critical period. With inflation expected to slow due to favorable comparisons with the previous year and new measures to reduce food costs, including a temporary import duty waiver on wheat and corn, there is hope that the economic situation may improve.

However, analysts anticipate that the CBN will need to implement one final rate hike to solidify inflation’s slowdown and restore positive real rates.

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Economy

Currency Drop Spurs Discount Dilemma in Cairo’s Markets

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Egyptian pound

Under Cairo’s scorching sun, the bustling streets reveal an unexpected twist in dramatic price drops on big-ticket items like cars and appliances.

Following March’s significant currency devaluation, prices for these goods have plunged, leaving consumers hesitant to make purchases amid hopes for even better deals.

Mohamed Yassin, a furniture store vendor, said “People just inquire about prices. They’re afraid to buy in case prices drop further.” This cautious consumer behavior is posing challenges for Egypt’s consumer-driven economy.

In March, Egyptian authorities devalued the pound by nearly 40% to stabilize an economy teetering on the edge. While such moves often lead to inflation spikes, Egypt’s case has been unusual.

Unlike other nations like Nigeria or Argentina, where costs soared post-devaluation, Egypt is witnessing falling prices for high-value items.

Previously inflated prices were driven by a black market in foreign currency, where importers secured dollars at exorbitant rates, passing costs onto consumers.

Now, with the pound stabilizing and foreign currency more accessible, retailers are struggling to sell inventory at pre-devaluation prices.

Despite price reductions, the overall consumer market remains sluggish. The automotive sector has seen a near 75% drop in sales compared to pre-crisis levels.

Major brands like Hyundai and Volkswagen have slashed prices by about a quarter, yet buyers remain cautious.

The economic strain is not limited to luxury items. Everyday expenses continue to rise, albeit more slowly, with anticipated hikes in electricity and fuel prices adding to the pressure.

Experts highlight a period of adjustment as both consumers and traders navigate the volatile exchange-rate environment. Mohamed Abu Basha, head of research at EFG Hermes, explains, “The market is taking time to absorb recent fluctuations.”

Meanwhile, businesses face declining sales, impacting their ability to manage operating costs. Yassin’s store has offered discounts of up to 50% yet remains quiet. “We’ve tried everything, but everyone is waiting,” he laments.

The devaluation has spurred a shift in economic dynamics. Inflation has eased, but the pace varies across sectors. Clothing and transportation costs are up, while food prices fluctuate.

With the phasing out of fuel subsidies and potential electricity price increases, Egyptians are bracing for further financial strain. The recent 300% rise in subsidized bread prices adds another layer of concern.

The situation underscores the balancing act between maintaining consumer confidence and attracting foreign investment.

Economists suggest potential stimulus measures, such as lowering interest rates or increasing public spending, to boost demand.

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Economy

MPC Meeting on July 22-23 to Tackle Inflation as Rates Set to Rise Again

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Interbank rate

The Monetary Policy Committee (MPC) is set to convene on July 22-23, 2024, amid soaring inflation and economic challenges in Nigeria.

Led by Olayemi Cardoso, the committee has already increased interest rates three times this year, raising them by 750 basis points to 26.25 percent.

Nigeria’s annual inflation rate climbed to 34.19 percent in June, driven by rising food prices. Despite these pressures, the Central Bank of Nigeria (CBN) projects that inflation will moderate to around 21.40 percent by year-end.

Market analysts expect a further rate hike as the committee seeks to rein in inflation. Nabila Mohammed from Chapel Hill Denham anticipates a 50–75 basis point increase.

Similarly, Coronation Research forecasts a potential rise of 50 to 100 basis points, given the recent uptick in inflation.

The food inflation rate reached 40.87 percent in June, exacerbated by security issues in key agricultural regions.

Essential commodities such as millet, garri, and yams have seen significant price hikes, impacting household budgets and savings.

As the MPC meets, the National Bureau of Statistics is set to release data on selected food prices for June, providing further insights into the inflationary trends affecting Nigerians.

The upcoming MPC meeting will be crucial in determining the trajectory of Nigeria’s monetary policy as the government grapples with economic instability.

The focus remains on balancing inflation control with economic growth to ensure stability in Africa’s largest economy.

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