CAPE TOWN, SOUTH AFRICA–(Marketwired – Jun 1, 2015) – The pipeline of bankable infrastructure projects in Africa could be significantly enhanced once the preparation phase is better designed and resourced. That is the finding of a new World Economic Forum report, developed with The Boston Consulting Group (BCG). The report, titled A Principled Approach to Infrastructure Project Preparation Facilities, shows how early-stage adjustments could boost the number, scale, and sustainability of the region’s infrastructure assets.
Vital infrastructure projects — whether highways or hospitals or hydroelectric dams — often struggle to progress beyond the concept stage, since project preparation is such a costly, complex, and risky undertaking. The difficulty is particularly acute in Africa. Traditionally, much of the preparation funding has come from multilateral institutions and donors, but they cannot meet the requirements on their own. The private sector, though keen to invest in later phases of a project, has seldom offered to finance the preparation phase directly — an almost paradoxical reluctance.
One way of addressing the challenge is by way of infrastructure project preparation facilities (IPPFs) — dedicated funds that pay for project preparation to bring projects to a financial close and bankability. However, many of the existing African IPPFs have had limited success, and few have attained the scale required for overcoming all the formidable issues. The IPPF principle remains sound, but the practicalities evidently need some major adjusting.
“Early-stage project preparation and financing is a perennial problem,” admits Patrick Dlamini, the CEO and managing director of the Development Bank of Southern Africa. “Often it would be beneficial if the private sector would contribute more during the early project stages, but they are understandably wary, especially if the project’s objectives and risks remain unclear. A well-designed IPPF could provide a reassuring vehicle to bring them on board as early as possible.”
The new report charts the way forward, defining a fresh approach to IPPFs through public-private collaboration, and showing how to design them for effective and sustainable operation. The design would incorporate five key principles of success, based on best practices from around the world.
There is no one-size-fits-all design, however. As Philipp Gerbert, a senior partner at BCG and an advisor on the report, explains, “IPPFs vary in their underlying circumstances and strategic objectives, so their design has to vary, too. There are a range of choices to be made when structuring an IPPF — the sector and project focus, the approach to recover project preparation expenses, and the governance structure, just to mention a few. Also note that some IPPFs will want to involve the private sector both for financing and for expertise, and appropriate mechanisms, such as a technical board, need to be put in place.”
One further point covered in the report was raised by Pedro Rodrigues de Almeida, the head of Basic Industries of the World Economic Forum: “Project preparation financing is certainly a priority, but it is no guarantee that an infrastructure project will succeed. There are other issues that governments should continue addressing and remedying — enhancing relevant skills and local capacities, for example, and ensuring a conducive regulatory environment.”
The report conveys an upbeat message. A better-prepared project pipeline will produce benefits for many stakeholders: better value for users, reduced project risks for investors, and increased opportunities for private-sector businesses via contracts for constructing or operating the new assets, or both. Above all, the overall boost to the region’s infrastructure will mean a social and economic boost for the region as well, to the benefit of all its inhabitants.
A copy of the report can be downloaded at www.bcgperspectives.com.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.
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