Remarks by Abdoulaye Mar Dieye on Financing Africa’s Infrastructure and Agricultural Development

Oct 17, 2017

Africa Week 2017

Financing Africa’s Infrastructure and Agricultural Development: Inclusive Growth for Economic Transformation

Remarks by Abdoulaye Mar Dieye

UNDP Assistant Administrator and Regional Director for Africa

17 October 2017

New York

Excellencies,

Distinguished Guests,

Ladies and Gentlemen,

It gives me great honour and pleasure to deliver these remarks before such a distinguished audience. I would like to thank you for this honour and opportunity.

As you are all aware, the African continent is at an important crossroads. The leaders of the continent have committed to implement two historical and very ambitious agendas for their people and for the planet: the global 2030 Agenda for Sustainable Development and the continental Agenda 2063. The ambitions and aspirations enshrined in these agendas now need to be matched with the requisite resolve, necessary resources and partnerships to ensure effective implementation.

For Africa, achieving the SDGs and realizing the Agenda 2063 vision of an integrated, prosperous and peaceful Africa means attaining meaningful and inclusive transformation of the economies, investing in sustainable agriculture, resilient infrastructure including sustainable and modern energy as well as accelerated creation of decent and productive jobs, especially for the increasing number of young people and women.

Overall, the global and continental agendas have very significant resource implications for Africa. Estimates indicate that Africa will need between US$ 600 billion and US$ 1.2 trillion per year to implement the SDGs, with infrastructure alone costing around US$ 93 billion, a year, yet with a funding  gap of US $ 50 billion annually.  And it is estimated that US $ 32-40 billion, is needed, annually,  to address the constraints in the agricultural sector.

With a growing middle class,  an increasing size of its youth population, and stronger economic and political governance , Africa is the market of the future and the Eldorado for investment. To meet its financial needs, Africa must , in addition to tackling its  illicit financial flows (estimated to exceed $50 billion per annum),   go beyond traditional ways of financing investments , and aggressively and creatively explore high octane funding avenues. These could include:  

In this regard, I would like to emphasize 4 promising finance opportunities:

  1. Greater mobilization of  private sector finances

A large part of financing needs for developing the industrial sector, agriculture, infrastructure and modern services can, indeed, be met through more effective mobilization of private financing. Africa offers vast opportunities for growth and development. Foreign direct investment (FDI), in 2016, reached US$ 56.5 billion and is expected to rise further. In 2016, remittance exceeded FDI, at US$ 66.2 billion. Such private investments and capital flows overwhelmingly outweigh ODA to the continent and represent an increasingly important source of finance for investments in sustainable development. Capital markets are comparatively underdeveloped but growing. Between 2013 and 2015, African countries issued sovereign bonds worth US$ 20.9 billion compared to US$ 5.9 billion in 2009 – 2012 .  This avenue need to be further expanded.

Implementation of the SDGs, Agenda 2063, and the AfDB’s High 5s offer the biggest market and innovation opportunities for the private sector in Africa. The need to respond to the needs of billions of people and the planet and the capacity deficits of governments to do it alone, provides a unique and compelling business case for private sector actors to invest increasingly in social and green enterprises (impact investments).  Today, the continent offers on average the highest return on FDI , with an internal rate of return of 11.4  % , compared to an average world wide of 7%  .

  1. Expanding its fiscal  space; for sturdier development funding.

Domestic resource mobilization also plays a critical role in financing Africa’s investment needs. Tax revenues remain the most important source of domestic financing in African countries. However, the tax to GDP ratios in Africa are still too low, at approximately 21 per cent, the lowest compared to all other regions.  And national budgets mostly cover recurrent costs. Sustainable funding of investment will call for  expanding the fiscal space and increasing the tax revenue basis and for putting in place fair and efficient tax systems. In so doing, countries should, however, ensure that tax systems provide the space for entrepreneurs and Small and Medium Enterprises (SMEs) to thrive.

  1. Leveraging the power of pension funds.

By the end of 2014,  global pension funds’ assets were estimated at about 36 trillion US $ ; with assets  under management  by pension funds across 16 African markets amounting  to US $ 334 billion. And they keep growing. They can have a pivotal role to play in facilitating investment in agriculture and infrastructure.  The Organization for Economic Co-operation and Development - OECD, estimates that less than 1 percent of pension funds world­wide are invested in infrastructure projects ; this is then a huge potential to tap. But to address the challenges we should make the pension funds more knowledgeable of and comfort­able with infrastructure investments. Options include policies that close the knowledge and capacity gap through  increasing  investor confidence in the infrastructure sector, and boost the predictability of returns on such investments.

  1. Capitalizing on Sovereign Wealth Funds.

Today the continent harbors an estimate of US $ 160 billion in Sovereign Wealth Funds ( SWFs);  out of the 7.2 trillion available  worldwide;   But they  tend to invest less domestically and more abroad, contrary to Asian funds.  Low sovereign ratings, lack of appropriate funding vehicles and debt instruments for infrastructure such as  infrastructure bonds and  structured infrastructure products are binding constraints, which,  if lifted , can give huge oxygen to infrastructure  funding in the continent.  

Ladies and gentlemen,

As we can see , the  prospects for funding Africa’s  sustainable development, and most singularly agriculture and infrastructure , are quite real and feasible.  But this will require  re-invigorated African financial markets and  creating innovative funding instruments; It will also require demonstrating commitments to investor protection. Africa can build the confidence of markets by showcasing successful infrastructure and agriculture projects which can be considered as reference points. Political stability, good governance, zero tolerance on corruption , rule of law,  sturdy and transparent procurement processes will build the required confident space for potential funding  to be intermediated  into real and effective investments. And this is happening in the continent. The movement just needs to be accelerated and expanded. .

I thank you.

 

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