COVID-19’s Pressures on Infrastructure
By Gregory Kronsten
Infrastructure development has been set back by the COVID-19 virus and lockdowns. Projects have been delayed by the closure of airports to international traffic and the departure of foreign contractors.
Public finances have been seriously stretched across the world, leaving governments less able to support capital projects and in need of new revenue streams.
These were the headline conclusions from a webinar we followed recently on Infrastructure and debt financing: bridging the gap. It was the latest in a series put together by a London-based business platform with more than 60 years’ experience in the field.
African governments, having much less financial clout than their counterparts in advanced economies, need to remind themselves of what they control such as the investment climate and the enabling environment, and what they do not.
This was the view of Koffi Klousseh of Africa50, the investment platform established by the African Development Bank (AfDB) and its member states. He urged governments to become more open to the private sector and to pursue what he termed “asset recycling”.
His sentiments were echoed by Romain Py of African Infrastructure Investment Managers (AIIM), who argued that governments were not always the best managers of infrastructure assets. Citing an AfDB study that found an average 50 per cent cost overrun on government-run road projects, Py asked the (rhetorical) question why governments have to own airports.
Sean Murphy of Mott MacDonald, the UK-based global engineering consultancy, noted that some governments have decent frameworks for public-private partnerships (PPP) while others continue to release long lists of favoured projects each year. His view was that this market does not lack investors but has a shortage of well-prepared projects.
Investors have not left the field, it is merely that they are different. AIIM has an investment book of $2 billion and has this year launched projects cost at $150 million.
Py observed that commercial investors (“smaller and nimble players’) had taken nearly all the risk and that the traditional development finance institutions (DFIs) were marginal in the equation.
The moderator raised the buzzword digitalisation, and again the consensus was that governments had underperformed. It was not a panacea Klousseh noted but required sound regulatory frameworks.
He added that it had been a success in the US and Asia because of the development of clusters with experts, and that this was currently missing in Africa.
Py recalled that IHS Towers, the provider of telecoms infrastructure, had not expanded as widely across Africa as had been hoped, which he attributed to policy and regulatory shortcomings. Only five African governments made the cut in his view: Ghana, Kenya, Morocco, Nigeria and South Africa.
In summary, the outlook of the panellists for infrastructure in Africa under COVID and post-COVID was broadly negative, above all on the role of governments, although a few positives did emerge. All agreed that the power sector had shown its resilience.
Mete Saracoglu of Meridiam, the US civil engineer, said that local employees had stepped up to the plate to replace departing foreign contractors on some projects. He also noted that digital payment systems had improved recoveries and thus bolstered liquidity, giving the example of off grid power.
The webinar closed with a question asked of the panelists whether they would take on a project when the due diligence had to be undertaken 100 per cent by remote control with drones and the like. Murphy said that it had been carried out remotely in part in some recent cases due to lockdowns but that he would insist on an increase in the reserve set aside for contingencies.
Gregory Kronsten is the Head Macroeconomic and Fixed Income Research at FBNQuest