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Report Shows Shifting Patterns in Infrastructure Funding in Africa

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Infrastructure Funding

A report by Baker McKenzie tagged New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding has shown the state of the African infrastructure market and how the major global players’ approach to infrastructure lending on the continent is changing.

The study, which analysed new data from IJ Global, indicated that there has been a decline in the value of infrastructure lending in the region, which is known for its resilience and it is expected that as economies recover, new types of financing will be unlocked.

The data

The report’s data shows that multilateral and bilateral lending into Africa has declined – with investment levels falling successively in 2019 and 2020 compared to peak levels seen after the financial crisis.

In 2019, bilateral and multilateral lending into Africa amounted to USD 55 billion, which drops to $31 billion in 2020. Over the last six years, the decline is significant – deal values dropped from $100 billion in 2014 to $31 billion in 2020.

This slowdown in infrastructure investment was attributable to a number of factors, including the pandemic. The economic contraction has affected Nigeria and South Africa, meaning that the region’s largest economies have not been feeding in growth as in previous years.

However, market fundamentals signal a region with underlying resilience and, as the global economy recovers, finance will be unlocked. There are already positive indicators of forthcoming investment.

Commodity prices are rising and landmark deals are returning. For example, mining multinational Sibanye-Stillwater recently committed ZAR 6.3 billion to South African infrastructure projects.

The data also shows that deal tenor is contracting – from a high of 17 years in 2019 to 13 years in 2020. However, the long-term nature of infrastructure projects means that international partners have made lasting commitments to the region, which are unlikely to be abandoned despite immediate pressure on national finances.

China

Surprisingly, given the pandemic, the data shows that lending by Chinese banks into energy and infrastructure projects in Sub-Saharan Africa saw a small uplift in 2020, although deal values are well below their 2017 peak. In 2017, Chinese banks lent $11 billion to African infrastructure projects, which decreased to $4.5 billion in 2018, $2.8 billion in 2019 and $3.3 billion in 2020.

Simon Leung, Partner, Baker McKenzie Hong Kong, explains, “There has been a slowdown in the number of infrastructure deals from China. In the short-term, we expect to see more targeted lending – fewer projects of a higher quality using sophisticated structures – and new finance options, such as factoring, used to deploy Chinese capital into the region.”

International players

It is also clear that other international players have the region in their sights, with key political changes in the United States (US) and United Kingdom (UK) likely to see capital flow into Africa.

Michael Foundethakis, Partner and Global Head of Projects and Trade & Export Finance, Baker McKenzie Paris, notes, “The US hasn’t kept pace with Chinese lending into Africa. The recent change in administration is likely to renew focus on impact-building and financing strategic long-term projects in the region, but bankability and risk-sharing remain a priority for US lenders.”

Lodewyk Meyer, Partner, Baker McKenzie Johannesburg, notes further that, “The infrastructure funding gap is so large and of such strategic importance, it remains necessary to encourage international investment to fill it.

“African DFIs are very good at collaborating and I am encouraged by the actions of the new US administration, UK government and New Development Bank, in particular in their willingness to work with regional institutions in this regard.

“The UK is making a strong play for influence, investment and trade with Africa post-Brexit. Further to key summits held in 2020 and 2021, there are signs that finance will be redirected into Africa.”

Commercial banks

The report points to infrastructure gaps in energy provision, internet access and transportation that have resulted in an urgent imperative to identify and enable new sources of finance outside traditional lenders and international partners. Further to the expected return of multilateral and bilateral lending, there is room for evolution to bridge the funding-opportunity gap.

The report shows, however, that this vacuum is unlikely to be filled by commercial banks, noting that in 2020, just 84 projects were supported by commercial bank finance and their involvement in Development Finance Institution (DFI) and Export Credit Agency (ECA) deals continues on a downward trend.

Luka Lightfoot, Partner, Baker McKenzie London, explains, “Banks are likely to be focusing on managing liquidity, with lenders deploying capital selectively.”

DFIs and new financing solutions

Instead, local and regional banks, specialist infrastructure funds and private equity and debt are stepping in to collaborate with DFIs and access returns. This outlines the deepening DFI involvement in the infrastructure ecosystem at large, with DFIs increasingly anchoring the infrastructure ecosystem in Africa – serving a critical function for project finance as investment facilitator and a check on capital.

This is because they can shoulder the political risk and access government protections in a way that others can’t, enter markets others can’t and are uniquely capable of facilitating long-term lending.

The report explains how the amount of capital needed to fill the infrastructure gap is significant and DFIs can’t bridge it alone. Private equity, debt finance and specialist infrastructure funds are primed to enter the market, and multi-finance and blended solutions are expected to grow in popularity as a way to de-risk deals and support a broader ecosystem of lenders.

Lightfoot comments, “We expect to see an increase in non-bank activity in Africa in future as a result of new credit mitigation products come to market. We have seen an increase in appetite from established market participants, such as development banks, to create products that are not tied to existing arrangements that may have limited the type of finance available.”

A new era

Lamyaa Gadelhak, Partner and Co-head of Banking, Finance and Projects at Helmy, Hamza & Partners, Baker McKenzie Cairo, adds, “The pandemic represents the end of an era and the start of a new one. There will be a re-prioritization of funds and strategy through this lens. I expect to see more investments in the healthcare industry and connected infrastructure, as well as water-related projects, to be a top priority. We should also consider the impact of other factors aside from the pandemic.

“For instance, the African Continental Free Trade Agreement and what it needs to translate into increased cross-regional trends. I would expect the development of transportation and logistics infrastructure-focused projects to enable the acceleration of on-ground execution of intra-African trade.”

Emeka Chinwuba, Partner, Baker McKenzie New York, and Banking, Finance & Major Projects Group member, concludes, “Last year was a relatively difficult year across jurisdictions and for investors – with considerable uncertainty and change in the ways in which we do business.

“Shutdowns had a depressant effect on the infrastructure market, as deals in the pipeline were delayed and projects halted as a result of COVID-19. Full vaccination in Africa is still quite a long way off comparatively, so we can’t expect a full and fast return to normal activity. But we’ve reached the bottom, and the only way is up.”

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Lawmakers Decry Poor Quality of Work at Baro Inland Port

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Baro Inland Port

By Adedapo Adesanya

The House of Representatives Ad hoc Committee on the Rehabilitation and Operationalisation of Baro Inland Port has decried the poor quality of work done at the facility.

Mr Idris Wase, a Plateau State lawmaker, expressed the displeasure of the lawmakers at a courtesy visit to Governor Umaru Bago of Niger after an overnight visit to Baro Inland Port in the state.

The lawmaker said that the port project was only “commissioned on paper” by former President Muhammadu Buhari in 2019 despite the huge investments that have gone into the project.

“What we saw is a project that was merely commissioned on paper. It is unfortunate what has happened in the past, but as leaders we must take responsibility to change the narrative,” he said.

The lawmaker described port as a “gateway to Nigeria’s economy, saying that the neglect of the facility represented a wider national problem of infrastructure deficit.

He assured that the committee is determined to revive the port and to ensure its completion for equitable distribution of infrastructure across the country.

The lawmaker said the committee will work with the Nigerian Railway Corporation, and other relevant stakeholders to address outstanding challenges, including dredging and navigation corridors needed to make the port operational.

The Chairman of the committee, Mr Saidu Abdullahi, expressed deep concern over the deplorable state of roads leading to the multi-billion-naira project, describing it as a major impediment to the port’s functionality.

The lawmaker said that in spite of the enormous potential of port to boost trade, create jobs, and open up the economy, the absence of motorable access roads has left the facility largely idle years after its commissioning.

He said that a trip that should ordinarily take half an hour now stretches into four gruelling hours because of the failed portions of the road.

“We are committed to ensuring that this port does not remain a white elephant project. Our work here is to make sure that all the issues are laid bare.

“Government agencies responsible for roads, inland waterways, and transport rise to the challenge. We cannot afford to abandon such a strategic project,” he said.

Mr Bolawale Adetola, the General Manager of Business Development at the National Inland Waterways Authority (NIWA, ) expressed optimism that the port will soon become operational, provided critical challenges such as access roads and dredging are addressed.

He said the involvement of the National Assembly would help mobilise the needed funds, either through direct appropriation or private partnerships, to make the port fully functional.

“Everything that a port needs to work is on ground. The key challenges are the access road and the silted channel, which requires dredging. That is our own part in NIWA.

“Other stakeholders, including the Federal Ministry of Works and the Nigerian Railway Corporation, are also critical to the process. Once all these are in place, Baro Port will be of immense benefit to Nigerians,” he said.

Responding, the governor called for the urgent revival of the port, describing it as a national project that held the key to easing the heavy burden on Nigeria’s road infrastructure.

Mr Bago said that the inland port, conceived by Nigeria’s founding fathers was once central to the Northern Africa Trade Corridor.

According to him, it was strategically linked to the Lagos–Kano–Jibia rail line, which was originally designed to service Baro.

“Since I became governor, we have been working towards the realisation of the Baro Port project. This is not a Niger  project, and not even a northern project. It is a Nigerian project,” he said.

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NNPC, Sahara Group, WAGL Expand Fleet Capacity Beyond 160,000 Cubic Meters

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Gas Infrastructure Development

By Adedapo Adesanya

The Nigerian National Petroleum Company (NNPC) Limited, Sahara Group, and WAGL Energy Limited (formerly West African Gas) have announced an expansion of their joint venture fleet capacity, now surpassing 160,000 cubic meters.

In a post released on its official X (formerly Twitter) handle on Monday, NNPC said the fleet expansion strengthens WAGL Energy’s position as one of the leading suppliers of Liquefied Petroleum Gas (LPG) on the continent.

According to NNPC, the move is consistent with its vision of ensuring sustainable and affordable energy solutions for homes, businesses, and industries.

“WAGL Energy Limited, a joint venture between the Nigerian National Petroleum Company (NNPC) Limited and the Sahara Group, now boasts a robust fleet exceeding 160,000 cubic meters. WAGL Energy Limited is driving Africa’s access to reliable and clean energy through sustainable LPG supply, extending its impact across the continent and beyond,” the statement on X said.

WAGL Energy Limited, the JV company between NNPC and Oceanbed (a Sahara Group Company), is driving NNPC’s five-year $1 billion investment plan to accelerate the decade of gas and energy transition agenda over the period.

West African Gas was incorporated in March 2013 as a joint venture company. It was formed by the Nigerian National Petroleum Corporation LNG Ltd, a wholly-owned subsidiary of the Nigerian National Petroleum Corporation (NNPC), and Ocean Bed Trading Ltd, an established oil and gas trading company.

The primary purpose of the company is to serve as a vehicle for the offtake, marketing, and trading of NLNG NGLs under the equity lifting scheme.

This focus allows the company to efficiently manage and market natural gas liquids.

In July 2024, NNPC Limited secured a maintenance agreement with WAGL Energy for a major Nigerian crude oil terminal located in Delta State.

According to the national oil company, Nigerian Pipelines and Storage Company Limited (NPSC), one of its downstream subsidiaries, signed an agreement with WAGL for the provision of Operation and Maintenance (O and M) Services to the Escravos Crude Oil Terminal Facility.

In May 2022, NNPCL and Sahara Group took delivery of two 23,000 cubic meters (CBM) Liquefied Petroleum Gas (LPG) vessels at the Hyundai MIPO Shipyard, a manufacturer of mid-sized carriers, in Ulsan, South Korea.

According to Sahara Group Limited, the new vessels, MT BARUMK and MT SAPET, increased NNPC and Sahara Group’s joint venture (JV) investment to over $300million, as part of moves to attain their $1 billion gas infrastructure commitment by 2026.

The initiatives, the LPG Penetration Framework and LPG Expansion Plan, are geared toward encouraging the use of gas in households, power generation, auto-gas, and industrial applications to attain 5 million metric tonnes of LPG consumption by 2025.

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RMAFC Commences Review of New Revenue Allocation Formula

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RMAFC

By Adedapo Adesanya

The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has commenced the process for review of a new Revenue Allocation Formula (RAF) among the federal, states, and local governments.

The Chairman of the RMAFC, Mr Mohammed Shehu, announced this at a news conference in Abuja on Monday, noting that the review became necessary following current economic realities since the last review in 1992.

According to Mr Shehu, the review aimed to produce a fair, just, and equitable revenue-sharing formula that reflected the current responsibilities, needs, and capacities of the three tiers of governments in line with the constitutional roles.

Under the current revenue allocation formula, the federal government gets a share of 52.6 per cent, 26.7 per cent for the state governments, and 20.6 per cent is allocated to the local governments.

The committee also allotted one per cent each to the Federal Capital Territory, ecological fund, natural resources, and the stabilisation fund under the vertical revenue allocation.

According to him, Paragraph 32 (b), Part I of the Third Schedule of the 1999 Constitution of the Federal Republic of Nigeria (as amended) mandates the RMAFC to “review, from time to time, the revenue allocation formulae and principles in operation to ensure conformity with changing realities”.

“In line with this constitutional responsibility and in response to the evolving socio-economic, political, and fiscal realities of our nation, the commission has resolved to initiate the process of reviewing the revenue allocation formula to reflect emerging socio-economic realities.

“As you may be aware, since that time, Nigeria has undergone profound transformations demographically, economically, and constitutionally,” he said.

According to him, the recent constitutional amendments by the Ninth National Assembly, which devolved certain responsibilities from the Exclusive List to the Concurrent Legislative List, such as generation, transmission, and distribution of electricity; railways and prisons (correctional centres), have placed financial and administrative burdens on sub-national governments.

The situation, he explained, made it essential to reevaluate the structure of fiscal federalism to foster economic growth in individual states, enabling them to become independent from the central government and ensuring equity, responsiveness, and sustainability.

He promised that the commission would carefully assess the needs, service delivery obligations, fiscal performance, and developmental disparities, adding that the review would be inclusive, data-driven, and transparent.

“It will involve broad-based consultations with critical stakeholders, including the presidency, national assembly, state governors, ALGON, the judiciary, MDAS, civil society organisations, traditional rulers, the organised private sector, and development partners.

“The commission is also committed to integrating cutting-edge research, empirical data, and international best practices in its analysis,” he added.

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