INTERVIEW: What Nigeria, other African countries must do to fix infrastructure deficit – Ex-AFC President

Samaila Zubairu, Third President & Chief Executive Officer of the African Finance Corporation
Samaila Zubairu, Third President & Chief Executive Officer of the African Finance Corporation

By Juanita Williams and All Africa

Moscow — allAfrica.com spoke with the Third President & Chief Executive Officer of the Africa Finance Corporation, Samaila Zubairu – an accomplished Infrastructure development finance specialist with over 29 years of professional experience – after the Afreximbank meetings in Moscow, where the talk centered on improving infrastructure on the continent and how crucial projects will be financed.

What is the African Finance Corporation’s (AFC) role in what could be considered the continent’s biggest challenge?

The AFC is one of those initiatives which demonstrates that Africans are taking ownership and responsibility for our challenges, our problems, our opportunities and our potential. African states decided in 2007 to create a financial institution that would provide solutions to Africa’s infrastructure deficit and challenging business environment by developing and financing infrastructure, natural resources and industrial assets with a view to enhancing productivity and generating economic growth for the African state.

We have since executed that mandate through investments in energy, transport and logistics, natural resources, telecoms and promoting Intra-African trade and export trade from Africa. Since we were created in 2007, AFC has invested U.S. $5.5 billion across 28 African countries. Back then investment requirements for infrastructure were about U.S. $30 billion needed annually for 10 years. That number has since grown to U.S. $170 billion required annually. If we look at that number because it is so huge, the highest need is in water and sanitation where U.S. $67 billion is required annually; next to that is energy with U.S. $50 billion required annually, transport and logistics with U.S. $47 billion required. And then ICT needs U.S. $7 billion.

In general over the past six to seven years, Africa as a whole has invested about U.S. $77 billion. That leaves a funding gap… some people say we need U.S.$100 billion, some say it’s U.S. $70 billion, but I look at the higher number because you have to maintain what exists – because if we don’t maintain it, it deteriorates and it adds to the gap. So African governments have actually been the biggest investor followed by Infrastructure Construction for Africa, which is the combination of the G8, development institutions like ourselves and other institutions from Africa, and then we have China and the Middle East investors.

What does Africa need to move forward on these plans?

More private capital to fund infrastructure investments – it is so important because we know that infrastructure deficits reduced GDP growth by 2 percent and reduce productivity by 40 percent, and if you put that within the context of a young continent where 50 percent of the population is under the age of 35 years, possibly under 24 years old, then you can see the challenges. You have to understand that over half the continent has no access to electricity, then you see why we need to do things differently. We have to look at what they call ecosystems if you are looking at infrastructure development. You have to understand that we need to do more beneficiation on the content. We have to create more jobs on the continent, we have to provide the infrastructure that will allow for higher regional trade.

Today Africa has the lowest regional trade. We heard that it is about 15 percent today but the best estimate is at 18 percent. That is so low compared to the European Union where we have about 70 percent of trade within the union. Asia has 60 percent within the union, North America about 40 percent.

The reason why we don’t have enough trade within Africa is that you need to be able to move goods and services and people across the region, and infrastructure is required for that to happen.

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Right now I don’t know that there’s a viable road network between African states. There are some networks especially in southern Africa, where there was support for development, but outside that there is no infrastructure. We have had the ECOWAS zone and the ECOWAS treaty for almost 50 years and we have some trade that happens within that region, but it’s not significant and that is because there is no infrastructure. So infrastructure is required for our economic growth and development, it is required for trade between African states.

At ECOWAS zone we have tried to focus on making those investments so we have made investments in the energy space. We built a wind farm in Cabo Verde which provides 20 percent of the energy of the island. We are building a hydrodam in Cote d’Ivoire that will add to the electricity supply of the grid. We have just completed a power project in Ghana – last week Monday it was commissioned. It was a challenging project, we invested in the privatization programme in Nigeria in hydrodams as well and some electricity networks, we are looking at building a hydrodam in Cameroon, the Nachtigal Dam. We are looking at a power plant in Rwanda, and we have some power assets in Kenya as well.

In transport and logistics we have invested in toll roads in South Africa. We have invested in transport and logistics platforms in Gabon where we have a general cargo port, a container port and an airport and industrial park and several other associated investments. The Gabon investment is significant because we went there with the ecosystem approach whereby we have the ports investments, we are looking at other investments that feed traffic into the port, we are looking at opportunities to do more in that region, we are looking at making investments in mines that will give us more traffic for the port.

We are replicating that same platform in other African states, especially because we see the transformation that the investment has had on the economy. Historically Gabon used to export blocks of wood but now they do processed wood, they also make furniture which they can export. Most of the schools now use furniture made within the economic zone. We have over 4,500 people working in that economic zone – that is significant job creation within the country and also capital accumulation as well because all those complicated taxes which then add to the revenue of the state via jobs.

So if I come back to the question around infrastructure and the Continental Free Trade Area it would require significant upgrade in African infrastructure for this dream to come true. It is not going to happen at once, it is going to happen over a period of time.

African states need to understand that capital needs to be encouraged. They need to engage with development financial institutions, investors like ourselves on how to do risk investment into energy, into transport and logistics and they need to understand that there are certain areas where they need not make investments. For example, African states don’t need to incur public debt for investment in transport and logistics because that can be typically funded by itself except if you’re looking at feeder roads that support the agricultural value chain and that have no traffic. Those they can do but the main highways, port, airport, seaports, they don’t need to make those investments.

There has been some discussion around how much debt some African countries have accumulated to improve their infrastructure – would you say they don’t need to go in to public debt for that?

There are certain aspects of infrastructure that can be done on the public partnership basis and so you don’t need to make an investment. You should focus on areas where you are least likely to attract private capital, for example water and sanitation is an essential need and it’s hard to get the kind of the right structure that will attract private capital. In some cases you can, so if you look at certain cities then it is possible but if you’re looking at the general population then it might not be possible and if you’re looking at certain suburbs in certain cities again it might be possible, but if you’re looking for it for the totality of cities then again it might not be possible.

You need to segment the opportunity and see where government capital or public debt is more suitable. A state does not need to do an airport because an airport that exists and is functional would generally attract its own traffic. A toll road between two major cities or major economic corridors that will have an assured traffic of goods, people and trucks does not need to be done by the government. Whoever is going to use that road will gladly pay for a road that shortens the distance. We have pockets of the continent where the roads are so bad that a journey of six hours could literally be done in two hours. If the investors and sponsors are up to building the road then they should provide it. Why? Because it will be cheaper than what they (the government) would have spent if they tried to build the road, it will be done faster and there will be no cost overruns and the project will be delivered.

And if they are concerned about vulnerable members of society, what they should do is to have some sort of arrangement if they’re unable to pay but I can assure you, experience tells us that once that road is in place the traffic will flow.

There are several toll roads in Africa where the initial estimate indicated much lower traffic than the actual traffic when that infrastructure was built, so in those instances there is no need for the country to incur public debt. Experience tells us that once the assets are in place, there’ll be no need for you to make up the shortfall.

Why do you think that African governments go the other route, like Nigeria, Ethiopia and Kenya?

People have different strategies – some of the governments that we speak to say that they think that it’s easier and faster to build the roads and then sell them thereafter to be tolled. The challenge is: what is the economic value of that asset that has been developed through the government procurement process. Sometimes an agreement can be reached – it would depend on the governments.

The general view is that for us to work together as one continent to realise our potential and to overcome our challenging business environment, we need to focus on the infrastructure investments that are required. We need to focus on how best this can be done in a way that is efficient.

One of the things that the government should pay attention to is education. We can never industrialize without an educated workforce. Education is also one of those needs that government should provide so if we can take care of that hard infrastructure they can do the soft social infrastructure like the health and education and security which is required for a viable society, especially with the rapid population growth that we see every day.

How does the African Continental Free Trade Area (AfCFTA) fit into your plan?

For us, because we are focused on Africa, on reducing the deficit in Africa with a view to improving the business environment, we are interested in the Continental Free Trade Area. We think we can support that initiative by making the investment in infrastructure that will link regions, link states and allow for easy flow of goods and services.

We think that if we can have regional infrastructure that cuts across countries we would have helped. We believe that if we can invest in energy infrastructure that would allow industries to be built so that Africa is competitive and not just importing and exporting raw materials, that would add to the goal of the Continental Free Trade Agreement. If we make investments in the beneficiation of natural resources such as oxide, manganese, gold and platinum, we create jobs in the continent for Africans. They will not need to emigrate to Europe or other areas.

That will help in reducing carbon emissions on the globe because if we do processing on the continent then that amount of additional energy will not need to be found in Europe and Asia. This continent is still the lowest consumer of energy – we are still the lowest industrialized continent and our output is just above 2 percent. We need to increase that. You can increase that by beneficiating material on the continent.

I will give you an example – we are looking at an investment in a mine and we do that as the first step while we are looking at how to process the output of that mine into semi-finished product and in some cases finished product. That will require maybe 100 megawatts of electricity and is provided by a hydrodam. So we are also looking at expanding hydrodams to produce more energy. We are looking at providing traffic to the port that will increase the output of the port and so just by focusing on beneficiation and not just raw materials you can add value significantly in a country and you can accelerate development impact in that community.

What is your commitment to renewable energy?

That’s a big part of what we do. Every part of our investment involves renewable energy; AFC has done wind farms as I mentioned in Cabo Verde, we are doing another wind farm in Djibouti.

We are looking at a solar project in Nigeria and in Southern Africa. We have put together a facility to support renewable energy, we have committed U.S. $100 million. We have got the Green Climate Fund to commit U.S. $100 million. We have also gott the World Bank to also commit U.S. $100 million with us. We have put together funds of up to U.S. $300 million that will support investments in renewable energy.

We are also looking at how to work with telecoms companies that are currently using diesel to power their cell sites or their towers, and how we can create solutions around renewable energy. The investment that I mentioned in Cameroon – the Nachtigal Hydro Dam – that is renewable energy, the Cabeolica wind farm is renewable, the Djibouti wind farm is renewable. Those are the projects that we do now in the renewable space. What we have said is that we can do more if we focus on beneficiation and we have the lowest carbon footprint so we have a lot of room to work with in terms of our energy intensity.

Unfortunately some investors are still held back by fear of opportunities in Africa being too risky. What do you say to that?

It is documented that Africa has the lowest default rates for infrastructure investment. Historically it has been lower than even the Middle East but now because of the volatility in commodity prices, we have had some defaults on the continent. Our defaulting is now higher it but it is still much lower than the rest of the world. We understand the challenges that investors have, which is why we feel that our mandate is how to de-risk projects and create platforms that allow them coming into already built assets so that we can use the liquidity to build further assets.

How do we change that perception?

By proving what we have done, showing the case studies of what has happened and building institutions that can intervene appropriately in the various stages of the evolution of projects so that we Africans lead this initiative and people can see our success and follow it.

Some of our leaders do not necessarily have the interest of the people at heart and some say others have overstayed their welcome, whereas the AFC has a set period for each CEO. What do you think about your leadership style is making the AFC a successful organisation?

Leadership is about getting things done, creating a team that will understand a challenge or situation that needs to be overcome and working with them to overcome the challenge. It is very clear what the challenges are. We have significant infrastructure deficit – we need to close the gap. So the mindset that we have is that we as Africans have to overcome the challenges by ourselves. We must take ownership of the challenges and the problems and provide solutions to overcome them. Once we do that other people will follow us.

Those claims around African leaders might be misplaced because Africa has 54 countries and there are different leaders in different spaces. Maybe in some cases, even in those cases where people think leaders have overstayed their welcome, I think that they need to contexualise the issue because one of the reasons why we achieved the Asian miracle was stability of leadership. Leadership not really around people but around institutions and I’m advocating for leading institutions to be created, that will focus on the challenges of the continent and will have framework of overcoming the challenges of the continent.

The AFC was founded 12 years ago, and you’re in the second year of your term as CEO. What does the future of the AFC hold?

Our future really is the future of the continent. We have a very clear mandate for what we can do to improve the business environment of the continent and to reduce the infrastructure deficit on the continent. Our future depends on how well we do, how much impact we have, how we can support the growth of African economies, how we can support the growth of African industry, how we can support African resources – that is really our future. Our future is how well we position the continent to be better than when we met it.

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