Zubairu: Government Investment in Infrastructure Should Be in Form of Credit Enhancements

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The President and Chief Executive Officer, Africa Finance Corporation (AFC), Mr. Samaila Zubairu in this interview spoke extensively on how to tap into private capital to fund Nigeria and Africa’s infrastructure deficit, the importance of intra-Africa trade, AFC’s investment strategy for Nigeria and other pertinent issues, Nume Ekeghe presents excepts.

What is the position of the AFC on financing fossil fuel for development in Africa especially at a time when global institutions are pulling the plug on funding fossil?

I think the most important thing for us to all agree on is that Africa is the least contributor to global emissions and greenhouse gas but we are the most impacted. And the impact is really significant because it actually deflates the Gross Domestic Product (GDP) of a country. A flood or drought really takes away from the economy. What is most important is that we have some of the world’s best carbon sinks, essentially where the lungs for the world that will absorb all the carbon emissions that occur globally. We have some of the most resilient and most adaptive forests. Recently, at a panel session, my interviewer reminded me that the mountain forest in Nigeria is the most carbon absorptive forest in the world.

So, we have a lot in Africa in relation to how we can be a solution to the climate challenge we all face. On energy transition, the world is saying our energy consumption is producing a lot of carbon emissions and we need to reduce that energy consumption to reduce the carbon emissions. Or put differently, we need to change the sources of the energy that we use to reduce the carbon emissions. For us in Africa, we have a significant energy deficit. Of all the people who don’t have access to electricity in the world, two thirds of them are in Africa. Over half of Eastern Africa has no access to electricity. So, we have significant energy deficit. If you look at our per capita consumption for energy, it is about 170 kilowatts per hour, I think in Europe it is over 6000, I think in America is about 12,000. So, you then see where we are in energy consumption. 

If you look at how we consume energy in Africa, mainly is to feed ourselves. We don’t have sufficient energy for industrialisation. If you look at Nigeria, most of the industrial activities are self-generation; there is no industrial activity that is reliant on the grid. The solution for us as Africans is that we must try to ensure that we have clear strategies to improve our energy access, and our energy access must be a mix of energy sources. We have significant renewable sources; we have financed a lot of renewable assets. So, we financed the first wheat farm in Cape Verde that provides energy for the island. We financed a wind farm and are constantly financing a wind farm in Djibouti that is going to replace imported fuel Ethiopia and aid power generation. 

How much has AFC deployed to Nigeria to grow its Power generation especially as power is a major developmental tool?

We supported the power generation program here in Nigeria. We invested in a distribution company in Nigeria. We articulated a solar power program that we committed $100 million and we got the green climate fund to also commit $100 million too but unfortunately, we couldn’t reach an agreement on the power purchase agreements that was required for the project to take off the ground. Currently, the government is looking at it again, and they are engaging with us on how we can reactivate that program. I must acknowledge the progress that has happened in the power sector in Nigeria. There was a multitude of issues, the main one was the liquidity support required for the sector as well as the absence of sufficient transmission capacity, and of course, the reluctance and the difficulty of implementing the cost reflective tariffs. So, all of this, you know, affects funding and ability to fund a project.

How is the AFC helping to enhance interconnection within the continent to tap into The African Continental Free Trade Area (AFCTA)?

We are also focused on how Africa can be integrated. We have a very elaborate transport and logistics sector; we have a lot of projects that we have financed. We have financed several toll roads that actually link countries. We are supporting the government of Nigeria now on a rail project to Niger and Nigeria. We have a pipeline of projects that are looking at interconnection within Africa.  More importantly, we are looking at the value addition of African produce and commodities for trade within the continental free trade area.

We have set up special economic zones across South African countries that are looking at specific products and how we can enhance value capture within those spaces. Africa produces over 60 per cent of the world’s copper cobalt, and one African country Democratic Republic of Congo (DRC) earn about $7 million from exporting cobalt, but the entire raw material of cobalt, is just about $11 billion. But the output from cobalt is $1.7 or $1.3 trillion can you see the difference? So, if you can go the end, you can see this income in value creation. So we have done a study that shows that it is cheaper to produce parts of what is required for the electric vehicles and mobility of the future and that it is cheaper to do that in DRC than in the US, China or in Poland. So, we are embarking on a program to produce battery processors in Africa. They are also similar other minerals and metals that have the same mutation. So, for example we have a lot of lithium across Africa even in Nigeria, we have a lot of rare earth minerals in Nigeria and if it’s mine processed in Nigeria can add significantly to value creation and high-quality jobs in Africa for our youths. 

Can speak on AFC’s rebranding?

We have been around for 15 years with a very clear focus, which is to address Africa’s infrastructure deficit and improve its operating environment by developing and financing infrastructure projects across the continent. So that’s very clear and we’ve done that with success over the last 15 years. And we have been instrumental to Africa’s infrastructure development.

We know that we’ve added significant value to most of the communities and projects that we support. We’ve also learned that we are not as well known, and our significant contributions of our people, our team and our core strength while it’s well known and well established, it’s not celebrated as well. So, most people tell me that my team members are the best in the room. I was in Senegal to look at some projects and they kept calling members of our team by their needs and describing them.

So that was very interesting to me. That reminded me of the strength of our people. Likewise, everywhere we go, people are always talking about the significant capacity that we bring to the table.  A lot of people would tell us that without us, several projects will not be built and it is our approach of engagement and partnership that makes these projects come through.

So, we’ve also learned that because we live it every day, it is a passion and commitment of our people to build the roads, bridges that will integrate and connect Africa within Africa and Africa to the rest of the world. All that lead us to understand that while our mission is clear, our mandate is clear and our commitment is clear, our brand doesn’t quite reflect that. Which is why we decided to do a rebrand that reinforce our conviction that Africa is instrumental to the world. 

If you summarise all the things that I’ve said about our capacity to provide minerals and metals for the energy transition, our capacity to feed the world, our capacity to provide the carbon sinks that are solutions to climate change. Africa is a part of the solution; we are instrumental to the world. The AFC in particular, is instrumental to Africa’s infrastructure development and infrastructure development is instrumental to Africa’s economic development. From the questions that you asked and from the comments that you made in relation to lack of infrastructure as part of the problems that we have and are part of the limiting factors, for our growth as a people. So, all of this together is reason why we have done the rebrand with the by-line instrumental infrastructure, instrumental Africa.

On financing infrastructure in Nigeria, are there collaborations with Infrastructure Corporation of Nigeria Limited (InfraCo)?

We are a key part of InfraCo, we are one of the main drivers of the program. We are working with the Central Bank of Nigeria (CBN), which is our largest shareholder and the Nigerian Sovereign investment authority agency of Investment Authority for InfraCo. We have put on the table $2.5 million already. It’s not a commitment; the money is there already. So that is further demonstration of our commitment to infrastructure development in Nigeria. We’ve also put in place a framework for significant scaling up by appointing independent asset managers, and deploying a blended finance framework for pooling funds and walking working with managers that are experienced in raising third party capital globally. So that is expected to significantly make funding available for projects.

Are recent security threats heightening the risks of investing in infrastructure projects in Nigeria? 
We are looking at managing some of the risks associated with infrastructure financing. One of the big risks is currency mismatch because the funds come in dollars but the revenue is in naira. So, if you look at Nigeria in particular, where we have short cycles of significant currency depreciation which is why we came up with the naira or local currency funding framework. And we are actually exporting that to the rest of the continent. We think a lot of projects that can be financed in local currency should be financed in local currency. 

How much has AFC invested Nigeria and in the nearest future, what are the immediate projects AFC is working on and how can government attract private investments to reduce the country’s infrastructure deficit?  

On how much AFC has invested in Nigeria, the number is actually $1.6 billion currently, I mean earlier investments have been paid back. Right now on the balance sheet we have $8.6 billion. We have invested in over 20 projects in Nigeria, 49 per cent is in natural resources, 38 per cent is in heavy industries, telecoms and technology, 11 per cent is in power and 2 per cent is in transport. We have discovered that the trend for infrastructure investment in Nigeria is same as that of the globe. So, if you look at our infrastructure deficits, and the opportunities to invest in infrastructure, transport and energy is about 80 per cent of the subset, which is also consistent with the global average. Now, it turns out that transport and energy is the area where you can easily attract private sector capital. So that is the area that governments should least invest in. And any government investment should be more in the form of credit enhancements.

What government needs to do in Nigeria is to provide the credit enhancement, provide the guarantees, and provide the mechanisms for private capital to develop. So, we know that a toll road between Lagos to Ibadan will make money any day, but because we have experience of government cancelling concessions, people will be shy to make that investment. We’ve seen what happened in the Lekki expressway, people will be shy to make investment. So, government has to step up to say it would not happen and if it happens, we shall compensate you. That kind of credit enhancement is what is required from government, once government can provide that, there will be significant capital flow to Nigeria, for various infrastructure projects and indeed, to most of the African continent. So, part of the solution we provide and part of what we are doing is that we are upgrading our Africa investment framework to a policy dialogue framework.

There are several issues that confronts us as Africans and we think that we need to find a way of engaging with government from an investor perspective. We know that Covid has had in the ability to contribute to investments and we want them to focus on health, security and education for the future workforce because we need to invest now for that future workforce we aspire for. All the studies indicate that Africa would have a workforce larger than China and India combined by 2035, so for that to be a meaningful workforce, we need to invest in education. Government should provide the enhancement that would mobilise private capital to transport and energy that the private sector would fund and they can invest in security, education, health, water and sanitation that is not so easy the private sector to participate in.