AfDB Mulls Tool to Unlock Up to $4 Trillion for African Projects

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(Bloomberg) — The African Development Bank is working on a new risk-assessment framework that will help it unlock more capital for investments.

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Dubbed the New African Financial Architecture, the platform will look to move the continent’s fragmented financial systems toward a coordinated one that will bolster financial sovereignty and scale infrastructure investments.

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As part of the plan, it will seek to shift development finance to a portfolio-based model from the current project-based setup to attract the almost $4 trillion of capital held by the region’s pension funds, insurers, sovereign funds and banks, and pull external financing too.

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“We are the ones exporting capital to Europe and the US, so since we have the capital, let’s now create that conducive environment by safeguarding the monies that institutions have,” AfDB Director General for the Southern Africa Kennedy Mbekeani said at a conference Monday. 

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It will also provide a common platform for development-finance institutions, commercial banks and institutional investors to align projects with capital and ensure risks are clarified and managed to ease the premium African nations have to pay for debt. 

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Top bankers on the continent say that the credit ratings of most African nations are much lower than similar sovereigns elsewhere in the world, costing them billions of dollars in additional debt-service payments and denting vital economic growth. 

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“We’re trying to create a platform where we can bring all these segmented ecosystems into one,” he said. 

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AfDB estimates that the continent faces an annual financing gap of as much as $170 billion needed to fund projects across energy, transport, water, digital and logistics sectors. 

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Investors are paying more attention to the region after nations instituted a raft of pro-investment regulatory reforms and as development financiers provided project-preparation support.

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The new framework will also include all guarantee institutions as it seeks to simplify that process and reduce costs. But to further de-risk projects, AfDB will also offer first-loss guarantees, where it will absorb the initial, highest-risk portion for project defaults.

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“With a platform that has transparent governance under the stewardship of the African Development Bank — in partnership all the financial institutions — I think we can create that operating environment that will be attractive to utilizing Africa’s capital,” Mbekeani said. 

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