AfCFTA: Development finance institutions to play a key role in driving infrastructure projects

The African Continental Free Trade Area has been hailed as a monumental milestone but for it to operate, the member states need to look at alternative funding sources for many of the joint projects, to shed more light on the importance of alternative capital financing, CNBC Africa spoke with Bart Turtelboom, Chairman of Delphos International for more.

Mon, 10 May 2021 15:15:56 GMT

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Development finance institutions are essential in financing infrastructure projects in Africa, with a focus on areas like climate-friendly initiatives, health, education, and technology.
Despite a decline in investor attractiveness due to COVID-19, development finance institutions have the capital to facilitate a quick economic rebound and support post-pandemic recovery efforts.
Government support and low interest rates in G7 countries have provided development finance institutions with funding opportunities, although the risk of debt distress in borrowing countries remains a concern that needs to be addressed.

The African Continental Free Trade Area (AfCFTA) has been celebrated as a monumental milestone for the continent, but for it to operate successfully, member states must explore alternative funding sources for joint projects. Shedding light on the importance of alternative capital financing, CNBC Africa spoke with Bart Turtelboom, Chairman of Delphos International. Turtelboom emphasized the significant role development finance institutions play in supporting infrastructure projects in Africa. Development finance institutions, with their large balance sheets and broad mandates, often focus on senior debt instruments but are expanding into new areas. These institutions hold great promise for financing development projects in Africa, Turtelboom noted. With over 500 development finance institutions operating across various sectors and countries, there is ample opportunity to tap into their financing to drive economic growth and development. Turtelboom highlighted infrastructure projects as a key focus for these institutions, pointing out that investments in infrastructure are crucial for implementing net-zero strategies in supply chains amid increasing concerns about climate change. Additionally, health, education, and technology-related projects in Africa also present attractive investment opportunities. While African countries have seen a decline in investor attractiveness due to the COVID-19 pandemic, Turtelboom expressed confidence in a quick rebound. He mentioned that development finance institutions have the capital to address supply bottlenecks and support the post-pandemic economic recovery efficiently. Turtelboom attributed the availability of funds to government support and low interest rates in the G7 countries, making borrowing appealing for development finance institutions. However, he acknowledged the risk of debt distress in countries that have already taken out significant loans, emphasizing the need to address existing debt burdens while also leveraging borrowing to ensure economic stability and facilitate recovery. Despite the challenges posed by high levels of borrowing, Turtelboom viewed the unique and global nature of the COVID-19 crisis as warranting exceptional measures to support economies. He underscored the importance of addressing the shock with necessary financial support to position economies for a successful rebound. As Africa looks towards leveraging development finance to drive infrastructure development and economic growth, the role of development finance institutions stands out as crucial in supporting the continent's journey towards prosperity and sustainable development.