Tuesday, February 22, 2011

Report from Harvard Business School Africa Business Conference: Post # 3: Infrastructure Panel

Moderator: Elisabeth Koll, Associate Professor, Harvard Business School.


Alain Ebobisse, Global Head, IFC InfraVentures and Chief Investment Officer, IFC

Gavin McGillivray, Director, UK DFID

Chuka Mordi, Director, CBO Capital Partners

Nick Rouse, Managing Director, Frontier Markets Fund

Amadou Wadda, Senior Vice President, Infrastructure, Africa Finance Corporation

The afternoon panel offerings at the Harvard Africa Conference featured a number of compelling options, and as in the morning, it was a tough choice. I ended up attending the Infrastructure-track panel: The $1.0 Trillion Africa Infrastructure Opportunity. For who can pass up a $1 trillion opportunity?!

This was a large panel, a mixed representation of donor funded agencies and private sector executives. This seasoned contingent fostered a fascinating and at times oppositional conversation--especially given the presence of Alain Ebobisse, senior official of the IFC, and to his left, Gavin McGillivray of UK's DFID, rubbing elbows with the forthright Chuka Mordi, of CBO Capital Partners always polite, but at times dismissive in his frankness on what he sees as fellow panelists' failed models, which drew audible gasps and rounds of nervous laughter from the audience. Such was the case when Mr Mordi jocularly asserted that:

'Multilaterial donor agencies are part of the problem…but not in a bad way…Fundamentally, they mean well, but they are a charity.'

That left more several of his co-panelists looking perplexed--but he was not alone. Mr. McGillivray had started out by narrowly defining the effectiveness of donor agencies and governments, with his initial remarks that:

'Governments are generally bad at spotting opportunity. What can the donor community do? Not much. There are three areas where donors might be able to help: governance, regulations, and planning, and regional projects.'

It seemed left to Mr. Ebibose, to defend the multilaterals' position. He handled this delicately, and proved neither afraid to admit the shortcomings of agencies such as his own World Bank Group, nor to defend a meaningful space for them--dovetailing with Mr. McGillivray's thinking.

Mr. Ebibose was also not reticent to point to a lack of capacity in the private sector, not least being: "there are not enough private developers of infrastructure in Africa," and therefore in turn a real need for groups like the IFC, which come in not only with cash, but with expertise.

Mr. McGillivray readily concurred with this particular lack of talent in both multilateral aid agencies and governments--and pointed out that this is where the IFC has leant meaningful assistance to governments, which has yielded positive results and should be expanded.

Mr. Rouse had several very insightful comments here, too:

Some African governments are just suspicious of the private sector. There are places which have the private sector ethos where we can operate, others not. Kenya is great, he said, but next door Tanzania is not.

A number of unpleasant issues--the elephants in the room of infrastructure investment in Africa--were addressed by members of the panel: the challenges of making a long term play in a high risk region; competition from the Chinese; and the often-times unworkable reality of Public Private Partnership models, especially in an environment of corporate and governmental corruption.

One of Mr. Wadda's most insightful comments was his insight into states' lack of capacity in negotiating effectively in PPP transactions. This leads to breaches of contract terms, reneging on contractual obligations, even cancellation of contracts. This has set a bad track-record for PPPs, discouraged future ventures, further eroded the ability of states to attract investor interest, and caused capital's appetite for such arrangements to flag, and given the entire model a poor reputation.

This was a fascinating revelation. Unfairness does not necessarily result in carpetbagging investors raking in huge profits by taking advantage of inexperienced public counterparts, but instead risks transactional collapse, and in turn a further wariness for such risky, long-term, capital- and capacity- intensive ventures in challenging frontiers.

Mr. Mordi expanded on this--repeating that one cannot separate the financial from the political--and that corruption pervades both arenas. Early on, he put it simply: "you cannot do a deal if the company or the country is run by gangsters." If lack of capacity is a weakness, corruption is the parasite that bleeds infrastructure projects to a premature death. This, he said at the start, was the primary challenge: governance. It is impossible to have a short term outlook when looking at infrastructure, and you need competence for implementation--even if corruption isn't crippling the venture, bad management surely will.

Later on in the question period, Mr. Mordi returned to this issue:

Nigerian banks have a systematic problem: a simple one of corruption, nothing else. Five years ago they didn't have the funds to do big investments, and they still don't have the scale, really, but are getting there. The banks are not going to put out money for longer than the government itself, and are for the time being, sticking to government debt because its safest form of liquidity.

This was one of the more technical moments of the session. Several panelists expressed a desire to move away from local currency transactions, and there was a bit of detailed accounting banter about this.

Lekki Toll Road, Lagos.

There were a few references to specific projects, with frequent mention of Lagos's Lekki Toll Road, with its 15 year tenure, by far the longest of any infrastructure deal in Nigeria; future phases of the massive Inga Hydropower in the DR Congo, and talk of the potential for smaller-scale hydropower in Guinea. Mr Rouse asserted that 200-300mw local stations were the solution to Africa's power problems, revealing it as a strategy, but giving no specific examples.

From this lively, revealing debate, it clear that Africa's problems in developing infrastructure are not just a lack of capacity of the physical plant itself, but the operators, investors, and the local, national and international partners who support these deals. Until investment is not made just in hardware, but in improving the talent pool of government stakeholders, infrastructure proposals destined to remain on the drawing board, a failure not of feasibility and financials but of inability and fraud.

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