Inconsistencies affecting project financing in Africa

Accra (Greater Accra) 28 April ?99

Political instability, sudden changes in government policies and cancellation of awards and contracts have been identified as major constraints that face the financing of major capital projects in Africa.

At the on-going 3rd Oil and Gas Africa ?99 Conference and Exhibition, in Accra, Mr Askari Naqvi, Vice-President, Global Project Finance, Citibank, said cross-border risks, including government actions, deprive the entity of the use of its assets and inability to convert local currency.

Presenting a paper on "Project Finance in Africa, Citibank?s Perspective" , he mentioned the inability to transfer funds in certain countries as factors that pose severe challenges to project financing. Factors such as the provision of infrastructure, appropriate legal framework and adequate healthy government entities involved in transactions must be addressed if progress and profits can be made.

Mr Naqvi explained that in the current scenario, banks have little appetite for taking "clean" cross-border risks in most African countries, unless credit enhancement is provided.

Most markets in Africa are limited since local currency financing is limited both in terms of amounts and tenor for large projects.

Suggesting solutions, Mr Naqvi called for credit enhancement from developers, including completed support and account structures, and guarantees from credit-worthy institutions, such as insurance companies.

Citibank has set up separate cross-border pools for project finance transactions and high level interaction with agencies, such as the International Finance Corporation and the World Bank, to ensure that "we can work closely for transactions in Africa.

"There are plans to expand branch network to be closer to the countries and to develop a better understanding of the local markets." Africa has tremendous potential for development, and over the past few years investors and developers have begun to realise this, he said.

"Political and cross-border mitigation remains the key issue, and lenders will need to come up with innovative solutions in order to mitigate these risks for their satisfaction," he said.