Executive Briefings

New Approach Urged for Financing Infrastructure Projects, Especially in Africa

Many vital infrastructure projects struggle to progress beyond the concept stage because project preparation is such a costly, complex and risky undertaking. The difficulty is particularly acute in Africa, where projects encounter frequent challenges related to capabilities, the regulatory environment, project governance and financial resources.

In the past, much of the preparation funding has come from multilateral institutions and donors, but they cannot meet the requirements on their own. Paradoxically, the private sector, which has been keen to invest in later phases of the project, has been reluctant to finance the preparation phase. So all too few projects reach a bankable state, and the pipeline of well-prepared projects in Africa remains sluggish.

In an effort to bridge the early-stage financing gap, development banks and donors have been creating Infrastructure Project Preparation Facilities (IPPFs). So far, however, many of them have managed only limited success. Very few IPPFs have achieved sufficient scale to make the necessary impact. A new approach is needed to align and optimize each IPPF's objectives, strategy and portfolio management and to enable it to operate effectively and sustainably. The new approach would also leverage early financing beyond the usual public sources to include private and impact investors. Furthermore, the approach would involve the private sector in another way, tapping into its expertise through closer public-private collaboration.

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In the past, much of the preparation funding has come from multilateral institutions and donors, but they cannot meet the requirements on their own. Paradoxically, the private sector, which has been keen to invest in later phases of the project, has been reluctant to finance the preparation phase. So all too few projects reach a bankable state, and the pipeline of well-prepared projects in Africa remains sluggish.

In an effort to bridge the early-stage financing gap, development banks and donors have been creating Infrastructure Project Preparation Facilities (IPPFs). So far, however, many of them have managed only limited success. Very few IPPFs have achieved sufficient scale to make the necessary impact. A new approach is needed to align and optimize each IPPF's objectives, strategy and portfolio management and to enable it to operate effectively and sustainably. The new approach would also leverage early financing beyond the usual public sources to include private and impact investors. Furthermore, the approach would involve the private sector in another way, tapping into its expertise through closer public-private collaboration.

Read Full Article