La pregunta pedagógica o generadora

The projects envisaged above represent between US$500-1000 million in required project financing. Whilst obviously the building of different sections of the network can be phased over five years, there is a clear need to build a substantial element of the network to “kick-start” the business.

There are many different types of financing available for the type of capital

infrastructure projects under examination. It is useful to draw a distinction between loan and equity finance as the former requires repayment of the original capital plus a fixed or variable rate of interest. The repayment terms may allow for “holiday” periods when no repayments are made. Also loan finance can be sought from a number of sources – including those offering “soft loans” – and in this way the overall rate of interest may be lowered.

By contrast, equity finance is put up by shareholders who are looking for an ongoing return from their shareholding. In the case of large -scale capital projects, the

shareholders will not expect to see a return for a number of years while the project is being built. However they will look for a return over the operational life of the

project. For those wanting to build large -scale infrastructure projects, equity finance is probably kinder in financial terms. Returns can be geared over the medium-term. Subject to successful operation, equities are tradea ble and allow original investors to exit. This opens the possibility of new entrants – like SNOs and mobile companies - participating as they enter the sector.

The financing of these infrastructure projects might be “packaged” from a number of different e lements including: equity finance, bank loans, vendor-finance (loans from equipment manufacturers), company loans (from telcos), soft loans and donor grants. It is important to be clear what each type of financing is most appropriate for.

Market financing through equity is designed to back projects that can generate a commercial return. Soft loan financing is in part designed as a “market-gap” mechanism for use where markets are simply too high risk or the market has not yet achieved potential for lack of investment. In this context, it might best be deployed where there is a clear argument that the market will not deliver a vital piece of communications infrastructure. Saving countries foreign exchange by lowering the costs of intra-African calling will ha ve a clear impact on the poverty level of a country. The purposes for soft loans and donor financing is often blurred but is helpful to have a clear sense of what each might achieve.

On the basis of discussions with potential investors in infrastructure projects of this kind, the region presents a series of self-imposed hurdles. As the table in appendix A4 of international licences on the continent shows, there are very few countries where internationally competing licensed companies are in existence. Combined with the high level of state ownership in the sector, there are thus few publicly traded companies into which the market might invest for these kinds of projects.

With the current global market environment for telecommunications operators, as evidenced by the recent difficulties countries such as Kenya and South Africa have had in attracting foreign telecom operators as strategic partners, the existing

incumbents into which investment might be made are (in the main) considered to be risky propositions. Furthermore, the terms of any investment would be subject to a degree of risk that could create difficulties for private institutional investors. And indeed in some instances, countries have expressed a desire to hold on to any investment of this kind as a vital piece of “national infrastructure”. In summary, neither the market nor the regulatory conditions are currently available that would encourage a sufficient degree of outside investment.

Africa’s need for investment in communications infrastructure of this kind is considerable and is could exceed the available soft loan and donor funding, even when projects have been prioritised. The current projects that form the focus of this study are simply the “highways” but they in turn will need to be connected by “smaller roads” or national infrastructure, for the network to reach its market potential. So there is an underlying additional set of costs that will also have to be met.

There are two potential solutions to this problem. The first is to create special

financing mechanisms through which development funds and the Governments of the participating countries offer the market opportunity to outsiders and provide the political guarantees required to encourage the market to invest. The second is to address the underlying market and regulatory issues through liberalising the markets themselves, thus allowing investors an opportunity to invest. Unfortunately the latter is not a speedy process and will not address current requirements, although is vital in the medium-term.

Not all this market investment need come from outside the continent. Effective private sector companies like Safaricom and Sonatel have shown that it is quite possible to raise small but significant amounts through local markets. The difficulty at present is that most of the incumbents can only raise loan finance against assets and future revenues and this is inevitably more expensive than equity finance. Worse still, in some cases, those participating in some of the schemes described are a lready financially “over-stretched”.

In these circumstances, the incumbents have only really one “banker-of-last-resort”, their owner, the Government concerned. Almost all of the Governments in question lack the resources to make investments on the scale required without themselves borrowing. So in many of these cases, the national contribution for the incumbent telco will be sought from institutions, most notably the World Bank Group. So again donor money risks being used to plug the inefficiencies of the current market.

Ideally, market investment should be used to back those projects which can

demonstrate a clear commercial return. Soft loan finance should be used to “stretch” the growth opportunities for those markets that hover on the wrong side of

commercial return. However they might be capable of paying back lower rates of interest. Donor money could also be used to connect those countries where the market is simply too small to support an immediate market solution. In effect, the money is

used to ensure that those who might be “passed “ by major infrastructure are not left unconnected.

The challenge is to create the best possible circumstances for the participation of all three funding strands in ways that will deliver these kinds of objectives. Africa’s future success in attracting external investment will not best be served by creating a finance structure that cannot demonstrate that at least part of its needs can be met through market finance.