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Financing Africa's Insfrastructure Deficit: From development banking to long-term investing

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  • Rabah Arezki
  • Amadou Sy

Abstract

This paper studies the appropriate financing structure of infrastructure investment in Africa. It starts with a description of recent initiatives to scale up infrastructure investment in Africa. The paper then uses insights from the literature on informed vs. arm’s length debt to discuss the structure of infrastructure financing. Considering the differences in investors’ preferences that Africa faces, the paper argues that continent’s success to fill its greenfield and hence risky infrastructure gap hinges upon a delicate balancing act between development banking and institutional long-term investment. In a first phase, development banks which have both the flexibility and expertise should help finance the riskier phases of large greenfield infrastructure projects. In a second phase, development banks should disengage and offload their mature brownfield projects to pave the way for a viable engagement of long term institutional investors such as sovereign wealth funds. In order to promote an Africa wide infrastructure bond markets where the latter could play a critical role, the enhancement of Africa’s legal and regulatory framework should however start now.

Suggested Citation

  • Rabah Arezki & Amadou Sy, 2016. "Financing Africa's Insfrastructure Deficit: From development banking to long-term investing," OxCarre Working Papers 173, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:173
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    References listed on IDEAS

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    1. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    2. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
    3. Martimort, David & Pouyet, Jerome, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 393-411, March.
    4. Rabah Arezki & Patrick Bolton & Sanjay Peters & Frederic Samama & Joseph Stiglitz, 2016. "From Global Savings Glut to Financing Infrastructure: The Advent of Investment Platforms," OxCarre Working Papers 166, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    5. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
    6. Elisabetta Iossa & David Martimort, 2012. "Risk allocation and the costs and benefits of public--private partnerships," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 442-474, September.
    7. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
    8. Inderst, Georg & Stewart, Fiona, 2014. "Institutional Investment in Infrastructure in Emerging Markets and Developing Economies," MPRA Paper 62522, University Library of Munich, Germany.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Africa should invest in itself
      by Johan Fourie in Johan Fourie's Blog on 2016-10-04 13:20:51

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    1. repec:ipf:psejou:v:42:y:2018:i:2:p:145-169 is not listed on IDEAS

    More about this item

    Keywords

    Africa; Infrastructure Finance; Development Banks; Long-term Investors;

    JEL classification:

    • H49 - Public Economics - - Publicly Provided Goods - - - Other
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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