According to law firm Baker McKenzie’s latest report, multilateral and bilateral lending into Africa has declined – with investment levels falling successively in 2019 and 2020 to $55 billion and $31bn, respectively. File photo.
According to law firm Baker McKenzie’s latest report, multilateral and bilateral lending into Africa has declined – with investment levels falling successively in 2019 and 2020 to $55 billion and $31bn, respectively. File photo.

Big appetite for infrastructure needed to open up SA-African trade and investment, say experts

By Siphelele Dludla Time of article published Oct 4, 2021

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The African Continental Free Trade Agreement (AfCFTA) will succeed only if there is a huge appetite for infrastructure investment to drive industrialisation, technological developments and large-scale manufacturing.

This was among sentiments expressed by various speakers on Friday at the inaugural Africa Trade South Africa (ATSA) 2021 virtual conference.

The conference was aimed at exploring South Africa-Africa trade and investment opportunities in relation to the AfCFTA.

South Africa has historically been seen as an African powerhouse, and is poised to become a key player in the AfCFTA.

However, Africa’s infrastructure investment gap has widened over time, and the Covid-19 pandemic made things worse in 2020, in spite of high demand for projects and a sufficient supply of capital and investors.

According to law firm Baker McKenzie’s latest report, multilateral and bilateral lending into Africa has declined – with investment levels falling successively in 2019 and 2020 to $55 billion and $31bn, respectively.

Head of programme development at the African Union’s New Partnership for Africa’ Development (NEPAD) agency, Kossi Toulassi, said filling the infrastructure finance gap was a major challenge to infrastructure development on the continent, but there were innovative ways to address this.

“We need better capitalisation of development banks in Africa in order to facilitate infrastructure development to support the implementation of the AfCFTA,” Toulassi said.

Rian Coetzee – head of industry planning and projects development unit at the Industrial Development Corporation (IDC) – said funders had to be enticed to invest in projects.

“For there to be success, there needs to be a huge appetite for risk from funders, with collaboration from experts in technical and financial assistance... often through grants,” Coetzee said.

Absa Group’s managing principal for trade and working capital, Bohani Hlungwane, said funders needed to weigh up the risks before they ploughed in the money.

“It’s about the cost of value-add versus the benefit that countries would experience as a result of preferential trade agreements,” Hlungwane said.

“There has to be value in the particular sector which warrants large funding. Part of the challenge around infrastructure finance in Africa is access to expertise. ”

But chief operations officer for Africa50, Tshepidi Moremong, had a solution for how risk-averse investors could safeguard their capital.

“The first step to de-risking infrastructure projects starts with credible sponsors. Using local currency in project finance is also a critical factor,” Moremong said.

The ATSA served as a virtual platform for diverse stakeholders to discuss and craft workable strategies for how to capitalise on opportunities presented by the AfCFTA.

Aspen Pharmacare senior executive Dr Stavros Nicolaou said the AfCFTA presented an opportunity to place manufacturing at the centre of South Africa’s economic recovery.

Nicolaou was discussing positioning South African industries to supply the AfCFTA market and increase the country’s manufacturing base.

“We need to implement localisation policy at government level and aggregate African volumes so we can use our own economies of scale to galvanise the industrialisation project in South Africa and the rest of the continent,” Nicolaou said.

NEPAD Business Foundation chief executive Peter Varndell said there were basic things that countries needed to deal with first for the AfCFTA to be a success.

“In order for the AfCFTA to be successful we need to deal with non-tariff barrier issues,” Varndell said.

"South Africa, and the continent, need fit-for-purpose infrastructure to move goods regionally,” he said.

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