This rapid review of literature identifies constraints and interventions related to financing infrastructure in sub-Saharan Africa, with particular attention to the role of pension funds in the
region. The need for infrastructure development in Africa and Sub-Saharan Africa is well-established in the literature (see, for example, World Bank, 2017; Brookings Institution, 2017; Cambridge Economic Policy Associates, 2015) and approaches to financing infrastructure investments have received significant attention (for example, Maurer, 2017; World Bank, 2017; Essers et al., 2016; Cambridge Economic Policy Associates, 2015; Office of the Special Adviser on Africa, 2015). However, specific discussion of infrastructure and financing in Zambia has received limited coverage in publicly-available documents that we were able to find in the time available for this report.
Barriers to local financing of infrastructure are related both to the nature of the projects available for investment, which often fail to meet the financing requirements of investors and to a lack of
available capital related to financial market conditions (CEPA 2015). The main barriers to investment described in the literature (see section 2 below for discussion) are:
• Lack of project ‘bankability’
• Lack of private capital availability
• Lack of enabling environment
• Lack of human resource skills (i.e. technical, legal, financial)
• Length of project development
• Lack of transparency
• Regulatory barriers
• Competition from non-infrastructure projects
• Aversion to investment in less liquid projects
• A mismatch between investor desires and financing opportunities
• Lack of financing vehicles and instruments
• Limited deal size
• Perceived and real risk
• Absence of market for infrastructure assets
• Sovereign ceiling
• Currency risks
For infrastructure investment to be made more attractive to local financiers, the review found that the following interventions have been recommended by various academics and practitioners
(see section 4 below for discussion):
• Increased capacity to prepare/negotiate/transact projects
• Need public origination of projects
• Resource availability at an early stage
• Project development funds (PDFs)
• PPP framework development
• Achieve project ‘bankability’
• Mobilise local currency financing
• Pension sector growth
• Pension reform
• Improved governance/regulation
• Development of domestic financial and capital instruments
• Partnership development
• Co-investor encouragement
• Risk management
Strength of the evidence base
With this report’s focus on barriers and constraints to local financing in Zambia and neighbouring countries, there are only a limited number of sources available which provide relevant information. There is limited robust evidence in the literature on what has worked previously, what may now be done and how it may be carried out. Instead, the emphasis in the literature
tends to be on the challenges and on recommended or perceived solutions associated with local funding of infrastructure. Barriers to local financing in sub-Saharan Africa and in Africa more
generally have received attention, but there is a paucity of evaluations of interventions. Research on the specific barriers and initiatives in Zambia has proved hard to come by. In the time available for this review, we were unable to find evidence regarding whether commodity index-linked financing had been considered in Zambia or in neighbouring countries as a means of hedging financial exposure to the country’s key economic determinant.
