7th August 2012 In Uganda, a unique public-private solution to the infrastructure challenge leads the development agenda
NAIROBI, 7 August 2012 – Uganda has been one of the countries at the forefront of Africa’s renaissance. In the past two decades its GDP growth has averaged just under 6% and they have surpassed the 2015 Millennium Development Goal of halving the 56% poverty rated recorded in 1992/93.
To continue this positive development trend, Uganda, like many African countries is prioritizing infrastructure development with over 50% of their 2012/2013 budget earmarked for infrastructure. Two ATI-backed projects reveal the potential and scope of the challenge ahead.
According to the World Bank, approximately $1.1 trillion is needed in annual infrastructure financing in developing countries, including Uganda, through 2015.
In Uganda, this urgency is reflected in the muddy and often impassable roads of the small Island of Bugala, the largest island in Lake Victoria measuring close to 300 square kilometers. With an economy reliant on fishing, tourism and agriculture, improvements to the road and transportation network, electricity and water supply are expected to give a big boost to the local economy.
When it comes to building the very foundation that a country needs to be competitive, setting a priority is the first step in what can become a marathon. Accessing funds is one of the first hurdles. In the case of Bugala, the government was able to strike a deal with a donor-funded infrastructure development company.
Acting as the project promoter, the company, is responsible for building, financing and managing the project. Donor funds from several EU countries, the World Bank and an African development finance institution will cover the $43 million, eight-year project to develop new and rehabilitate existing infrastructure on and around Bugala Island.
Specifically the company will create a passenger and vehicle ferry system, upgrade the Island’s 66 km dirt road and construct a 1MW diesel-solar hybrid power plant, and a series of solar-powered pump water supply systems.
Once financing is in place, infrastructure projects face an additional hurdle. Financiers often demand some type of political risk coverage on their investment. In this case, the African financier approached ATI to cover their equity investment in the project against the risks of expropriation, war, civil disturbance and currency transfer restriction.
“This project represents a solid model of how African governments can best utilize donor-funded vehicles for infrastructure development on one hand, and on the other, it shows how donor governments can support development using a private sector approach,” notes Allan Mafabi, the lead Underwriter on the project and ATI’s Rep in Uganda.
While this unique multi-sector infrastructure services initiative highlights the potential that exists in the sector, the human resources requirement speaks to yet another challenge. Qualified engineering firms and contractors lead the work on the ground of most of these projects. Increasingly African-based firms are successfully bidding and winning contracts to build the components of these infrastructure projects. These companies in turn require working capital to float their activities for the length of the project. In these instances, access to finance poses the same challenge as for governments.
In one transaction, ATI provided a solution in its role as connector between a long-time client, an East-African engineering firm and a Pan-African bank. With ATI’s insurance protecting them against the potential risk of scheduled payment default and insolvency, the bank was able to set up a $1.5 million credit facility for the engineering company to access. In addition, the facility has a unique characteristic that enables the company to utilize the funds on a number of projects they are contracted to implement for the government in Uganda.
“On this transaction we were able to bring two clients together, though the bank was ultimately our primary client here. I believe this shows the diversity of our product to cover governments, large banks as well as privately owned companies,” comments Mafabi.
With the government’s plans to build a super highway, rehabilitate existing roads, and to upgrade the power sector there is no shortage of opportunity for investors and service providers in Uganda. Through intensive marketing campaigns, ATI plans to more vigorously promote its presence as a valuable partner on the ground in Uganda and in other African countries.
“We want to be the partner of first resort for anyone doing business in Uganda. ATI can add the sort of value that will help you sleep at night knowing that your back is covered,” adds Mafabi.
