High hopes in Africa amid establishment of cities development fund

By Timothy Sibasi, timothy.sibasi@alleastafrica.com

KAMPALA – The United Cities and Local Governments of Africa (UCLG Africa) have established an African Cities Development Fund during a two days international conference that ended last evening in the capital Marrakesh of Morocco.

The fund will aim at enabling cities to issue bonds on the national and international capital markets. The conference brought together twenty top level experts including specialists of fundraising on the financial markets; officials of development banks, funds or development banks dedicated to local governments, asset managers in international private banks, officials of rating agencies and representatives of national and local administrations.

Funding infrastructure development in many of the African cities can’t easily be done without addressing challenges facing African entrepreneurs. African entrepreneurs face some of the world’s toughest business conditions. Most African countries perform poorly in the World Bank’s Ease of Doing Business surveys.

Kenya and Ethiopia both of which were visited by U.S former president Obama place 136 and 132 respectively. The World Bank lists the top five constraints in Kenya’s business environment as practices of the informal sector, corruption, and political instability, lack of electricity and lack of access to finance.

The problems enlisted are common in many African countries along with a lack of skilled labour and adequate training.  The resources necessary to grow a business such as finance, human and social capital and infrastructure are less accessible in Africa. Finance, in particular, is costlier in Africa than in other parts of the world.

Despite of the challenges facing African entrepreneurs, Financial analysts convening in Morocco to find better ways financing infrastructural development in African cities and local government hold the view that the African Cities Development Fund will have a dual role to sell destination of African local government investors as well as prepare the capacity for absorption and debt management of local governments.

Under this arrangement National Institutions will specialize in granting loans to the local governments, to borrow over a term of 7 to 15 years to finance development projects. At the preparation stage the African Cities Development Fund, was tasked with the responsibility to mobilize 2 million Euros, including 1.5 million Euros to be provided by local governments and 0.5 million Euros by central governments.

The objective being to mobilize 10 central governments and 30 local governments, each contributing 50,000 Euros. This takeoff fund is projected to be available by the end of 2019.

As a starting point, the vehicle should aim to achieve approximately 2 to 3 billion dollars as its first fundraising goal. This is expected to take place quickly (deadline 2020) and should target local governments that have a proven repayment capacity.

Independent analysts like Dr. Augustine Niwagaba say these conditions will cause real problems for Africa going forward, “the continent has one of the world’s youngest populations and it’s set to double by 2050, meaning the demand for stable wages and employment will rise dramatically. Most employment in Africa is characterized as vulnerable employment.”

Obama has made a start on solving some of these problems, as well as drawing further attention to Africa’s widely acknowledged business potential. The most prominent offering is US$200m from the Overseas Private Investment Corporation (OPIC), dedicated to supporting Equity Bank Kenya’s initiative to support small businesses (a US$525m loan scheme to assist small businesses with their long-term financing requirements). Chase Bank Kenya is also set to lend more than US$580m to entrepreneurs over the next three years, with a focus on young people and women. And the US government’s aid agency, USAID, has launched Power Africa – a scheme to increase access to gas and electricity in Sub-Saharan Africa which may have a big effect on Africa’s manufacturing sector.