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Local sources of financing for infrastructure in Africa : a cross-country analysis

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  • Irving, Jacqueline
  • Manroth, Astrid

Abstract

With the exception of South Africa, local financial markets in sub-Saharan Africa remain underdeveloped and small, with a particular dearth of financing with maturity terms commensurate with the medium- to long-term horizons of infrastructure projects. But as financial market reforms gather momentum, there is growing awareness of the need to tap local and regional sources. Drawing on a comprehensive new database constructed for the purpose of this research, the paper assesses the actual and potential role of local financial systems for 24 African countries in financing infrastructure. The paper concludes that further development and more appropriate regulation of local institutional investors would help them realize their potential as financing sources, for which they are better suited than local banks because their liabilities would better match the longer terms of infrastructure projects. There are clear signs of positive change: private pension providers are emerging in Africa, there is a shift from defined benefit toward defined contribution plans, and African institutional investors have begun taking a more diversified portfolio approach in asset allocation. Although capital markets remain underdeveloped, new issuers in infrastructure sectors-particularly of corporate bonds-are coming to market in several countries, in some cases constituting the debut issue. More than half of the corporate bonds listed at end-2006 on these countries'markets were by companies in infrastructure sectors. More cross-border listings and investment within the region-in both corporate bonds and equity issues-including by local institutional investors, could help overcome local capital markets'impediments and may hold significant promise for financing cross-country infrastructure projects.

Suggested Citation

  • Irving, Jacqueline & Manroth, Astrid, 2009. "Local sources of financing for infrastructure in Africa : a cross-country analysis," Policy Research Working Paper Series 4878, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4878
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    References listed on IDEAS

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    1. Mr. Calvin A McDonald & Miss Liliana B Schumacher, 2007. "Financial Deepening in Sub-Saharan Africa: Empirical Evidence on the Role of Creditor Rights Protection and Information Sharing," IMF Working Papers 2007/203, International Monetary Fund.
    2. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    3. Patrick Honohan & Thorsten Beck, 2007. "Making Finance Work for Africa," World Bank Publications - Books, The World Bank Group, number 6626.
    4. Mr. Enrique A Gelbard & Mr. Sérgio Pereira. Leite, 1999. "Measuring Financial Development in Sub-Saharan Africa," IMF Working Papers 1999/105, International Monetary Fund.
    5. Huw Pill & Mahmood Pradhan, 1995. "Financial Indicators and Financial Change in Africa and Asia," IMF Working Papers 1995/123, International Monetary Fund.
    6. Valeriano F. García & Lin Liu, 1999. "Macroeconomic Determinants of Stock Market Development," Journal of Applied Economics, Universidad del CEMA, vol. 2, pages 29-59, May.
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    Cited by:

    1. Anton Eberhard & Orvika Rosnes & Maria Shkaratan & Haakon Vennemo, 2011. "Africa's Power Infrastructure : Investment, Integration, Efficiency," World Bank Publications - Books, The World Bank Group, number 2290.
    2. Peter Draper & Andreas Freytag & Sören Scholvin & Luong Thanh Tran, 2016. "Is a ‘Factory Southern Africa’ Feasible?," World Bank Publications - Reports 23788, The World Bank Group.
    3. Justin Yifu Lin & Doerte Doemeland, 2012. "Beyond Keynesianism: Global Infrastructure Investments In Times Of Crisis," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1-29.
    4. Estian Calitz & Johan Fourie, 2010. "Infrastructure in South Africa: Who is to finance and who is to pay?," Development Southern Africa, Taylor & Francis Journals, vol. 27(2), pages 177-191.
    5. Peter Draper & Andreas Freytag & Sören Scholvin & Luong Thanh Tran, 2016. "Is a 'Factory Southern Africa' Feasible? Harnessing Flying Geese to the South African Gateway," CESifo Working Paper Series 5867, CESifo.
    6. 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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    Keywords

    Debt Markets; Banks&Banking Reform; Access to Finance; Emerging Markets;
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