PIDG companies work along the project life cycle and across the capital structure to provide a holistic infrastructure finance solution in the lowest income countries. Here we explain PIDG’s investment approach and impact.
A lack of investor-ready projects is a major bottleneck to unlocking infrastructure finance in the countries where we work. To counter this, PIDG companies TAF, DevCo, InfraCo Africa and InfraCo Asia provide technical assistance and early-stage development expertise and funding to de-risk and structure projects properly to attract private sector investment. This can involve working with host governments, consulting with communities, undertaking detailed environmental and social assessments, piloting technology, identifying the market or negotiating an offtake agreement. This process can take time, but the provision of development expertise and capital at this early stage can create projects which, once scaled, help deliver the Global Goals for Sustainable Development.
PIDG’s work through the InfraCos is therefore considered a form of impact investing. They invest in infrastructure to address the world’s most pressing challenges alongside a modest financial return in sectors including sustainable agriculture, renewable energy and affordable and accessible basic services such as water supply and transport.
Part of what differentiates PIDG from others operating in the market is the concentration of its activities at the frontier of infrastructure investment. In 2017, both InfraCo Asia and InfraCo Africa made a high proportion of their investment commitments (21% and 83% respectively) in the poorest countries where per capita gross national income is less than $1,045 per year, and 43% and 48% respectively in Fragile and Conflict-Affected States.
Credit for infrastructure development
PIDG’s long-term debt provider, the Emerging Africa Infrastructure Fund (EAIF), and its guarantee arm, GuarantCo, offer hard and local currency financing respectively. These companies also seek social and environmental change alongside financial return and, like the InfraCos, are impact investors. Their role is to achieve the highest possible impact on economic growth and poverty reduction.
Importantly, they do that not only through their impact on jobs, access to infrastructure and mobilisation of private sector finance, but also through changing longer-term perceptions of risk in a country or sector. Through this demonstration effect (described in more detail on page 38), PIDG creates an environment where the private sector is willing and able to take an increasingly greater share of the cost of infrastructure provision.
By blending funding from grants, concessionary finance and commercial investment, EAIF and GuarantCo establish deal structures which deliver the most effective combination of financial return, scale, risk and impact on each transaction. This means that donors’ funding is used more effectively.
A vital part of GuarantCo’s role is to enable local currency lenders to participate in a transaction. This reduces the exchange rate risk for the project and therefore should help to make the cost of the infrastructure service more predictable and affordable. InfraCredit, established by GuarantCo in 2016, was designed to bring local pension and insurance funds in Nigeria into infrastructure finance. InfraCredit’s first deal, an innovative investment bond with power developer Viathan, was closed this year (see page 71).
EAIF’s role as a lender is based on a model widely used by Development Finance Institutions. However, compared to its peers, EAIF has a substantially greater proportion of its loans in the poorest countries (91% of its 2017 investment commitments) and in Fragile and Conflict-Affected States (77% of its 2017 investment commitments). It also has its share of pioneering investments; the Kigali Water transaction (see page 67) was one of the first public-private partnerships (PPPs) in the water sector in sub-Saharan Africa.
EAIF’s added value is particularly clear when it leads the arrangement of financing on a transaction. In 2017, EAIF was lead arranger on three deals; Akuo Kita Solar, Kigali Water and Bugoye Hydropower.
During 2017, EAIF raised new debt capital to lend to projects. European insurer Allianz became EAIF’s first private sector institutional investor, committing $110m to the $385m total funding raised. Investors have been persuaded to commit by the combination of financial performance and impact.
Working closely at every stage of infrastructure development, PIDG companies play an important role in creating change in the lives of the people benefiting from infrastructure finance and facilitating an environment for sustainable economic growth.