해외 정책금융기관 활용을 통한 아프리카 건설·플랜트 시장진출 방안 (The Role of International Development Finance Institutions in Financing Infrastructure in Africa and Its Implications for Korea)Young Ho Park (),
YoungKee Kim,
Jong-Moon Jang () and
Hyelin Jeon
No 13-27, Policy Analyses from Korea Institute for International Economic Policy Abstract: Korean Abstract:내전과 빈곤으로 얼룩졌던 아프리카가 2000년대에 들어 새로운 기회의 시장으로 부상함에 따라 우리 정부와 기업들의 관심이 그 어느 때보다도 높아지고 있다. 이러한 사실은 최근 국내 건설업체를 대상으로 한 설문조사를 통해서도 잘 나타나고 있는데, 아프리카에 대한 관심이 중동과 아시아 등 다른 시장에 비해 월등히 높은 것으로 조사되었다. 사실, 최근 들어 아프리카에서는 ‘불도저와 망치 소리가 총소리를 대신하고 있다’는 표현이 무색할 정도로 건설 붐이 조성되고 있다. 하지만 그 이면에는 후진적인 사업 환경과 정정불안, 계약위반 등과 같은 여러 위험들이 상존해 있어 우리 기업의 진출을 어렵게 하고 있다. 이러한 아프리카 리스크는 국내 공적수출신용기관(ECA)의 금융지원 제약으로 이어질 수밖에 없는데, 이를 해소하기 위한 방안의 하나로 해외 정책금융기관과의 금융협력에 대한 필요성이 대두되고 있다. 이러한 배경과 문제인식하에 본 연구는 다자 및 양자 개발금융기관(DFI) 등 해외 정책금융기관들의 아프리카 지원현황 및 정책에 대해 살펴보고, 주요 프로젝트들을 대상으로 이들의 금융지원 사례를 심층적으로 분석했다. 나아가 아프리카에 대한 국내 공적수출신용기관의 현실적인 금융지원의 한계를 극복하기 위한 수단의 하나로 해외 정책금융기관 활용방안을 제시했다. English Abstract: Africa, once a land of ceaseless civil wars and abject poverty, is now emerging as a continent of new potentials and opportunities, drawing attention from governments and corporations worldwide. The growing interest in Africa is evident in a recent opinion poll involving construction companies in Korea. The respondents’ interest in Africa was much higher than that in either the Middle East or Asia. It is no exaggeration to say that the sound of bulldozers and hammers are fast replacing the sound of guns on the continent, whose demand for construction is growing explosively. In line with this, however, the backward business environment in general, continuing political instability, and breaches of contracts that are still prevalent throughout the region make Korean corporations reluctant to enter into the African market. Furthermore, these risks limit the amount of financial support that Korean export credit agencies (ECAs) provide. It is believed that one way to overcome this is to foster financial cooperation with policy financing bodies overseas. This study surveys the types and amount of financial resources that overseas policy financing bodies, such as development finance institutions (DFIs), provide for Africa, and makes in‐depth analysis of major projects in Africa financed by them. Moreover, this study explores how Korean ECAs and investors can use partnership with financial institutions worldwide to provide greater finance for Africa. This study finds the following characteristics and attributes in the financial support that DFIs have been providing for Africa. Firstly, DFIs are increasing their support for Africa, particularly prioritizing projects on infrastructure development. The World Bank (i.e., the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)), for instance, allocated 20% of all loans it provided in 2012 on Africa, which was spent on a wide range of development projects, including plant construction, roads, bridges, water resources, and wireless communication networks. International Financial Corporation (IFC), which has traditionally focused on Central Asia and Latin America, has also been increasing its financial assistance for Africa in the recent years. Whereas IFC's assistance for Africa stood at USD 278 million in 2002, it multiplied by over 13 times to reach USD 3.7 billion by 2012. Much of IFC's investments and loans for Africa concerns infrastructure development, amounting to over USD 1 billion in 2012. The Multilateral Investment Guarantee Agency (MIGA) encourages and guarantees private‐sector investments in developing countries. It has played a pivotal role in the development of Africa by providing guarantees for multiple projects. MIGA's attention these days is on assisting postwar reconstruction in countries coping with the aftereffects of civil wars. In 2012, 34% of the number of projects guaranteed by MIGA was allocated to sub‐Saharan Africa, representing 24% of the total value of investments the agency guaranteed. The European Investment Bank (EIB) is another major source of finance for Africa's development projects. The EU‐Africa Infrastructure Trust Fund (ITF) which the bank established in 2007, has been crucial to the expansion of infrastructure in Africa. The African Development Bank (AfDB) shows a similar concern for developing infrastructure, which claimed almost half of all the loans and concessions the bank provided in 2012. The AfDB’s goal is to promote market integration across Africa and it prioritizes trans‐Africa infrastructure projects that involve multiple African countries accordingly. Secondly, the most active bilateral DFIs in Africa today are CDC of the United Kingdom, Proparco of France, and DEG of Germany. These institutions mainly focus on assisting private‐sector projects that aim to achieve significant development impact and financial returns. Although these bilateral institutions count as organizations of official development assistance (ODA) as they support the eradication of poverty and sustainable development in developing countries, they are also akin to commercial banks in their pursuit of profits. These institutions have been successful with the development projects in Africa they have invested in. These projects have yielded much development impact and financial returns, particularly reflecting these institutions' extensive experience with, and expertise on, the feasibility and analysis of development projects. Another interesting characteristic of these European DFIs is that they mobilize private‐sector capital through proactive investments for risk management. By providing investments, loans, and guarantees for risky private‐sector projects, these institutions serve to catalyze the participation of other investors and lenders. CDC, for instance, has been participating in a broad array of development projects in Africa, making use of the UK‐Africa relations that go back to the colonial days. Having decided to concentrate investments in Africa in 2011, CDC is rapidly increasing its presence on the continent. Its operating policy today requires that 75% of all new investments be made in low‐income countries (i.e., countries with a GDP per capita of USD 905 or less each), and that 50% of those investments be made in sub‐Saharan Africa. Thanks to this change in policy, Africa claimed the majority of investments that CDC made in 2012. Most of these investments have gone into former British colonies, such as Kenya, Nigeria, South Africa, Ghana, Uganda, and Tanzania. Proparco is similarly active in Africa, with eight of its fourteen overseas offices located on the continent. Proparco’s area of focus is sub‐Saharan Africa, which has taken almost half of all the investments that the company has made so far. On the contrary, Africa is relatively minor in the investment portfolio of DEG, a company based in Germany that has no comparable historical or colonial relations with Africa. Nevertheless, DEG has been steadily increasing its investments in Africa in the recent years, especially in the form of cofinancing with other DFIs. Thirdly, financial resources of quite diverse natures come together through cofinancing to form financial packages for Africa. Large‐scale projects involving construction and plant development rely primarily on the financial assistance provided by multilateral development banks (MDBs) and bilateral DFIs, with ECAs and commercial banks tending to participate in these projects as latecomers. African projects tend to involve multiple and diverse financial institutions, not only to find sufficient financial resources, but also to distribute and mitigate the risks inherent to those projects. Africa is still home to a wide range of unpredictable risks. Most African states have relatively low credit ratings, making it impossible for financial institutions to fund projects in the region either by themselves or in small groups. This study develops suggestions on how Korean ECAs and investors can make use of DFIs overseas based on their analysis of these characteristics. First, Korean ECAs need to attempt to broaden the range and scope of cofinancing. As Korean corporations have begun to pay greater attention to construction and plant development markets in Africa, the Export‐Import Bank of Korea, an ECA, has been trying to enlarge the range of export credits and Development Cooperation Fund (EDCF) it provided for projects in Africa. The high business risks and rampant poverty in African states, however, still make it nearly impossible to draw sufficient investments to satisfy Korean developers' needs. Constructor‐financed projects in Africa crucially impinge upon the developers' ability to secure financial resources for their success. Korean developers, however, lag behind their competitors overseas in this regard. One way to overcome this shortcoming is to increase cofinancing with DFIs overseas. Cofinancing may serve to anchor the stability of projects and mitigate risks. DFIs and ECAs of advanced countries possess significant negotiating power when it comes to African governments and may effectively provide a bulwark against breaches of contracts, expropriation and foreign exchange control, restrictions on remissions, and other such political risks. Because construction and plant development projects require massive amounts of investments for setting up the necessary equipment and also for operating the projects for relatively long spans of time, effective risk management strategies are essential. The inherent characteristics of these projects also render them riskier than other types of projects. Should the Export‐Import Bank of Korea and other Korean ECAs decide to cofinance these projects in Africa with financial institutions overseas, they will be able to catalyze and encourage other Korean corporations’ investments in Africa as well. To this end, Korean ECAs first need to build and strengthen the network of financial cooperation with DFIs and ECAs abroad and actively seek out measures of multisource financing by combining resources and services with these institutions. Without sharing risks with other ECAs or MDBs worldwide, Korean ECAs would always remain passive in terms of investing in high‐risk regions like Africa. Moreover, Korean ECAs also need to broaden financial partnerships with other types of financial sources worldwide, including ODA institutions of advanced countries, international commercial banks, local financial institutions, investment funds, among others. However, because these financial institutions carry different aims, policies, and terms and conditions of investment, it is important to choose the right type of financial sources and design the financial package strategically. Cofinancing is a great way to enlarge the pool of available capital, share experience and expertise, and mitigate risks. The Export‐Import Bank has worked on six cofinancing projects in Africa so far, with institutions, such as the World Bank and AfDB. Second, cooperation with financial institutions abroad also enable Korean ECAs to take part in infrastructure projects with great development impact. DFIs prefer projects with high development impact and cross‐border infrastructure development projects that promote regional economic integration, such as energy and transportation projects. The decisive fact about the Kenya‐Uganda Railway Network Project, for instance, that drew DFIs' support was that it would equip Uganda, a landlocked country, with a logistics network and routes of exports so that it could grow along with the neighboring country of Kenya. Should Uganda have promoted this project solely for its own benefit, it would have failed to mobilize such a massive amount of financial assistance from DFIs. Third, cooperation with financial institutions abroad will also allow Korean ECAs to make better investment decisions through securing project viability. Projects with poor project viability face considerable constraints in securing the financial resources they need and thus tend to drag on for extensive periods. Even in projects in which Korean companies' participation is limited merely to construction, these companies will have difficulty receiving payments on time insofar as those projects lack sufficient project viability. Securing project viability is crucial for projects where Korean companies take a lead or participate in. Thorough analyses of feasibility are important to foster the private sector's participation and investment in projects. The case studies included in this research all ensured the viability of their projects based on detailed feasibility studies. Fourth and finally, cooperation with financial institutions abroad will also enable Korean ECAs to make use of the available financial advisory services. Entering the African market entails a wide range of complex risks and requires thoroughgoing preparations for minimizing them. As Korean financial institutions lack experience and capability to advise on development projects in Africa, Korean investors need to seek out help from foreign financial institutions with expertise on financing projects in the region. It is usually investment banks with well‐established international reputation that provide these advisory services. European banks have vast experience in handling financial advisory services for prospective investors in Africa. They do not only possess extensive knowledge on the states and industries of Africa, but also offer expert advice on how to secure investments and minimize risks. These financial advisory institutions of advanced countries can provide a broad array of helpful services, including consultation on project structures, feasibility reviews, financing plans, finance modeling, and contracts. Moreover, they can serve as mandated lead arrangers for securing loans and finding other financial resources. It is thus crucial to make effective use of the services they provide in order to enter the risky African market. Keywords: International Development Finance Institutions; Development Finance Institutions (DFIs); African Market; Construction; Infrastructure (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ris:kieppa:2013_027 Access Statistics for this paper More papers in Policy Analyses from Korea Institute for International Economic Policy [30147] 3rd Floor Building C Sejong National Research Complex 370 Sicheong-daero Sejong-si, Korea. Contact information at EDIRC. |
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