Infrastructure Sovereign Bonds in Sub-Saharan Africa Dissecting the Road Governance Challenge of the New Financing Instrument

Abstract

It is estimated that transport investment in Sub-Saharan Africa is less than one third of what is required to meet economic growth targets underlying the Millennium Development Goals. To boost investment in the transport sector, the region cannot but resort to private finance wherever possible. To this end, at least five countries have considered issuing infrastructure sovereign bonds. Most of the proceeds of these bonds would be used by the roads sector. This paper explores the challenges of governance that the sector must tackle to efficiently use the funds. The paper starts with a description of the economic challenges associated with the gap in road financing. Private finance is then presented as a major relief to the current fiscal stress; the mechanics of private finance is discussed. It is noted that the continent is considered a high risk area. However, project ratings could be improved by leveraging private finance. Such funds could be raised by issuing sovereign bonds. The sovereign bond route however exposes the public sector to inflation and exchange rate risks, and value erosion through interest payment. This means the funds should be used expeditiously, which poses a major challenge to road governance. Weaknesses in the existing governance frameworks are exposed and a deep appreciation of institutional change presented as a tool in the management of the existing weaknesses in road governance; a model of institutional change is discussed. In conclusion, the paper remarks that most countries in SSA should consider area-wide management contracts as a step towards road concession contracts. This approach would allow road authorities to adapt to the challenges of public-private partnerships.