Worth the journey?

In the conference centre of a plush hotel in Dubai, on the morning of Tuesday 19 September, a palpable sense of agitation reined in the lobby. It wasn’t too difficult to understand why: the crowd of finance, business and media people gathered to attend the inaugural West Africa Investment Forum were expecting the imminent arrival of not just one, but eight heads of states from the fast-growing region.

That a single event can manage to attract such high-profile political figures – in a country that’s hardly a neighbour to the nations of West Africa – suggests two things: that the leaders of the 20 year-old West Africa Economic and Monetary Union (UEMOA), which comprises Benin, Burkina-Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo, are keen to show their commitment to economic development and regional integration; and that what they’re looking for to further these goals, first and foremost, is money (notably from the Gulf).

The Union’s eight members, joined by the chiefs of regional institutions, certainly did what they could to make their case. They announced $21 billion worth of public-private partnerships (PPP) focused on the transport, energy, water and food security sectors, $19 billion of which was said to be secured when ministers, investors and financiers signed memoranda of understanding (MOUs) for projects at the end of the conference. These included mammoth projects such as the $5.7 billion Yamoussoukro-Ouagadougou highway corridor or $8.3 billion worth of regional railways.

The West Africa Development Bank also said it is raising an infrastructure fund with a $1 billion target, and will soon launch other vehicles, to further support projects. And structural reforms were being taken at the national and regional level, delegates were told, to boost the administrations’ capabilities, reduce delays and red tape, improve governance and harmonise budget, fiscal and economic policies.

The show of intent was certainly impressive, and most investors applauded the leaders as they left the stage. But away from the microphones, doubts emerged as to how fast the pipeline would materialise.

For a start, despite the language used during the announcements, the projects proposed are still at a very early stage. From what we can gather, the MOUs only specify the time frame private sector signatories have at their disposal to complement public studies with their own due diligence on the projects (three months plus a possible three-month extension). After the said period, no clause forces them to commit the capital previously earmarked. It may thus perhaps be a bit too confident to say that $19 billion has already been “secured”.

Second, details are still lacking as to how the PPPs will be structured. It is not yet clear, for example, how volume or traffic risk will be shared between public and private entities. And risks do exist: a European adviser to Africa-focused infrastructure investors said that West Africa had a poor record at completing projects compared with the rest of the continent. Commenting on the projected construction of a $1.1 billion international airport in Benin, he warned against thinking that the facility “could from day one become Africa’s Heathrow”.

Credibility sapping

But perhaps the biggest concern investors still have is whether the powers that be will keep to their word. Some are reluctant to do deals with national administrations because they don’t know how long their interlocutors will retain their positions. Local businessmen allege that a number of incumbent leaders are thinking of changing constitutional arrangements to compete again in forthcoming elections, somewhat sapping the credibility of their push for independence of the judiciary and greater governance. Many stress that structural reforms to improve the business environment are still in their infancy.

This is not to deny the potential for infrastructure in the UEMOA. With a population of nearly 110 million, projected growth for 2014 of 6.6 percent, low inflation and fairly healthy public finances, its members should in principle represent an attractive destination for foreign investors. Yet despite fierce competition for assets and persistently low yields in developed markets, few of them seem keen to make the journey – an observation that extends to most other emerging markets. In West Africa and elsewhere, investors need serious guarantees before committing serious money.