Working Paper 153 - Accessing Local Markets for Infrastructure: Lessons for Africa

This paper focuses on international experiences gained in financing infrastructure through local currency revenue bonds and the applicability of such methods to Africa. The review shows that many countries have been able to successfully mobilize resources from domestic markets to finance infrastructure projects. However, if we consider the definition of a revenue bond per se, a number of the transactions done in South Africa and other countries on the continent are not structured as such but more akin to the structure of conventional government bonds albeit with a promise to spend the money on infrastructure investment. What is derived from our analysis is that African countries planning to utilize revenue bonds to finance their infrastructure needs should strongly: (i) improve their basic requirements; (ii) transform their markets, from factor driven to efficiency driven economies; and (iii) catch up with international best practices and market liberalization and opening. This will require well-functioning public and private institutions, well-developed infrastructure, a stable macro-economic environment, and a healthy workforce that has received at least a basic education. The reforms should be undertaken at two levels: (i) bond market development; and (ii) infrastructure financing mechanisms.