The decision to cut development aid by the US and other Western countries represents a major setback for Africa. Many projects that rely heavily on foreign aid in key sectors such as education, healthcare and infrastructure have stopped following these funding cuts, causing thousands of people to unemployed, hindering the delivery of necessary developments.
In addition to tension, the fact that under the Trump administration, the US is less likely to support climate initiatives in Africa and around the world. These events have fueled widespread pessimism about the outlook for Africa's development, but Philip Valaf, CEO of the Private Infrastructure Development Group (PIDG), said he is “more optimistic than most people” about African businesses. He acknowledges “concerns about some of the headlines coming out of the US,” but emphasizes that the development of the continent “will continue in some way.”
Founded in 2002 as a multi-donor initiative, PIDG focuses on leveraging aid to mobilize private sector investments for critical infrastructure projects in developing countries. Between 2002 and 2023, the group allocated a majority (34%) of its financial commitment to energy, followed by digital communications infrastructure (15%) and transport (14%). During this period, the group successfully supported 233 projects and reached financial closures.
“For many years, we have mobilized over $400 billion for the project, of which $26 billion was from the private sector,” says Varaf. 70% of the projects supported since its inception are in Africa and say there is a balance between Asia.
He argues that the current debate on the implications of aid reductions to Africa focuses heavily on short-term risks rather than unexpanded long-term opportunities in sectors such as energy.
“I know where the opportunities are. The energy sector, 600m people in Africa without electricity. For me, it's an opportunity, and for many developers,” he says.
Betting on renewable energy
“The demand for renewable energy – solar, hydro, wind and other forms will not disappear. Opportunities will continue,” Varav emphasizes, revealing that PIDG took a strategic decision six years ago to focus on renewable energy, in line with its commitment to climate action.
He says the decision paved the way for an increase in investment in the distributed renewable energy (DRE) space that PIDG emerged as the continent's continent's contributor. DRE refers to small, localized energy solutions that operate independently of national grids and rely on renewable energy sources such as solar, wind, and hydropower. DRE solutions are particularly effective at reaching remote locations that are poorly served by domestic power transmission and distribution infrastructure.
“Africa clearly needs large IPPs (independent power plants) and large baseload power plants, but they can usually attract funds from the African Development Bank, IFCs and large MDBs (Multilateral Development Banks),” explains Valaf.
“These agencies have a lot of problems and challenges in funding small renewable energy projects within a distributed renewable energy space. Very often there is less risk appetite. When set up, they were intentionally taking risks and going where others were leaving,” he says.
“We are the second or third largest developer of renewable energy solutions distributed in Africa. It's been a considerable journey over the past few years and we've been very active in our involvement.”
Private investment congestion
Valahu argues that what sets the PIDG apart is its ability to utilize any aid in aid committing to the project to attract additional investment from the private sector. He attributes this to the group's multifaceted approach to risky infrastructure assets in Africa.
“We develop a project and bring it financially closer. We maintain it through construction. And once the project is operational, we can stay for several years. The ultimate goal is to show that the project is risky and works commercially efficiently.
He cites a recent example of Malawi. Malawi has agreed to PIDG Company Infraco Africa to sell a 25% stake in Golomoti JCM Solar Corporation to the Old Mutual Infrastructure Investment Trust Fund (Malawi). The deal will include a 20MW solar power plant with a 5MW battery energy storage system (BESS) as it was announced in February and is expected to be finalized in August.
Valahu points out that local currency guarantees are another important tool that PIDGs use to unlock risky projects and mobilize private investments from domestic commercial banks.
“A few years ago, in Togo we were considering a large electricity project with a critical local currency tranche. Domestic banks could only lend for five years, in accordance with Togo regulations. What was provided to Togo's banks would allow us to participate in funding our country's infrastructure assets for ten years.”
PIDG also offers credit-enhancing investments to help project sponsors issue domestic corporate bonds in local currency and leverage domestic institutional capital. This achieved interesting results in Nigeria, Valaf notes.
“If (Nigeria) pension funds and insurance companies were not investing in infrastructure a few years ago, we worked with regulatory authorities and worked with the Nigerian Sovereign Investment Authority to help change so that we could invest in infrastructure asset classes.”
“You're mobilizing capitals of facilities in your country. There are a lot of domestic capitals on the African continent sitting on the African continent that is not used very efficiently.”
Valahu emphasizes that Pidg's technical assistance, which totaled $37 million last year, is another unique product that supports risky projects. Technical assistance is available not only in the development stage, but also in the development stage, throughout the lifecycle of the infrastructure assets.
Technical assistance will be particularly useful for operational projects seeking to improve health and safety standards, Valahu reveals. “For many of our projects, after construction in the business, we may make it available to our companies to improve our health and safety skills. It is training, hiring individuals, and it is possible to host workshops with whimsical health and safety experts in many companies that we invested or developed.”
Financial sustainability key
Varaf says that PIDG will continue to focus on providing development impacts in a financially sustainable way. Providing money value to owners, such as the UK, Netherlands, Switzerland, Australia, Sweden, Germany, and (more recently) Canada, is key to ensuring ongoing financial support.
“We have good relationships with our members. Last year, we had our best year in 23. We were able to demonstrate our infrastructure and impact on people with very strong strength.
He says that the PIDG will step up efforts to diversify funding sources given recent moves by Western countries to reduce international aid. “We were able to bring private capital into the mix. We have debates with charities. Fast forward five years, our capital sources are much more diverse than in the past.”
“Many European countries are showing that they are reducing aid or that future aid is related to national interests,” says Varaf.
“The political question remains – I'll leave it to the politicians – but does that mean that if a particular party leaves the aid space, you are open to a country like China coming?”
