The Importance of Project Preparation in Africa

Premier Invest was excited and pleased to be a sponsor of The Africa Debate UAE, hosted by Invest Africa, in Dubai, on the 31st of October 2024. The event brought together decision makers from government and private sectors in the UAE and Africa, as well as other key stakeholders, including development finance institutions, banks and, critically, significant UAE corporates, who have already invested heavily on the continent.

Whilst the focus was on trade, which has grown significantly between the UAE and Africa over the last two decades, there was also a strong emphasis in the discussions on all the enabling factors around growing the trade corridor, particularly infrastructure as the bedrock of sustainable economic growth.

We all agree that there needs to be significantly more investment in Africa’s infrastructure to underpin and actualise its growth potential. However, one of the critical impediments to this investment, identified by several participants in the debate, is the lack of preparedness of many project sponsors, in terms of bringing their proposed projects to bankable status.

The Project Preparation function was identified as a key activity that many financial institutions are actively working to establish, or have established, as an internal capability that will accelerate their ability to deploy capital to impactful projects. So, what is Project Preparation and why is it important?

The Importance and Benefits of Project Preparation in Africa

Project preparation is a critical phase in the lifecycle of any infrastructure or development project. In Africa, where the need for sustainable and impactful projects is immense, effective project preparation can make the difference between success and failure. Project preparation involves the detailed planning and design of a project from its initial concept through to its feasibility and readiness for financing. This phase is crucial for several reasons:

1. Risk Mitigation: Proper project preparation helps identify and mitigate potential risks early in the project lifecycle. This includes technical, financial, environmental, and social risks that could derail the project if not addressed.

2. Bankability: Many projects in Africa are presented to banks and investors without being in a bankable state. Comprehensive project preparation ensures that projects meet the stringent requirements of financiers, making them more attractive for investment.

3. Efficiency and Effectiveness: Well-prepared projects are more likely to be implemented efficiently and effectively. This means that resources are used optimally, timelines are adhered to, and the intended outcomes are achieved.

4. Sustainability: Projects that undergo thorough preparation are more likely to be sustainable in the long term. This includes environmental sustainability, economic viability, and social acceptance.

5. Building Capacity: The process of project preparation often involves capacity building for local stakeholders. This includes training and knowledge transfer, which can have lasting benefits beyond the immediate project.

6. Enhancing Credibility: Countries and institutions that consistently present well-prepared projects build a reputation for reliability and professionalism. This can lead to stronger relationships with investors and development partners.

Several institutions are actively engaged in helping project promoters in Africa prepare their projects for financing. These institutions provide technical assistance, funding, and advisory services to ensure that projects are well-prepared and bankable:

African Development Bank (AfDB) plays a pivotal role in project preparation through its various facilities and initiatives. Africa50, established by African governments and the AfDB, focuses on increasing the number of bankable infrastructure projects in Africa. It provides early-stage equity funding and project preparation capabilities and engages with stakeholders during the development phase to accelerate the process to financial close.

The Infrastructure Consortium for Africa (ICA) supports project preparation through its Project Preparation Facilities Network (PPFN) and the Project Preparation Fund Finder. These initiatives help project promoters locate funding and technical assistance for project preparation.

The Development Bank of Southern Africa (DBSA) has a Project Preparation Fund, which provides support for the preparation of sustainable development projects across the continent. This includes technical assistance, feasibility studies, and project marketing.

Several other institutions are actively developing their own approaches to project preparation and the acceleration of project feasibility to catalyse investment growth. We at Premier Invest believe that there is more that can be done, particularly by the private sector. We see the activity of project preparation itself as providing an attractive risk-reward profile for investors looking for diversified exposure to African projects but also looking to limit the amount of equity initially invested. We are actively working with various institutions to develop interesting investment mechanisms that could help unlock equity participation in project preparation and bring much needed early-stage capital to support project sponsors.Premier Invest looks forward to continuing to work closely with Invest Africa and our other partners to foster a greater understanding of, and appetite for, our great continent, Africa!