The African Development Bank’s Role in Transforming Africa’s Rail Sector
The African Development Bank (AfDB) has been making significant strides in financing rail-related projects across the continent, aiming to enhance regional connectivity and bolster economic growth. During the Southern African Railways Association’s (SARA) Conference and Exhibition at the Sandton Convention Centre, Phillippa Dean, the editor, had the opportunity to speak with Mike Salawou, Director of Infrastructure, Cities & Urban Development at AfDB, to discuss the bank’s latest initiatives and their broader impact on the rail sector in Africa.
One of the bank’s most notable recent investments is a $1 billion loan to support Transnet, South Africa’s state-owned freight logistics company. This funding is part of AfDB’s efforts to address the ongoing logistics crisis and bolster Transnet’s turnaround plan, aimed at enhancing operational efficiencies and opening access to private sector participation. Salawou explained that this investment goes beyond mere financial support, emphasising the importance of sustainability and long-term impact, aligning with the broader strategic objectives of the South African government and Transnet.
The funding was provided through a Corporate Loan facility, marking the third such loan the bank has extended to Transnet. This facility is specifically designed to support Transnet’s short-term turnaround plan, which includes a series of procurement activities. These activities will be carried out under Transnet’s own procurement rules, which are compatible with the African Development Bank’s standards. Transnet will utilise this funding to procure the necessary services directly from the market, adhering to their established procurement procedures.
Salawou underscored the critical role of monitoring in the successful utilisation of the funds provided to Transnet. He highlighted that a comprehensive monitoring framework has been established, consisting of three layers of oversight at the presidency, ministerial, and Transnet levels. This robust structure will operate in tandem with AfDB’s own monitoring mechanisms to ensure that the funds are effectively utilised and the turnaround plan is successfully implemented.
One of the critical aspects of AfDB’s financing approach is its flexibility and competitiveness, particularly in offering long-term loans with favourable terms. As a Multilateral Development Bank (MDB), AfDB is committed to lowering the cost of financing for its member countries by providing long-term capital that is not commonly available in the commercial market. Salawou explained that the bank offers financing with repayment periods extending beyond 15 years, along with grace periods of up to five years. These terms are often more attractive than those offered by commercial banks, allowing entities like Transnet the time needed to stabilise and grow before repayments commence.
This approach supports both public and private sector projects, with Salawou noting that Transnet is considered a private sector client under AfDB’s framework. Similarly, the bank has extended support to other private sector entities, such as the recent financing of rolling stock for Caminhos de Ferro de Moçambique (CFM). This illustrates AfDB’s broader commitment to enhancing private sector participation and investment in Africa’s rail infrastructure.
Supporting Regional Connectivity through Rail
AfDB’s commitment to rail extends beyond individual projects, embracing a broader vision of regional connectivity across Africa. The bank has played a pivotal role in financing several significant rail initiatives, such as Tanzania’s Standard Gauge Railway (SGR), which aims to link the port of Dar es Salaam to Burundi and eventually to the Democratic Republic of Congo (DRC). Similar efforts are ongoing in other regions, including the Northern Corridor from Mombasa to Kampala, and potential support for the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor, with the railway component being the next major focus.
Salawou highlighted AfDB’s serious commitment to the LAPSSET Corridor, as well as engagement with the Intergovernmental Authority on Development (IGAD). The bank adopts a multimodal approach on these corridors, recognising the importance of integrating various transport modes to maximise connectivity. For example, AfDB has financed rail links from the port of Walvis Bay in Namibia, with finance for the connection to Zambia and Botswana. This holistic perspective is also evident in AfDB’s efforts to reinforce rail connectivity between Mozambique, Zimbabwe, and Botswana while supporting the development of new ports in Mozambique.
In West Africa, AfDB is focused on enhancing connectivity between Côte d’Ivoire, Burkina Faso, and Niger, as well as between Nigeria and Niger, with projects including the development of standard gauge railways. In Central Africa, the bank supports projects like the rail link from Douala to N’Djamena, aimed at opening up landlocked countries like Chad and the Central African Republic. Salawou noted that these initiatives reflect AfDB’s commitment to creating a comprehensive network approach, whether through direct project transactions or strategic master planning.
Salawou emphasised the importance of an integrated network approach to rail development, ensuring that national and regional master plans are harmonised to avoid disjointed projects and to facilitate seamless cross-border connectivity. AfDB actively supports these harmonisation efforts and collaborates closely with regional bodies, such as the Southern African Railways Association (SARA), to develop unified master plans for rail networks. In South Africa, for instance, AfDB is financing SARA’s regional railway master plan, which aims to create a cohesive framework for rail development across the region. This collaborative approach underscores the bank’s broader strategy to promote an interconnected and efficient railway network across the continent.
The African Development Bank (AfDB) serves as the key financier and Multilateral Development Bank (MDB) for the African Union. Salawou, who represents the bank on the Programme for Infrastructure Development in Africa (PIDA) committee, has been actively involved in shaping the PIDA projects in collaboration with the African Union Commission (AUC) and the United Nations Economic Commission for Africa (UNECA). This close partnership reflects a strong and strategic relationship between AfDB and the African Union.
AfDB is deeply engaged in the development and implementation of the African Integrated Rail Master Plan, providing both financial support and strategic guidance. This commitment aligns with the broader objectives of the African Union’s Agenda 2063, which outlines a long-term vision for a prosperous and integrated Africa. The bank’s infrastructure projects are designed to support the goals of Agenda 2063 and the African Continental Free Trade Area (AfCFTA), ensuring that its investments contribute to enhancing regional connectivity, economic integration, and sustainable development across the continent.
One of the challenges facing Africa’s rail sector is the shortage of rolling stock, which is crucial for the operational success of new and existing rail lines. Salawou noted that addressing this shortage requires innovative financing solutions, including private sector involvement and public-private partnerships (PPPs). He highlighted the potential for a leasing model, similar to that used in the aviation sector, to provide rolling stock on flexible terms.
Salawou also discussed the potential of using carbon credits as a means of financing rail projects, highlighting that rail offers one of the best opportunities for green financing due to its lower environmental impact compared to road transport. However, he acknowledged the complexities involved in accessing carbon credit markets and the need for capacity building among African countries and companies to fully exploit this opportunity.
The African Development Bank’s investments in the rail sector are driving significant changes in Africa’s transport landscape. Through strategic funding, integrated planning, and innovative financing solutions, AfDB is helping to build a robust and sustainable rail network that supports economic development across the continent. As Salawou aptly noted, the renaissance of rail in Africa is well underway, and the opportunities for growth and investment in this sector are immense. With continued support and collaboration, the vision of a fully integrated and modernised African railway network is becoming a reality.
AfDB Transport Forum (ATF)
The upcoming second edition of the AfDB Transport Forum (ATF) is set to take place on September 18-19, 2024, in Abidjan, Côte d’Ivoire, under the theme “Africa on the Move—Accelerating Sustainable Transport and Logistics Connectivity”. This event will convene senior leaders and experts from the transport sector for high-level panel discussions and presentations, focusing on sharing experiences and best practices, showcasing key projects, and addressing emerging challenges in African transport.
As Africa’s population is projected to double to 2.5 billion by 2050, with its economic output expected to triple by 2040, the demand for transport infrastructure and services will increase significantly. This growth, coupled with rising urbanisation, industrialisation, and international trade, will amplify transport needs at urban, rural, and regional levels. The Programme for Infrastructure Development in Africa (PIDA) estimates that transport infrastructure and services will need to accommodate a six- to eight-fold increase in traffic, with even greater demands in landlocked countries.
The AfDB recognises the transport sector as vital for promoting inclusive growth and prosperity in collaboration with its Regional Member Countries. As Africa’s leading development institution, the Bank’s role extends beyond financing projects; it also champions knowledge sharing, facilitates networking among policymakers and stakeholders, and plays a pivotal role in shaping future policies for Africa’s transport sector. The ATF aims to reinforce these efforts by providing a platform for dialogue and collaboration, driving forward the sustainable development of transport and logistics connectivity across the continent.