Amadou Hott joined the African Development Bank as vice-president for power, energy, climate change and green growth in November 2016. Hott’s department is responsible for all climate financing by the bank including non-energy projects. He joined from the sovereign wealth fund of Senegal, which he helped the government to set up and where he was chief executive officer for three years. Before that, he worked in the private sector for Afribridge Capital, Dangote Capital and Uba Capital as an investment banker in Dubai, Lagos, London and New York.
You have worked in both the private and public sector. How can we see them working more effectively together to finance energy projects?
It is absolutely crucial to have them working together. Most of the time you use public money because you need concessional money and very long-term funding like 20, 25 years or more. Also, you need investment grants to make these renewables much more affordable. You might need some support from the government in the form of a grant or in the form of tax breaks to make things cheaper.
In most IPPs you will have the private sector. Firstly, you will have equity investors. You might have strategic energy investors, or private equity funds with an Africa focus. They can provide the equity with local investors to complement them but the big chunk of funding will come from the private sector windows of the development finance banks or institutions. Typically, 20-25 percent is equity and 75-80 percent is debt. That debt needs to be at least pure commercial rate – around Libor plus 300-500 basis points depending on the country.
That funding can also be blended with money from the climate funds including the Green Climate Fund or the Global Environment Facility that can bring in concessional money to give you a blended rate, which is lower than the pure commercial rate. So, most of the debt comes from development banks and some from commercial banks but the commercial banks are constrained because of Basel III and so on.
But if all the infrastructure projects – including energy projects – were to come to market today, we would not have enough private sector windows of development banks to fund the debt part of those projects. This means we need to find some mechanism to attract the institutional money (from pension funds, sovereign wealth funds, insurance companies and so on) at financial close. But these investors are risk averse. So, development banks like us, the World Bank and the European Investment Bank, should come up with guarantee instruments to cover that construction risk at financial close instead of waiting for the financing after the asset has been operating.
What have you been working on since joining the Bank in November?
We have hired the team to work on the strategy (the New Deal on Energy for Africa) that was approved by the bank. The Deal is a transformative partnership in which the Bank will joined from his own consulting firm as director of energy finance solutions, policy and regulation.
The five of them will be working under my leadership and the guidance of President Adesina to deliver on the New Deal.
The strategy of the bank under President Adesina is called the High Five. The first High Five is to light
up and power Africa. Then we have the second, which is feeding Africa, then we have industrialising Africa, integrating Africa and improving the lives of the people of Africa.
If you do the first four High Fives, you will achieve the fifth one. My team is responsible for High Five number one, which is to light up and power Africa. Everything else depends on that one.
What obstacles will you have to clear to achieve this?
We are aiming to achieve this by 2025. The Bank is a cornerstone stakeholder in this strategy but it involves everybody including governments, other development finance institutions and the private sector. One of our big roles is to coordinate and partner with all those stakeholders so we can achieve that ambition. One of the big issues we have is coming to a point where projects can be developed much faster than ever before. If we are not able to work with everyone to bring the projects to bankability it will be tough to reach that objective. Bringing projects to bankability requires many things including clear plans from governments. We are helping the governments make those plans. Some governments have those plans but the majority do not.
Once you have those plans you need development capital, which is the riskiest capital to develop projects. That development capital can come from the private sector but it is risky so you will not have a lot of it. A big chunk of that capital should come from concessional money. Governments also need the right capacity and we have some trust funds to help them fund, say legal advice or technical consultants. Ideally, we want those people embedded in government.
Also, the development finance community needs to move faster and maybe take a little bit more risk. We need to find ways to standardise our processes and instruments. If we have four or five DFIs in one transaction and we do not standardise then the developer will have to negotiate separately with four or five different bodies, or sometimes seven or 10. So, we need to work together and harmonise our instruments and processes.
And how does this fit with attaining the UN’s Sustainable Development Goals (SDGs)?
There is a new study by the UNDP that says that if you achieve the High Fives of the Bank then Africa will achieve more than 95 percent of the SDGs. Our strategy is to attain this by 2025. It is very ambitious and you need to push everybody. But we need to achieve it by 2025 to reach the SDGs, which depend on energy, by 2030. Everything comes off the back of energy.
It’s easy to talk about achieving these targets across Africa but how do you help fragile countries, where it will be harder?
We have 54 countries. Countries have different stages of development. Some have power access of 99-100 percent and others have 2-5 percent access. You need to set some priorities. You cannot leave behind small countries like Chad with 5 per cent access. You need to intervene and a relatively small intervention can yield very big results.
Even a country like Somalia, where you have a lot of issues, the Bank has an office there and is investing and finalising a new strategy in that country. So, we have resources available for those countries. Most of them can also benefit from the African Development Fund with interest that is very close to zero and has a very long-term maturity. The private sector in those countries can also benefit from the African Private Sector Support Facility.
You sound optimistic.
I’m very optimistic but also realistic. To achieve all this you need to push everybody.