Will African SMEs Benefit from the Partnership for Global Infrastructure Initiative?

At the June 2022 G7 Summit in Germany, the new Partnership for Global Infrastructure Initiative (PGII) was unveiled. Over the next five years, the governments of the G7 and its private business sector will invest USD600 billion in a collaborative effort to fund infrastructure projects in developing countries, with a strong emphasis on Africa. Today, we look at the key objectives of the initiative, the critical need for infrastructure in Africa, and how credit insurance can help to direct funding for maximum impact.

PGII Objectives

Out of the $600 billion, the initiative includes a $200 billion commitment by the United States and is thought by many to be an intentional effort to counter China’s Belt and Road initiative. There has been strong criticism that China’s investment in infrastructure across Africa has pushed some nations into too much debt, forcing those countries to surrender valuable assets if they do not meet their debt repayments. With several African nations trying to renegotiate their debts with China, there are hopes that the PGII will help them avoid the imminent threat of default and may also force China to be more efficient with its investments.

Closing Africa’s Infrastructure Funding Gap

PGII support is focused on four key areas: climate change, health security, gender equity, and digital infrastructure. One of the main aims of the initiative is to help address Africa’s infrastructure investment gap, estimated by the African Development Bank to be more than $100 billion per year out of an estimated $170 billion needed per year by 2025. With only a handful of African countries currently in a position of food self-sufficiency (such as Kenya and Cote d’Ivoire), and the fuel and food crisis from the war in Ukraine highlighting the urgency for agricultural autonomy, improving access to infrastructure remains a critical priority.

How Can Credit Insurance Support the PGII?

Infrastructure projects in Africa are increasingly focused on improving the continent’s long-term sustainable development in areas that include clean energy, health, transport, and water. Funding initiatives must not only be bankable and have good returns, but they must also be sustainable and offer real benefits to the communities at which they are aimed. In the case of Africa, while major infrastructure is important, this alone will not be enough. It is critical that the PGII flow of money goes not only to the larger projects but also to the grassroots local economies. It must meaningfully support the small and medium enterprises (SMEs) that makeup 80% of jobs across Africa, and that are key to developing sustainable economies and communities. The challenge now is: How will the G7’s $600 billion reach SMEs if the banks cannot lend to them because of a lack of private guarantees? In this situation, it is clear that a significant responsibility falls to credit insurance companies to provide the banks with the guarantees they need to support SMEs. Without credit insurance, Africa risks losing the opportunity to create any value from the PGII.