The Future of Project Finance

Ian Cogswell, Managing Director for Natixis, talks about the future of financing projects in Africa, especially in light of the tighter financial markets. He offers his insight on what it takes to create an attractive project for lenders.

What do you see the future sources of project-financing in Africa and how do you see the sources for project-finance evolving in the oil and gas sectors in the next five years?

First, the involvement of Export Credit Agencies (ECAs) and Development Financial Institutions (DFIs) is essential for all major projects. To ensure a project can attract ECAs and DFIs, local developers and independent oil companies need to be open to partnering with a major International Oil Companies (IOCs). These IOCs are likely to have developed similar projects elsewhere in the world and their experience – together with their balance sheet strength – will enable them to attract the various funding sources. Similarly, commercial banks will be less likely to fund projects in Africa where there is no IOC involved.  This is because the involvement of an IOC gives the project credibility and a greater likelihood of success. In addition, the IOCs and major international contractors will bring the ECAs along with them.

Some IOCs are also able to provide debt financing alongside the banks – as well as traditional equity – and there are many examples of such co-lending in projects within developing countries. 

What type of projects do you think will be most attractive to investors in Africa?

The key for developing projects in Africa is securing a competitively priced raw material. For example, if you can source “cheap” gas — be it for LNG, or gas-based petrochemicals, etc — that is the type of project investors will be keen to develop.

From a bank’s perspective, we often prefer export projects, which will develop foreign exchange for the government.

Speaking generally, what type of legal framework is needed to support financial investment in large-scale infrastructure projects in Africa?

First and foremost, we look for projects that are governed by international law. If a project is documented according to a recognized international law, with a provision for international arbitration, it makes the project more appealing for lenders.

What advice do you have for investors looking at Africa?

Africa is a huge continent, with 54 countries and a wide variety of differences between those each of them. Therefore, it is important to be aware of these differences and avoid viewing Africa as a single location and treating every project the same.

Every year we say this could be the year that African projects take off. Every year we slightly increase the amount of business we do in Africa and, therefore, every year it gets slightly easier to undertake projects in Africa.