FSD Africa, in partnership with InfraCredit, is set to inject £10 million into a groundbreaking risk-sharing facility aimed at unlocking funding for sustainable infrastructure projects in Nigeria. The move seeks to accelerate Nigeria's economic and social development while supporting its climate goals by making finance more accessible for "climate-aligned" infrastructure initiatives.
The Risk-sharing Backstop Facility (RSBF) has been strategically designed to mobilize short and medium-term local institutional investment for critical and climate-aligned infrastructure projects. These projects possess reliable business models but struggle to secure funding due to perceived high risk without credit enhancement.
Nigeria faces an enormous need for infrastructure investment, estimated to require around $3 trillion over the next 30 years to address its infrastructure deficit. Despite the availability of significant liquidity in the local market, infrastructure projects receive relatively little funding. For instance, less than 2% of pension fund assets are allocated to infrastructure investment, mainly due to a preference for more liquid and less complex investment instruments like government bonds.
Infrastructure contributes to approximately 79% of total greenhouse gas emissions, with most emissions stemming from energy, buildings, and transport, as reported by UNOPS, UN Environment Programme, and the University of Oxford. To avoid locking in high-emitting infrastructure for decades and promote sustainability, there is a pressing need to decarbonize and invest in climate-aligned projects. However, early-stage or "greenfield" projects, especially those related to climate-aligned infrastructure, often face a lack of investment due to the perceived high risk associated with them.
To address this challenge, the RSBF will provide backstop support to investors alongside InfraCredit's guarantees. This will offer early-stage greenfield climate-aligned infrastructure projects more time to demonstrate their long-term bankability and generate stable, predictable cash flow during their construction stage, making them more appealing to investors.
The pipeline of projects that the facility aims to support covers a wide range, including distributed renewable energy services, commercial and industrial renewable projects, edge-certified green housing, and e-mobility infrastructure. All projects seeking funding will undergo rigorous assessments of their environmental credentials.
FSD Africa Investments (FSDAi), backed by UK aid through the Foreign, Commonwealth, and Development Office (FCDO), will invest £10 million in the RSBF. InfraCredit, a prominent player in sustainable infrastructure financing, will partner with FSDAi. Since its inception in 2017, InfraCredit has successfully supported strategic Nigerian infrastructure projects, underwriting bond issuances worth N145 billion (approximately $315 million) for eleven companies across various sectors.
The investment by FSDAi in the RSBF aims to mobilize finance and direct it towards landmark infrastructure projects that promise exponential economic, social, and environmental benefits for Nigeria. By doing so, FSD Africa contributes to its primary objective of developing capital markets by addressing bottlenecks in the system.
The RSBF will raise funding in series, starting with FSDAi's investment and eventually involving other funders, with a target of reaching a total capital base of up to $50 million.
Anne-Marie, CIO of FSD Africa Investments, highlighted that the partnership with InfraCredit introduces a derisking financing solution, making critical infrastructure projects bankable. This timely and much-needed intervention will help address Nigeria's infrastructure challenges, including environmental concerns and energy instability.
Chinua Azubike, CEO of InfraCredit, expressed enthusiasm for working with FSD Africa on this innovative facility, which will support underfinanced projects in realizing their goals and purposes. The use of catalytic capital can significantly increase private capital's role in investing in Nigeria's sustainable infrastructure space, contributing to the country's responses to environmental, energy, and social challenges.
