The report shows that survey respondents attribute the significance of DFI-lending in sub-Saharan Africa to the growing demand for infrastructure development (39%) and to the lack of availability of commercial funding for projects in the region, due to the perceived high risks associated with these investments (34%).  The report further  notes that China put US$8.7 billion in sub-Saharan Africa infrastructure projects in 2017 alone, while the US recently set up a new US$60 billion agency to invest in developing countries.

The report, 'A Changing World: New trends in emerging market infrastructure, surveyed 434 executives from Export Credit Agencies (ECAs), Development Finance Institutions (DFIs), commercial banks and sponsors.

Wildu du Plessis, Head of Africa at Baker McKenzie in Johannesburg, notes that the infrastructure investment landscape in sub-Saharan Africa has changed beyond recognition in the past decade.

The continent still suffers from massive under investment. According to African Development Bank (AfDB), poor infrastructure has cost the continent a cumulative 25% in growth in the last two decades. The World Bank estimates that the continent needs more than US$90 million per year to begin bridging the infrastructure gap. However, in many African countries governance has improved, which has accelerated growth and will make investment easier. Africa's GDP is expected to grow to 3.7 per cent in 2019 and countries such as Ethiopia and Ghana, for example, have enjoyed some of the world's fastest growth recently.

The report shows how China has targeted sub-Saharan Africa in recent years, both in the context of its need for natural resources and as part of the Belt and Road Initiative (BRI). Chinese policy banks loaned $19 billion to energy and infrastructure projects in the region from 2014-2017, almost half of which was in 2017. China Exim Bank was the largest policy lender in Africa in the period 2008 - 2017 and China Development Bank was the second largest bilateral investor in this period, lending nearly as much as World Bank-linked multilateral agency International Finance Corporation.

Against a background of a global geopolitical shift in trade relations, China has noted that it is looking to work with African countries in a participative and inclusive way. Chinese president Xi Jinping's tour of Africa earlier this year is proof of the increasing interdependence of the maturing but still fast growing Chinese economy and developing economies in Africa. The relationship is seen to be mutually beneficial, China needs natural resources and new markets for its exports, and Africa needs funding for infrastructure investment which China is providing, notes du Plessis.

Despite the prominence of Chinese investment, the US is also seen as a major player in infrastructure investment in Africa. Some 32 % of survey respondents said that they expected US-based DFIs and Export Credit Agencies (ECAs) to be the most active lenders into African power projects - a critical part of infrastructure activity -  in the next ten years, while 29% of respondents said that they expected that China based DFIs and ECAs would be the most active in Africa in the next decade.

The US Power Africa programme reported recently that since its inception five years ago it has funded 80 transactions valued at more than US$14.5 billion that are now either online, under construction, or have reached final close. The programme remains fully funded.

Still, IJGlobal data shows that out of all DFI investment flowing into African power projects in the past ten years, Chinese lenders provided more than half of it (53%), followed by multilateral development finance institutions (22%). US-based DFIs only contributed 3% of the funding.

The report notes that the decision by the US in October to turn the Overseas Private Investment Corporation (OPIC) into the International Development Finance Corporation and double its lending ceiling to $60 billion could significantly accelerate the race in Africa.

Du Plessis explains the reason for growing US lending in Africa, The move is widely seen as a counter to Chinese largesse in Africa and other emerging markets.

The report shows that the US is reportedly concerned about the security implications of China gaining control of strategic assets as a result of unsustainable borrowing by some developing countries. By increasing the flow of finance to Africa ? and bolstering competition among DFIs ? the new agency is likely to provide a boost to infrastructure activity in the region.

Yet despite the torrent of development finance lending from China, the US and others, sub-Saharan Africa?s infrastructure gap remains vast.

Jen Stolp, Global Head of Project Finance at Baker McKenzie highlights three priorities which are key to reducing the financing gap:  First, a move away from traditional funding, and recognition that alternative structures and new financial instruments are needed; second, increased focus on project preparation funding and the creation of credible and predictable regulatory environments; and third, increased support for private equity investment.

The report outlines how both global and regional DFIs are becoming more innovative as they seek to bridge the infrastructure gap. Recently the AfDB bought insurance on a $1 billion loan portfolio from hedge funds, reducing the amount of capital it holds against loans and freeing up lending capacity. Meanwhile, Afreximbank has introduced an African fund for export development to attract more private equity, and a project preparation facility (PPF) to address project development-related constraints. 

The way in which DFIs, ECAs and commercial banks interact is also changing, with a growing emphasis on partnerships, especially on larger projects, says Stolp.

The survey shows that greater cooperation between DFIs/ECAs and commercial banks leads to more projects being financed and that 60% of survey respondents think there is room for even more collaboration on infrastructure financings. A further 24% note cooperation allows commercial banks to participate in deals too risky to do alone.

Deals may be fronted by -  or may have tranches provided by -  DFIs,  thereby giving further support to commercial lenders, agrees Baker McKenzie's Global Head of Banking and Finance, Michael Foundethakis. It's important to remember that DFIs are able to go where commercial banks may fear to tread.