As off-balance sheet financing, project finance promises to provide alternative route to countries to fill infrastructure funding gap without increasing public debt levels. This is the case especially in developing countries in Africa where the infrastructure gap is huge and the funding gap is enormous. However, although project finance has a potential role in promoting infrastructure development some of the requisites for project finance to take place are absent in many African countries, and this casts doubt on the feasibility of project finance as a panacea for massive infrastructure financing gap in the continent.

(1) Do you agree with the above statement?

If yes, why? If no, why not? (4 marks)

Guide to answering

Award full mark for students who concur with the statement mentioning the following points

Successful project finance deals require a well-developed legal system that protects lenders against potential default

A well-developed financial system provides opportunity to raise the required funding from the local financial market

Vibrant private sector increases private sector participation in a project finance deal as financiers, EPC contractors, O&M contractor, insurer, technical or legal advisor.

Stable political and macroeconomic conditions allow foreign investors to participate in project finance activities.