Local adoption is the ultimate endorsement of Cardano Development’s work.

Case study

Cardano Development’s ambition is to act as a catalyst for making emerging and frontier markets investible and it particularly welcomes local adoption and replication of its innovative products. It sees this as the ultimate endorsement of its work.

More importantly, it contributes to the impact Cardano is striving for: accelerating local financial-sector development and enabling inclusive, sustainable and resilient economic growth.

A case in point is InfraCredit in Nigeria, which was established in 2017 by the Nigeria Sovereign Investment Authority (NSIA) in collaboration with the Private Infrastructure Development Group (PIDG) through its subsidiary company GuarantCo which is managed by Cardano Development.

It provides local currency guarantees to de-risk infrastructure investments when the domestic banking market is unable to provide the much-needed long-term risk capital that is typically required to develop and build infrastructure projects and operators.

Accelerating infrastructure investments

In Nigeria, Africa’s most populous country and biggest economy, the infrastructural development of the country is a priority for President Muhammadu Buhari. New investments in critical sectors of the economy would support lifting 100 million Nigerians out of poverty by 2030.

The government estimates USD 1.5 trillion is needed in the next ten years to expand and improve its local infrastructure – roads, schools, hospitals, energy networks and so on.

Catalysing local investors

Local capital providers, however, shy away from financing infrastructure investments. Investing in infrastructure projects is generally regarded as a safe bet for institutional investors because of their consistent long-term returns and a possible hedge against inflation.

But most capital held by Nigerian pension, insurance or wealth funds is currently invested in government securities or local shares. According to the Nigerian pensions regulator PENCOM, local pension funds have allocated only about 0.5% of their total investments to infrastructure funds, while they are allowed to deploy as high as 4% of their assets to such projects.

InfraCredit is on a mission to change this. It acts as a catalyst for debt capital financing for infrastructure projects in Nigeria by providing guarantees in local currency. This ‘insurance policy’ guarantees part of the debt will be paid if the borrower defaults. It enhances the credit rating of the local debt issue by the infrastructure project sponsors, making projects investible for domestic institutional investors.

Building a local institution

InfraCredit was the logical next step in the development of Nigeria’s market for local currency guarantees. NSIA in collaboration with GuarantCo, part of the Private Infrastructure Development Group. It was set up through technical assistance funding support from Private Infrastructure Development Group to which GuarantCo belongs. Initially funded with paid-in equity from NSIA and callable capital from GuarantCo, and subsequently with additional capital from by KfW Development Bank, Africa Finance Corporation, InfraCo Africa and African Development Bank.

InfraCredit is very much an accepted part of the local financial system. This high level of trust allows it to do deals at better rates. Ask a Nigerian pension fund how it finances infrastructure and it will point to InfraCredit. Going local is a growing trend ‘Going local’ is now a trend when it comes to attracting financing in developing markets. There is a real and growing appetite from local pension funds, insurers, mutual funds and banks in a number of African and Asian markets to participate meaningfully in financing the real economy of their country. But in 2017 when InfraCredit was founded this was still a ‘fantastic stroke of genius’, as Cardano Development CEO Joost Zuidberg once described the initiative to set up InfraCredit.

Mobilising hundreds of millions of dollars

InfraCredit can currently guarantee up to USD 915 million in debt. Since it was founded five years ago, it has mobilised over USD 200 million in debt from 17 Nigerian pension funds, supporting up to 2,302 long-term jobs.

Eight infrastructure projects have reached a financial close, including the Shiroro Hydroelectric Power Plant in Niger State, which is the second biggest in the country, and the Gurara hydroelectric power plant in Kaduna State, and the Lagos Free Zone Industrial Park project in Lagos State.

The company’s mandated pipeline is strong, containing deals worth more than USD 7300 million in transportation, gas & power (both on and off-grid), water and waste management, and ICT/telecommunications.

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