Financing Options for African Universities by Amini Kajunju

Financing Options for African Universities by Amini Kajunju Director of Strategic Partnerships Africa Integras at the MCF/AAU HE Consultation November 22, 2016 Dakar, Senegal

The Problem / Opportunity 1. Youth bulge/dividend. Population growth 2. Higher demand for tertiary education 3. Long-lasting disinvestment away from higher education by governments 4. Poor infrastructure (e. g. overcrowded classrooms and dorms, old laboratories, old libraries) 5. Inadequate learning environment 6. Contribution to the brain drain

COMMON SOLUTIONS PUBLIC UNIVERSITIES PRIVATE UNIVERSITIES Government transfers Foreign government loans/grants (China, Israel) Private banks DFIs (OPIC/IFC) Donations/Grants Public-Private Partnerships (PPP)/BOT Bonds? Donations/Grants Endowment/Savings Private banks DFIs (IFC) Rent space Public-Private Partnerships (PPP) Bonds?

What is a PPP? 1. A long-term contract between a private party and a government agency 2. The private entity bears most of the risk during the life of the contract. 3. Best use of the resources and competitive advantage of the public and private sector 4. Asset is transferred back to the public entity after the end of contract. (BOT - Build, Operate, Transfer)

jj Typical SPV Structure for PPPs Public Entity/University PPP Agreement Equity Shareholding Private Sector (Special Purpose Vehicle) (SPV) Loan agreement Debt Subcontractors Subcontractor Construction Subcontractor Operations

Advantages: PPP for Social Enterprises 1. Finance the project over time vs large outlay of funds 2. Speed in completion of project. Use facilities sooner 3. One private entity (SPV) is accountable to all contractors/investors 4. Increased deployment of debt and equity/access to private sector funds

Advantages: PPP for Social Enterprises (continued) 1. Debt can be cheaper due to length of time and the willingness for DFIs to loan money 2. Solid returns for investors 3. Job creation/generation of economic activities/support of local entrepreneurs

Challenges: PPP for Social Enterprises 1. Cost of capital/the cost of pricing the equity risk 2. Credit risk and analysis/necessary cash flow to sustain payments 3. Long-term risk: non-payment, political unrest, higher cost of doing business/inflation, changes in the market/competition 4. Leadership transfer risk/stakeholder engagement 5. Human capacity/understanding of PPPs by governments and universities

Questions for Discussion Due to a lack of a strong capital market, African universities have limited options for accessing public and private funds for infrastructure. 1. What role can African pension funds play in reducing the cost of capital? 2. Why are we not issuing bonds to build educational infrastructure in Africa? In the US, private and public universities issue bonds for all sorts of capital projects. 3. What role can foundations like the Master. Card Foundation or the Rockefeller Foundation play in becoming impact investors in education infrastructure?