Infrastructure development is a key driver of progress in Africa, as well as a critical enabler of productivity and long-term economic growth. Closing the infrastructure financing gap estimated at $100 billion per year is critical for the continent’s economic development, people’s quality of life, poverty eradication, and business expansion. Africa’s infrastructure deficit can be divided into two categories: physical infrastructure and social infrastructure. Physical infrastructure includes transportation, energy, and communication; whereas social infrastructure includes water supply, sanitation, sewage disposal, education, and health.
Recognizing this, the Program for Infrastructure Development in Africa (PIDA), under the African Union Commission, NEPAD, the regional economic communities, and AFDB outlined an ambitious long-term plan for closing Africa’s trans boundary infrastructure gap in four key sectors: energy, transportation, information and communication technologies (ICT), and water. PIDA proposes an increase in hydroelectric power generation capacity of more than 54,000 megawatts (MW) and a water storage capacity of 20,000 cubic kilometers, estimating that by 2040, electricity access will have increased by nearly 70%, allowing an additional 800 million people to access energy sources. That is 60 % of African countries with access to electricity, and the continent will save USD 30 billion in energy costs.
PIDA focuses on transportation services to enable the free movement of goods and people by developing world-class road, rail, port, and air transport services that connect cities through modern regional corridors. It estimates that the gains in transportation efficiency will amount to at least USD 172 billion, with the potential for much larger savings as trade corridors open. PIDA’s ICT vision is to provide all Africans with reliable and affordable ICT networks by meeting Africa’s demand for broadband at a low cost, increasing access and security to internet services, and promoting intra-African e-commerce.
The lack of infrastructure is a significant impediment to growth and development, resulting in low intra-African trade. According to the World Bank, the continent accounts for 16% of the global population but generates only 2.8 % of global GDP and 3% of global trade. In many African countries, infrastructure constraints in energy and logistics curtail productivity; just as much as other institutional challenges like poor governance, onerous regulation, and a lack of access to finance. According to the Infrastructure Consortium of Africa (ICA), poor road, rail, and harbor infrastructure raise the cost of goods traded among African countries by 30-40%.
According to a World Bank study, the poor state of infrastructure in Sub-Saharan Africa, which includes electricity, water, roads, and information and communications technology (ICT), reduces national economic growth by two percentage points each year; and reduces business productivity by up to 40%. According to a 2018 report by the Infrastructure Consortium for Africa (ICA), the average annual funding for infrastructure development in Africa was USD 77 billion between 2013 and 2017; with the transport and energy sectors accounting for nearly three-quarters of total investment. The increased spending was primarily driven by African governments which accounted for 42% of total funding in 2017. According to the report, Chinese infrastructure commitments increased at a 10% annual rate from 2013 to 2017 and have helped fund many of Africa’s most ambitious infrastructure projects in recent years.
Bridging The Infrastructure Funding Gap
Funding remains to be a major challenge in infrastructure development in Africa. African governments have historically financed a sizable portion of infrastructure development on the continent, and infrastructure rollout has thus been constrained by budgetary limitations. Furthermore, local banks are frequently unable to provide the long-term infrastructure loans required. Collaboration with private sector players is a necessary and important precondition for clearing the continent’s infrastructure backlogs. There is also a strong need to diversify available funding sources by developing domestic and regional capital and debt capital markets, as well as strengthening public-private partnerships (PPPs).
PPPs are increasingly being used by governments and public authorities to deliver efficient and cost-effective infrastructure and services. PPPs can aid public sector entities in reducing delivery times, spreading risks, achieving better value for money, and increasing innovation in infrastructure rollout and service provision.
DFI support can help accelerate infrastructure development in Africa, with the region already seeing commitments from AFDB, which has been financing various projects in the region since 2016. In 2019, the Bank approved 21 transportation and urban development construction projects worth over USD 2.2 billion. The road sub-sector accounted for 17 of the projects and 86 % of the financing; with air transport projects allocated to two projects, one for port development and one for urban development. The 2019 number of projects and financial commitments was up from 19 (USD 1.9 billion) in 2018, 16 (USD 1.5 billion) in 2017, 10 (USD 1.5 billion) in 2016, and 14 projects in 2015.
Private investors are the best way for Africa to address its infrastructure deficit, and they typically require specific commitments before deploying capital to governments or private companies. Private investors often take into account factors such as long-term policy and political stability, as well as clear project timelines. Africa can also move to climate-smart innovations to attract green investments. Filling the investment gap in Africa will therefore necessitate a long-term shift away from carbon-intensive infrastructure to climate-friendly projects
It is especially important to align investment decisions with low-carbon and climate-resilient infrastructure. Addressing environmental objectives is therefore critical during the design, planning, construction, and operational stages; in accordance with the countries’ nationally determined commitments (NDCs). African governments and private sectors should focus not only on infrastructure investments but also on aligning their investments to address climate mitigation and adaptation challenges; in order to meet their climate obligations while also achieving economic development and broadening their investment reach.
Author: Victor O. Nyakinda