ESG approach to closing the transport infrastructure gap in Africa


Africa’s infrastructure development remains severely deficient, with an estimated need for infrastructure investment of more than USD 100 billion. Like the region’s internet development since the early 2000s, the rest of the sectors particularly transportation infrastructure; must be well established to reap the enormous benefits of connectivity. A good internet connectivity ensures faster and more convenient data movement from one spot to another in real-time.

Insights from internet connectivity

The rapidly evolving digital economy has made internet connectivity a necessity in today’s world. A fast and dependable internet connection not only creates new job opportunities but also helps existing businesses perform better and expand their operational capacity. Because of the internet’s connectivity, sectors such as e-commerce, telemedicine, and digital banking have cropped up in Africa. 60 % of venture capital funding in Africa in 2020 went to fintech businesses, resulting in new expertise as well as job creation across the countries where these fintechs are domiciled and where they operate.. AfreximBank, in collaboration with AfCFTA, developed a payment settlement system in early 2022 to allow African companies to pay for intra-African trade transactions in their home currency. The Pan-African Payment and Settlement System (PAPSS) is expected to reduce cross border money transfer costs as well as accelerate trade transaction settlement and payments in Africa. This will be propelled by of the adoption of digital technologies which are fueled by increased  internet connectivity.

The International Finance Corporation (IFC) reports that since the year 2000 the number of people in the whole of Africa with internet access jumped to more than 520 million with a further estimate of improving internet access to reach 75% of the population could create a further 44 million jobs. Between 2010 and 2019, more than 300 million Africans gained access to the internet, with nearly 500 million new smartphone connections.

Building sustainable transport infrastructure for Africa

The case study of internet connectivity and development in the region serves as the foundation for understanding how proper infrastructure connections can improve regional economies and spur innovations. A proper transport network in Africa will ensure that trading blocks are linked under the AFCFTA agenda, resulting in improved intra-African trade and boosting the region’s economic muscle.

Road transport is Africa’s most dominant mode of motorized transport, accounting for 80% of goods traffic and 90% of passenger traffic on the continent; but only has a road density of 204 km per 1000 square km, compared to the global average of 944 km per 1000 square km, more than half of which is paved. This severely impedes trade and the movement of goods, as well as innovation and business growth. African airlines, on the other hand, fly more international routes, accounting for roughly 43% of total traffic, while intercontinental travel accounts for 33% and intra-African travel accounts for only 19%. Rail transport covers approximately 75,000 kilometers, equating to a density of about 2.5 kilometers per 1000 square kilometers, which is significantly lower than the global average of 23 kilometers per 1000 square kilometers.

Africa’s infrastructure deficit presents investment opportunities for developing projects centered on intra-regional integration and environmental responsibility. However, to achieve the goal, Africa must address key challenges that will halt capital investment into the region. Creating and managing infrastructure development projects is a complicated process that requires the coordination of financial, tax, legal, and professional advisory services, all of which are frequently based and managed outside of the project country.

Lack of access to clean, safe, and affordable transportation has impeded African local and economic development. The region’s transport development requires careful feasibility studies, strategic planning, and a well-defined implementation strategy. The world is moving towards global carbon neutrality, and Africa must be cognizant of this as it pursues infrastructure development. Africa needs to catch up with the rest of the world in terms of development, but it will have to leapfrog its way there, which will require significant funding as well as capacity building.

According to UNEP, the transportation sector today is primarily based on the combustion of fossil fuels, making it one of the most significant sources of both urban and regional air pollution; and accounting for roughly 25% of total greenhouse gas (GHG) emissions. It acknowledges that walking and cycling are the primary modes of transportation for the vast majority of people in developing countries. Approximately 80% of trips in African countries are still made on foot, and many are done so in hazardous conditions due to poor infrastructure, a lack of integrated public transportation systems, and a rapidly increasing number of old, poorly maintained, and highly polluting motor vehicles that share the same road space as pedestrians, cyclists, and carts.

Environmental, Social, and Governance, (ESG) investing has become increasingly important in the development of finance and financial institutions around the world over the last decade; and there is a growing demand for a better understanding and incorporation of ESG factors into project financing. Africa will benefit from this by carefully aligning its projects with the well-targeted ESG funding, allowing it to be mindful of the global climate agenda while developing and filling its infrastructure gaps.

Climate change, deforestation, desertification, erosion, biodiversity loss, and pollution are all examples of natural and human-caused environmental problems in Africa. Africans also face social and health issues, such as widespread poverty, war, insurgency, rapid population growth, disease exposure, and inadequate sanitation and sewage treatment. Degrading conditions in mining, construction, and industrial activities, exacerbate Africa’s environmental and social problems. Meeting environmental and social standards, as well as the requirements of international development funding institutions, pose significant challenges for infrastructure development projects in the region. Aligning Africa’s development projects with internationally recognized social standards necessitates expert evaluation and input. Some of Africa’s current governance practices, such as entrenched leadership, government, and corporate corruption, restrictive government policies, and insufficient human rights mechanisms, also impede infrastructure project development.

According to the International Institute for Sustainable Development (IISD), the presence of these ESG-related factors poses significant challenges to the successful implementation of Africa’s development goals. Africa must address its urgent need for development options that will contribute to resolving the ESG-related constraints it faces to bridge the infrastructure gap. Additional capabilities, technical know-how, and expertise are required to incorporate environmental and social risk management and control mechanisms into project finance models. Successful development solutions must also address fundamental environmental and social issues by implementing proactive risk management, mitigating climate change, and increasing people’s ability to adapt to climate change. Africa also requires global support to mobilize finances to develop smart infrastructure. Development finance institutions, as well as multinational banks, can also help finance some of these projects through a Public-Private Partnership (PPP) arrangements, allowing for quick project implementation and quality oversight.

Author: Victor O Nyakinda