Corporate FinanceStrategy ConsultingTransaction AdvisoryJanuary 6, 2022by fieconUnlocking Africa’s Stalled Road Infrastructure Development Through Public-Private Partnership (PPP)

Desert Highway at Death Valley National Park, California, USA.

A proper transport network is a major catalyst to economic development and growth for any developing or developed country. Transport and logistics enables movement of economic commodities through different economic zones. In Africa, transport plays a critical role in not only facilitating growth but also in the integration of the region. It provides vital links that connect economic hubs in different countries and facilitate efficient cross border and seamless movement of goods, services and people.

Road transport is the most dominant mode of motorized transport in Africa, accounting for 80% of the goods traffic and 90% of the passenger traffic on the continent. Since 1978, a number of continental initiative such as Programme for Infrastructure Development in Africa (PIDA), have been implemented with a goal of establishing an efficient and integrated transport network across Africa.

According to AFDB, a large portion of Africa’s road network is unpaved, cutting people off from basic education, health care, transportation corridors, trade hubs, and economic opportunities. Furthermore, rural areas are largely underserved by the road network. Because of this unequal access, moving goods and services to and from rural areas is difficult and expensive.

Maintenance of the road network is also insufficient, and when it is done, it is frequently inefficient. Furthermore, vehicle overloading continues to plague the road network in various countries, causing road surfaces to degrade prematurely and resulting in a shorter construction life span and higher maintenance costs.

The continent has a road density of 204 km per 1000 square km of which only one quarter are paved against the world’s average of 944 km per 1000 square km, of which more than half are paved.

Sub Saharan Africa is on a trajectory to growth and development through the African Continental Free Trade Area (AfCFTA) that looks at improving Intra Africa trade and regional economic performance to the global share and bring together more than 1.2 billion people.

Africa is a dynamic market with a GDP of over $2.5 trillion; and transport stands as a major pillar to the overall success of a single market through deepened economic integration of the African continent.

Transport network will see linkage within and between countries forcing a significant percentage of rural population access market and essential economic and social services.

Funding Infrastructure Projects in Africa

Many African countries are trapped by an ever-increasing debt burden, which stifles potential developmental growth in infrastructure projects because countries would need to raise more debt to continue with the projects while also being cautious of the debt-to-GDP ratio metric.

Public-Private Partnership (PPP) has gained traction in the region as an infrastructure financing model for road construction, specifically through the implementation of toll road concession as a repayment model. This has insulated many African governments from adding to their already high debt levels while also lowering the creditor’s risk. When a PPP is well balanced it can bring forth proper sustainability and delivery to public services.

Toll road concessions not only provide governments with an alternative means of project financing but also aid in road maintenance and improvements to the growing road density as the majority of countries do not devote sufficient resources to routine maintenance of the main road network. Majority of roads are built with no follow on budget for maintenance resulting in reduced construction lifespan and high maintenance cost.

China, one of the largest infrastructure financier in Sub-Saharan Africa, has begun to embrace the PPP model as a repayment method for road infrastructure projects. The PPP model has long been used by the US and European governments, and China, a state-to-state lender, is catching up as it continues to implement its grand agenda under the Belt and Road Initiative-Africa (BRI-Africa).

Other Development Finance Partners like the International Finance Corporation (IFC), have also been keen on promoting transport infrastructure in emerging markets through investment and advisory services under the PPP program across Africa.

One critical step for Africa is to address regulatory fragmentation in road transport among trading partners and improved connectivity to markets, which is a major source of inefficiencies in the cross-border road transportation system.

African countries must pursue and capitalize on the opportunity for PPP, to develop and implement harmonized road transport policies, laws, regulations and standards for efficient cross border road transport and transit networks as it reduces debt burden and resource mismanagement through corrupt dealings and looting. As the continent ushers in the new era of AfCFTA, major infrastructural development must be done in most of the countries for efficient trade between the different countries and economic zones.

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