Investing in infrastructural development is critical in attaining the global sustainable development agenda. But some emerging African nations appear trapped in an infrastructure funding gap. Any possible way forward?
— World Bank Africa (@WorldBankAfrica) April 19, 2017
Indeed, infrastructure is a major determinant of economic growth anywhere in the world. It plays a significant role in establishing the development rates among countries. The development rates in China and India for instance, are mostly established from the physical infrastructures in both nations.
In the next 20 years, more than half of global infrastructure investment is projected to be spent in China and India. See what this means for long-term EM opportunities: https://t.co/bypcazrJ92
— Legg Mason (@leggmason) July 12, 2018
Infrastructure development, therefore, drives the production, distribution and consumption processes. The production process requires efficient infrastructure in terms of labour and machines. An effective and efficient transportation system also needs to be in place for the distribution of goods/services to consumers.
Without an excellent transportation infrastructure to move goods/services and raw materials, there’ll absolutely be a delay leading to economic and reputational losses.
According to the World Bank, infrastructural development is vital for the realization of citizens’ aspirations in emerging African nations.
The #Kigali Bulk Water Treatment project by @PIDGorg was the first #water #PPP in sub-Saharan #Africa & will provide access to clean water to 500,000+. 4 lessons We've learned: https://t.co/lkC3vZmUDZ #fin4dev #WorldWaterDay w/ pic.twitter.com/Sj9OehwSUg
— World Bank (@WorldBank) March 22, 2018
Parents hope for clean and affordable pipe-born water, so their children do not get sick. They also yearn for a good and affordable educational system to educate their children.
The informal settlement dweller hopes for affordable electricity to engage in business ventures. The farmers desire all-weather-roads, reliable shipping and air transport to get their goods to local and international markets.
However, an infrastructure funding gap remains a challenge to some of these African countries.
The Infrastructure funding gap in Africa
Financing infrastructure in Africa remains a major challenge, even to some economic rising stars of the continent. Findings from a recent study show that 10 African nations may fall more than $1 trillion short of infrastructure financing. These countries need this amount in infrastructure financing so as to meet related UN development goals by 2040.
The study is an initiative of the Global Infrastructure Hub (GIH) of the G20 wealthy and developing nations. It captures Morocco, Ethiopia, Ivory Coast, Senegal, Egypt, Ghana, Tunisia, Benin, Guinea and Rwanda. These were all participants in the G20’s ‘Compact with Africa’ initiative, with the aim of channeling investment to the continent.
The Global Infrastructure Hub, a G20 initiative, today published two reports that reveal an urgent need for infrastructure investment in 10 Compact with Africa countries, & highlight the reforms required to encourage greater investment.
— Adam Rogers 🌍 Intrepid Traveler (@AdamRogers2030) July 4, 2018
The GIH report also outlines the infrastructural challenges in Africa and exposes the investment opportunities available for willing investors. According to Chris Heathcote, Chief Executive of GIH, Africa is a fascinating continent for investors.
“They’re not saying ‘Am I going to Africa?’. They’re saying ‘I am going to Africa. I want to go to Africa. Which country should I go to?’”
The GIH report also makes reference to the infrastructural successes in Vietnam. This is in terms of roads, railways, airports, seaports, electricity, water and telecommunications infrastructure.
The findings reveal that the 10 African nations will need investments worth $2 trillion through 2040. They’ll also require additional investments of $383 billion to meet the SDG on universal access to power and water by 2030. This puts the total to about $2.4 trillion.
Finally, the report concludes that if the 10 African countries maintain their current average infrastructure investment level of 4.9% of gross domestic product, that would leave them with a 42% funding gap to fill.
The Way Forward for infrastructure funding in Africa
African nations by virtue of their developing nature, do not have the necessary financial capital to boost infrastructure spending. Even the assistance from aid agencies and other international donors is still not enough to fill the funding gap. Consequently, selecting priority infrastructures and engaging the private sector through Public-Private Partnerships (PPP) initiatives become a necessity.
“Chinese investment does have the potential to address Africa’s infrastructure gap, but its approach has led to mounting debt and few, if any, jobs in most countries”: Rex Tillerson on why China is pushing Africa into debt. https://t.co/vHEBbquXYh via @qzafrica
— Abdi Latif Dahir (@Lattif) March 7, 2018
There is a huge presence of influential international conglomerates on the continent involved in infrastructure development. Examples include Bouygues, Bollore, China Railway Construction Corp and General Electric among others.
However, the operational agreements between governments and these conglomerates have often been very lopsided and shrouded in corruption, benefiting largely the external partners. As a fallout, it discourages and keeps small foreign investors out of the market. It also leaves local potential investors very little or no space to contribute.
'How do you industrialize if you have no power? Closing #Africa's infrastructure gap is one of the things we must do and do very fast', says @akin_adesina, President of @AfDB_Group, in an interview with @cnbcafrica in Busan, Korea. #AfDBAM2018 pic.twitter.com/E5bL3N12qc
— African Development Bank Group (@AfDB_Group) May 22, 2018
And so, there is need for an equitable and transparent infrastructure investment environment with clearly set rules of engagement. Such an environment should promote local and small international potential investors in infrastructure.
Chris Heathcote portends that “there is a wall of money being held by the pension funds” which is looking more and more at emerging infrastructure market. Nevertheless, investing such money, requires the adoption of strict anti-corruption measures. This includes the removal of inefficiencies that often stifle large-scale investments in Africa.
The #infrastructure gap in Africa is a critical concern across the continent | In the age of digital entrepreneurship, sustainable economic development will depend on adequate infrastructure
—@CHunsingerMP @urbanthoughts11@Brettdawson14 @TDA_CapeTown @CTFreeflow @YMashilwane pic.twitter.com/t5Pum5WE3C
— Bonnie Horbach – Dutch Ambassador to Lithuania (@HorbachBonnie) January 30, 2018
Generally, putting in place an efficient PPP program, will greatly enhance international and local investment in infrastructure development. Rwanda, is an apt example of a country where PPP has been working in infrastructure development. Private investment represents two-thirds of infrastructure spending in the country, thus showing the transparent nature of the process.