Addressing Africa's infrastructure deficit
Addressing the infrastructure deficit in Africa needs not only diverse sources of funding, but also detailed preparation and a strong business case for each proposed project, says EY’s Bill Banks.
“Infrastructure financing must look beyond aid and governments have to look at alternative financing solutions that are economically feasible.”
- Bill Banks, EY
Africa’s rapid economic growth has occurred despite the continent’s significant infrastructure problems. Greater demand, expanding economies, urbanization and surging trade levels have intensified the need for new infrastructure.
Deficits and development
Africa’s largest infrastructure deficits are found in:
- Power — According to research from The World Bank Group (WBG), the 48 countries of sub-Saharan Africa (with a combined population of 800 million) generate roughly the same amount of power as Spain (with a population of 45 million).
- Roads — Only one-third of Africans living in rural areas are within two kilometers of an all-season road, compared with two-thirds of the population in other developing regions.
The cost of addressing Africa’s infrastructure deficit is estimated to be approximately US$90b every year for the next decade, with spending needed for new investments as well as operations and maintenance of what is already there. Infrastructure financing must look beyond aid and governments have to look at alternative financing solutions that are economically feasible.
Policy-makers are increasingly looking at different flows of capital, such as:
- Africa’s foreign exchange reserves invested abroad
- Pension funds
- Sovereign wealth funds
These can kick-start private sector investment in infrastructure.
Important progress is already occurring. Our latest Africa attractiveness survey found that, in 2012, there were over 800 active infrastructure projects across different sectors in Africa, with a combined value in excess of US$700b. The large majority of the total infrastructure projects were related to power (37%) and transport (41%).
Financing and funding
African governments can look to domestic sources of capital, as well as International Development Partners such as the WBG and the African Development Bank. However, there are a significant number of international players looking at the African continent for places to invest into properly structured projects that offer a reasonable rate of economic return, particularly when they involve public-private partnerships (PPPs).
Governments’ contribution to PPPs create different types of fiscal commitments, and it is crucial that the accounting for these commitments is properly understood through rigorous project planning and due diligence. Key to this process is ensuring that good-quality cost-benefit analysis has taken place.
The Ministry of Finance has a pivotal role to play by accepting overarching responsibility for the PPP framework’s implementation. It needs to oversee the governance of the project as a whole, with support from specialists from the technical and legal departments.
It is also important for policy-makers to be aware that PPPs should not be applied to each and every proposed project. Governments should concentrate on those projects that have a strong up-front business case and then focus fully on the completing the projects themselves.
Effectively addressing Africa’s infrastructure gap will help:
- Strengthen the transport, power, health, education, water and sewage sectors
- Improve quality of access for all
- Significantly increase economic capacity
- Give countries wider access to their large natural resource deposits, enabling more efficient exports
That so much has been achieved in the face of these infrastructure problems emphasizes the huge potential that exists across the continent.