Infrastructure, political economy and Africa’s transformational agenda

Africa's efforts to achieve sustainable development have been hindered by factors such as skills development and enhancing market access in support of sustainable transformation and infrastructure that promote sustainable development and connectivity in Africa. Continental connectivity and logistical problems are the result of peculiar socio-economic conditions in the region such as geology, poor economic governance and conflict. These issues have direct implications for the implementation of infrastructure projects and the type of public policies needed to foster strategic connectivity. Moreover, the major constraints on infrastructure are not technical but managerial, political, ‘cultural’ and due to a lack of specialised resources. Africa needs to find its own solutions to local capacity and development problems with greater involvement of local private sector partners wherever feasible. A political economy perspective is critical to understand the dynamics around infrastructure deficits as well as associated investments and development.

Innovative financing for infrastructure: Africa50 Fund issues

Increasing the rate of infrastructure delivery in Africa implies a greater focus on project preparation and project development. The specific case of the Africa50 Fund as a financing vehicle is explored. The vehicle aims at mobilizing private financing to accelerate the speed of infrastructure delivery in Africa. Africa50 will focus on high-impact national and regional projects in the energy, transport, ICT and water sectors. A number of issues for the Fund’s success are discussed. First, to deliver on Africa’s current infrastructure pipeline, including PIDA, Africa50 will need an equity investment of USD 10 billion, as well as attracting USD 100 billion worth of local and global capital. Second, to function as a commercially oriented financial institution, Africa50 will need to preserve and grow its capital base and provide a return to shareholders. Finally, the ownership of the founder’s equity by African countries is central to the strategy of Africa50.

Infrastructure deficit and financing needs in Africa

There is a consensus that Africa has a huge infrastructure deficit. An urgent question demanding our attention therefore is: what are the levels of access to sources of local market finance for infrastructure development in Africa? It brings to our attention the state of infrastructure access in the continent with a special focus on constraints to infrastructure development in Africa. The Chapter then discusses innovative local sources of infrastructure finance in the continent alongside some of the constraints and solutions to a major source that the African Development Bank has emphasized lately—infrastructure bond. The other question to be answered therefore is: given the constraints and opportunities, what is the role of the African Development Bank?

Infrastructure deficit and opportunities in Africa

Private sector investment opportunities in Africa’s infrastructure are huge. Regulatory reforms across African countries are identified as critical to the realization of the expected investment flows in the infrastructure sector. However, planners and policy makers need to note that there are infrastructure deficiencies in all subsectors with low income countries (LICs) in Africa facing the greatest challenge. Inefficiencies in implementing infrastructure projects account for USD 17 billion annually and improving the capacity of African countries will help minimize these costs. In this regard, the donor community must play a greater role in African LICs while innovative financing mechanisms must be the focus in the relatively richer countries of the continent. Traditional sources of financing infrastructure development remain important but private investment is critical in closing the current gaps. Countries need to devise mechanisms to exploit opportunities and avoid pitfalls in investing in infrastructure.

Regional integration and infrastructure connectivity in Africa

Regional infrastructure is one aspect of broader regional integration. In contrast to economic or political integration, however, cooperation in infrastructure provision is easier to achieve, because benefits are more clearly defined, and countries need to cede less sovereignty. Regional infrastructure cooperation is therefore an effective initial step on the path to broader integration. Some countries have more to gain from regional integration than others. Landlocked countries depend particularly on effective road and rail corridors to the sea, as well as on intra-continental fiber-optic backbones that link them to submarine cables. Coastal countries depend particularly on sound management of water resources upstream. Small countries benefit especially from regional power trade that reduces the costs of energy supply. If regional integration provides a substantial economic dividend to some of the participating countries, designing compensation mechanisms that benefit all of them should be possible. However, financing regional public goods tend to be problematic.

Africa’s prospects for infrastructure development and regional integration: energy sector

Energy sector development is required to enable greater regional economic integration (harmonization of legal and regulatory frameworks for energy, coordination of energy infrastructure investments, etc.) in Africa. This can address problems associated with fractured energy infrastructure investment and allowing African nations to develop more shared facilities. In addition, regional integration facilitates trade of energy resources and services via sub-regional power pools. Despite the current attempts to integrate regional infrastructure via power pools, actual trade within these pools is low, and the opportunity to derive efficiencies from integrated regional resource planning is missed in favour of national plans. Different stages and design of energy market liberalization or (re-) regulation and the desire for energy self-sufficiency (“security of supply”) hinder the development of bilateral or multilateral projects. Investment in interconnection capacity is required to facilitate intra-power pool trade and achieve the efficiencies associated with the pooling of demand and integrated energy planning.

Water and sanitation in Africa: current status, trends, challenges and opportunities

Africa faces difficult water/sanitation legacies in the form of high hydrological variability and a multiplicity of transboundary river basins alongside poor sanitation. These challenges impeded the continent’s economic growth. Balanced investments in water resource and sanitation infrastructure and institutions are needed to increase productive uses of water, to mitigate the effect of recurrent floods and droughts, and to achieve basic water security as a platform for Africa’s economic growth. Priority should be given to investments that (a) focus on growth, (b) reduce rural poverty, (c) build climate resilience and adaptation, and (d) foster cooperation in international river basins. Because most African countries have low stocks of hydraulic infrastructure, emphasizing investments in infrastructure is appropriate for them. However, institution building and reform, improvements in water/sanitation management and operations, and strengthening of water information systems must complement growth in infrastructure. Development of institutions should be advanced in parallel with infrastructure investment.

Rapid urbanization and the growing demand for urban infrastructure in Africa

Africa is undergoing a rapid urban transition and is set to be the fastest urbanizing region in the coming decades. This shift has profound implications for achieving the continental and global targets for inclusive growth and transformation. Theory and global experience show that urbanization and structural transformation are closely linked—but less so in Africa. Urbanization in many African countries has not been driven by improving agricultural productivity. Indeed, most countries are urbanizing rapidly amid declining or stagnant industrial output and low agricultural productivity. The infrastructure development agenda has to make cities more productive and liveable yet with great reliance on the provision of sizable resources. However, matching the investment agenda to the goals of urbanization is a complex task, encompassing regional, national, urban, and rural dimensions which together determine the quality of the urbanization process. Institutional reforms should be undertaken to positively drive urbanization in Africa.

Africa’s prospects for infrastructure development and regional integration: information and communications technology sector

A modern economy requires significant investment in knowledge generation and transmission though efficient information and communication systems. Information and communication technologies (ICTs) have been a remarkable success in Africa. Sector reform, particularly in the mobile segment of the market, has transformed the availability, quality, and cost of connectivity across the continent. Mobile networks cover over 91 percent of the urban population, and coverage in rural areas is growing. However, these high overall levels of coverage hide significant variation between countries, and particularly in the proportion of their populations that have access to services. Although large parts of the ICT sector have been transformed, much remains to be done. Policy makers need to take steps to address the specific challenges facing the ICT sector in Africa by enhancing competition together with practical regulatory framework. Like other infrastructures, a regional approach to ICT investments would reap greater benefits and speed up access.

Infrastructure Development Index

Despite robust recent economic growth rates, Africa remains the least competitive global region. Inadequate infrastructure is a serious constraint on doing business in the continent. This demonstrates the close linkage between infrastructure and the region’s competitiveness. Moreover, the Africa Progress Panel has ranked infrastructure development as a key priority for the advancement of the continent, and has urged the G20 leadership to continue to give it their highest support. It is against this background that the African Development Bank developed the Africa Infrastructure Development Index (AIDI) to monitor the status and progress of infrastructure development across the continent. This effort is to enhance evidence based policy making in Africa – especially with specific reference to infrastructure. The Index provides countries with the framework to assess their position and related changes with respect to the requisite infrastructure investments.