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Investment in Infrastructure: A Tool to Grow the African Economy

Proshare

Saturday, September 9, 2017 2:40PM / Pedestal Africa 

The cost of redressing Africa’s infrastructure deficit is estimated at US$38 billion of investment per year, and a further US$37 billion per year in operations and maintenance; an overall price tag of US$75 billion. 

Modern, efficient infrastructure is the key to economic growth. Unfortunately, energy, transportation, and internet costs in Africa are among the highest in the world. This lack of infrastructure makes it difficult for African markets to grow sustainably. It also inhibits companies, including those in the United States, from accessing these markets. 

Many African governments are working hard to address this issue by building airports, rail lines, and power plants. But they cannot do it alone. The World Bank estimates that $95 billion is needed annually to build the infrastructure Africa needs to sustain its growth—a price too steep for the public sector to bear on its own. 

The only way to meet this demand is to mobilize private capital in support of infrastructure development, which is exactly what the U.S. Trade and Development Agency (USTDA) does. As the U.S. government’s project preparation agency, we help African stakeholders alleviate a key constraint to infrastructure development: lack of bankable projects.  

There has been a sharp expansion of investors and investment funds interested in Africa in the last few years, but that investment has been stalled by a lack of qualified projects available for investment. 

The World Bank’s comprehensive analysis established the target of $93 billion per year to meet the infrastructure needs of sub-Saharan Africa. The shared concern for the infrastructure deficit in this region has led to a proliferation of global and regional initiatives from NEPAD, World Bank, EU, AFDB and the United State.  

In addition, traditional bilateral and multilateral development flows to African infrastructure have increased overall, and there is a growing amount of non-traditional bilateral flows (from China, Brazil, and India).  

Finally, there are substantial opportunities from the establishment of a BRICS’ New Development Bank and new Chinese infrastructure financing initiatives. The current debate on filling the African infrastructure investment gap centers on ways to attract more private sector financing.  

This is not surprising as PPI in sub-Saharan Africa accounts for more than half of total external financing and has been increasing. PPI to sub-Saharan Africa is continuing

to grow robustly even as global PPI to low- and middle-income countries is falling. PPI in sub-Saharan Africa grew by 9.5 percent on average over the past 10 years—almost double the region’s GDP growth rate of 4.5 percent. PPI accounts now for almost 1 percent of regional GDP.  

In 2013, PPI in all of sub-Saharan Africa grew by 16 percent to reach $14.9 billion (from $12.8 billion in 2012), its highest level since the financial crisis in 2008. In contrast, PPI in low- and middle-income countries fell 24.1 percent to $150.4 billion in 2013 from $181.3 billion in 2012.  

The decline in PPI was mostly driven by reduced investment in the two largest countries, Brazil and India. Thanks to this robust growth in PPI, sub-Saharan Africa is now the fourth-largest recipient of PPI, accounting for about 10 percent of global PPI investments.Global PPI is highly skewed towards projects in Latin America, which accounts for 46 percent. 

Notably, PPI in sub-Saharan Africa compares well with East Asia and South Asia, although it is still about half the level in Europe and Central Asia. Globally, six countries attracted about 60 percent of PPI to all developing and emerging market economies in 2013—Brazil, Turkey, India, Mexico, Russia, and China. Just like global investment, PPI in sub-Saharan Africa goes mainly to a few countries—especially South Africa and Nigeria, which rank eighth and ninth globally, respectively.  

In fact, over the 2009-2012 period, South Africa and Nigeria received PPI worth $11.6 billion and $10.0 billion, respectively (and $9.3 billion and $14.5 billion, respectively, in 2005-2008). Kenya is the third-largest PPI recipient in the region, receiving much less—$2.6 billion—over the same period. 

Actually, sub-Saharan African countries other than South Africa and Nigeria have not been able to attract significant PPI outside the telecom sector. The peak of PPI to sub-Saharan Africa was about $17 billion in 2013; of this, less than $2 billion went to countries other than South Africa and Nigeria and to sectors other than the telecom sector.  

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