Infrastructure – the foundation of prosperity

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Infrastructure – the foundation of prosperity

Sub-Saharan Africa’s infrastructure lags far behind that of other regions, but a new dynamism is emerging. By Anver Versi.

The development and growth of any modern economy is inextricably linked to the state of its infrastructure. As a general rule, the more developed and efficient a country’s infrastructure, the higher its national GDP and the better the living standards; the poorer the infrastructure, the lower the national income and the worse the living standards of its population.

But, as economists are fond of pointing out, the issue is very much a chicken and egg conundrum; which comes first – high national revenues enabling the roll-out of greater infrastructure or quality infrastructure leading to higher productivity and incomes?

But first, what is infrastructure? While Keynesian and other economists may split hairs over the definition, in essence infrastructure consists of all the physical structures and systems that enable an economy (or even a private organisation) to function efficiently. Roads are probably the most visible and widely used examples of public infrastructure, followed – at least in urban areas – by power lines, water and sewage systems (which may not be visible if underground), bridges, ports and airports, public buildings including schools, hospitals and housing, communication towers, railway systems and so on.

But what is easily visible is just the tip of the iceberg. Underpinning physical infrastructure is a whole web of systems – from often gigantic power generation and transmission systems, telecommunication networks, transport and traffic (road, rail, air and water) logistics, waste disposal operations, and a host of other sub-systems. The infrastructure of the oil and gas, mining, chemicals and manufacturing sectors is a sophisticated world of its own. Then, of course, there is the whole spectrum of private infrastructure.

When the whole infrastructure complex is coordinated and working like a well-oiled machine, productivity gains are enormous.

This is reflected in more robust economies, lower costs, higher incomes and better quality of life all round. A critical side-effect is the vast improvement in human capital and capacity. From this perspective, the claim that “quality infrastructure is the foundation of prosperity” cannot be disputed.

The Four Horsemen

The corollary is therefore obvious – where infrastructure is weak, inadequate, outdated, insufficient, inefficient, poorly maintained or even totally absent, the outcome is economic stagnation at best and chronic poverty at worst. This is almost always the signal for the Four Horsemen of the Apocalypse to appear and unleash war, famine, disease and untimely death.

While it would be foolish to generalise for all 54 African states, the fact is that sub-Saharan Africa has lagged far behind other developing regions in terms of infrastructure despite starting from a similar base some four decades ago. The inadequacies of Africa’s infrastructure have been paraded ad nauseam over the past few years and there is no need to list them again here.

Suffice it to say that the World Bank has worked out that Africa’s generally dilapidated infrastructure (electricity, water, roads and ICT) knocks two percentage points off the regional economic growth rate per year and cuts business productivity by as much as 40%.

Add up all the minuses, and you have a fairly good idea why Africa’s development has been severally stunted over the past five decades. Having factored in other negative influences on development, such as the usual suspects of political instability and corruption, development agency think-tanks identified poor infrastructure as the chief villain standing in the way of progress.

In 2009, the World Bank and multilateral institutions produced a comprehensive regional analysis on the “infrastructure gap” which they figured would require $93bn per annum for both new infrastructure and maintenance and refurbishment, if the continent was to meet its growth targets. This confirmed earlier studies by the African Development Bank.

This figure has often been bandied about without full comprehension of how it was arrived at or what it meant, causing consternation that Africa’s infrastructure renaissance was “a bridge too far”. However, it pales in comparison with the figure of $1 trillion estimated for Asia’s infrastructure needs.

Remarkable turnaround

Since then, there has been a remarkable turnaround. To return to the chicken and egg conundrum, it seems that many governments have come down on the side of infrastructure investment as a springboard to greater economic growth. Windfalls from high commodity and oil prices and the growth of services and consumer spending have been ploughed back into infrastructure.

McKinsey’s Lions on the Move II study reports that “Africa’s spending on infrastructure has doubled from an average of $36bn in 2001–06 to $80bn in 2015 in nominal terms.”

But it also points out that “as a share of GDP, infrastructure investment has remained at around 3.5%, less than the 4.5% that MGI research has found is necessary each and every year until 2025. In absolute terms, this means doubling annual investment in African infrastructure to $150bn.”

The most encouraging development has been that although the level of official development finance from traditional multilateral institutions has increased, its dominance has declined to around 50%. Instead there has been a surge of private participation in infrastructure investments with considerable funding originating from Africa itself.

Public-private partnerships (PPP) are now the preferred way forward. In this regard, the Nigeria headquartered Africa Finance Corporation (AFC) has been outstanding. It was way ahead of the race when it was set up in 2007 as a unique pan-African PPP institution dedicated to infrastructure investment with the Nigerian Central Bank, commercial banks and private individuals as shareholders. It was launched with an equity capital base of $1.1bn.

Today the AFC is an international, multilateral corporation with a membership of 14 African sovereign states. It has invested over $4bn on projects covering 26 African countries; its current balance sheet has grown to $3.2bn; it has emerged as one of the highest investment-grade rated multilateral financial institution in Africa and it is setting regional benchmarks in its complementary service areas – project development, financial advisory and principal investing. And it is delivering healthy returns to its shareholders.

The AFC has taken the bull by the horns and set out with a will to plug the infrastructure financing gap. It is a remarkable example of the “Africa transforming Africa” principle. While there is still a long way to go, the new dynamism in the infrastructure space typified by the AFC shows that closing the “infrastructure gap” is no longer a bridge too far. 

The AFC will host Africa’s premier international infrastructure summit: “AFC Live – Building Tomorrow’s Africa Today: Financing Infrastructure in the World’s Last Frontier Market” in Abuja, Nigeria, from 27th-28th March 2017.


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Written by Anver Versi

Award-winning journalist Anver Versi is the editor of New African magazine. He was born in Kenya and is currently based in London, UK.

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