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Study shows that transforming African infrastructure will require an additional $31 billion a year and huge efficiency gainsThe poor state of infrastructure in sub-Saharan Africa – its electricity, water, roads, and information and communication technology (ICT) – cuts national economic growth by two percentage points every year and reduces business productivity by as much as 40%.
“Africa’s Infrastructure: A Time for Transformation” finds that Africa has the weakest infrastructure in the world, but ironically Africans in some countries pay twice as much for basic services as people elsewhere. This study argues that well-functioning infrastructure is essential to Africa’s economic performance, and that improving inefficiencies and reducing waste could result in major improvements in the lives of Africans.
The report estimates that US$93 billion is required annually over the next decade, more than twice what was previously thought. Almost half of this amount is required to address the continent’s current power supply crisis that is hindering Africa’s growth.
The new estimate amounts to roughly 15% of the continent’s gross domestic product, comparable to what China invested in infrastructure over the last decade.
The study found that existing spending on African infrastructure is much higher than previously known, $45bn a year. Also surprising was the fact that most of this is financed domestically by African taxpayers and consumers. The study further found that there is considerable wastage to address; a number of efficiency improvements could expand the available resources potentially by a further $17bn.
However, even if major efficiencies are gained, there is still a funding gap of $31bn every year, much of it for power and water infrastructure in fragile states.
Relative to the size of their economies, the funding gap is daunting for the region’s low-income countries (that would need to spend an additional 9% of their GDP) and particularly for the region’s fragile states (that would need to spend an additional 25% of their GDP).
Resource-rich countries such as Nigeria and Zambia face a more manageable funding gap of 4% of GDP. Particularly now with the global financial crisis, investing in African infrastructure is critical for Africa’s future. “Modern infrastructure is the backbone of an economy and the lack of it inhibits economic growth,” says Obiageli Ezekwesili, World Bank vice president for the Africa Region. “This report shows that investing more funds without tackling inefficiencies would be like pouring water into a leaking bucket. Africa can plug those leaks through reforms and policy improvements, which will serve as a signal to investors that Africa is ready for business.”
The report recommends addressing the $17-billion annual efficiency gap and closing the remaining $31-billion annual funding gap for African infrastructure. Closing the efficiency gap requires improving management of utilities, ensuring adequate maintenance, promoting regional integration, recovering costs while recasting subsidies to enable broader access, and improving allocation and spending of public resources.
To close the funding gap, a wide range of sources will be required, including public budgets, resource rents, local capital markets, private sector and non-OECD (Organisation for Economic Co-operation and Development), as well as traditional donor assistance.
Countries with the greatest infrastructure needs are often the least attractive to investors. Many of the countries in Africa will probably take longer than a decade to catch up on infrastructure and will probably have to use lower cost technologies. But action is required urgently, the report argues, and the global financial crisis is underscoring the need for a massive effort to overhaul Africa’s infrastructure.
“Africa’s Infrastructure: A Time for Transformation” takes a holistic look at four crucial sectors – energy, water, transport, and ICT – that underpin national economies and are critical for reducing poverty in Africa. Prioritising these sectors, increasing investments, and improving efficiency can help African countries avert the worsening impacts of the financial crisis and begin laying the foundations for future growth as the global economy rebounds.
• Power: Inadequate access to energy is the single largest impediment to economic growth. No country in the world has developed its economy without abundant energy supplies. Chronic power shortages affect 30 Africa countries; the installed generation capacity of 48 sub-Saharan African countries is 68 gigawatts, no more than Spain’s – and 25% of that is unavailable because of ageing plants and poor maintenance. At US$0.18 per kilowatt-hour on average, Africa’s power is expensive to produce by global standards, yet regional trade could lower costs significantly.
• Water: High hydro-climatic variability, inadequate storage, rising demand, and lack of transboundary co-operation undermine the African water sector. Less than 60% of Africa’s population has access to drinking water and only a handful of countries are on track to reach the Millennium Development Goals. With more than 60 transboundary rivers in Africa, developing large-scale infrastructure to manage water use and avoid conflicts is a huge challenge. Over the last 40 years, only four million hectares of new irrigation have been developed, compared to 25 and 32 million hectares for China and India respectively.
• Transport: Ineffective linkages between different transport modes (air, road and rail), declining air connectivity, poorly equipped ports, ageing rail networks, and inadequate access to all-season roads are key problems facing Africa’s transport system. Only 40% of rural Africans live within two kilometres of an all-season road, compared to some 65% in other developing regions. Improving road accessibility in rural areas is critical to raising agricultural productivity across Africa. Limited competition in the trucking industry keeps road freight tariffs unnecessarily high, while red tape along international trade corridors keeps the movement of freight below 12km/h – as fast as a horse and a buggy – even though truck speeds can be 60km/hour.
• ICT: The number of African mobile phone users increased from 10 million in 2000 to more than 180 million in 2007. Between 1992 and 2005, private sector investment in ICT infrastructure topped $20bn, but high prices of services are a problem. In 2007 the average price of prepaid mobile services cost $12.58 a month in Africa, six times the $2 cost in Bangladesh, India and Pakistan.
The study – conducted by a partnership of institutions including the African Union Commission, African Development Bank, Development Bank of Southern Africa, Infrastructure Consortium for Africa, Nepad and the World Bank – is one of the most detailed ever undertaken on the African continent. Surveys were conducted among 16 rail operators, 20 road entities, 30 power utilities, 30 ports, 60 airports, 80 water utilities, and over 100 ICT operators, as well as the relevant ministries in 24 countries.
The results were derived from detailed analysis of spending needs (based on country-level micro-economic models), fiscal costs (which involved collecting and analysis of new data) and sector performance benchmarks (covering operational and financial aspects as well as the country’s institutional framework).
Linkages between transport modes do not function effectively in Africa, while logistics services remain in their infancy. This contributes to significant delays and costs in the movement of international freight. For landlocked countries, this is a multinational problem, being confronted regionally along transit corridors.
Air transport
• Africa has seen strong growth in air traffic in recent years.
• A relatively efficient hub and spoke system has evolved in eastern and southern Africa, but not so in West and Central Africa where air connectivity is cumbersome and even declining.
• A poor safety record is the largest challenge facing the air transport industry in Africa today. The problem is no longer one of ageing aircraft, but rather one of lax supervision of airlines.
• Africa has little need of new runways and terminals, but air traffic control and surveillance facilities need substantial improvement.
Ports
• Over the last decade, the amount of cargo through Africa’s port system has tripled, but containerisation is still low and suffers from trade imbalance and weak inland transport linkages.
• Few African ports are large enough to receive calls from major shipping lines, hence the importance of focusing on regional hubs with efficient transshipment along the coast.
• Many ports fall behind international best practice, costs are high, and delays can be considerable.
• Institutional reform paving the way for greater involvement for major international terminal operators is the most promising way to improve efficiency.
Railways
• The economic significance of African railroads has declined markedly during the last 30 years following economic liberalisation and improvements in road infrastructure.
• Restoring Africa’s ageing rail networks to good operating condition would require a one-time rehabilitation effort of US$3bn.
• Rail concessions adopted in many countries have helped improve operational efficiency and reverse traffic decline, but not to mobilise the anticipated volume of investment.
• Intense competition between roads and rail freight means that most lines simply do not carry enough traffic to generate the revenues required to finance track upgrades.
Roads
• Many African countries have made progress in developing sound institutions for funding and building road infrastructure, but maintenance remains significantly
under-funded. Without a competitive trucking industry and smooth trade facilitation, road freight services will continue to be costly and inefficient, however good the quality of the roads.
• One of Africa’s major remaining transport challenges is to improve road accessibility in rural areas, which is critical to raising agricultural productivity.
• Africa’s rapidly growing cities also face major mobility problems due to the low density of paved roads and the inadequate nature of public transportation systems.
Article supplied by Africa Infrastructure Country Diagnostic
