Cape Verde is king of the road as Africa seeks to finance its own infrastructure

Transport costs alone are 63% higher on the continent than in developed countries, and in some cases, it’s higher than 100%

Africa needs to first rely on internal investment if it is to achieve the infrastructure developments it urgently needs, the president of Senegal said at a recent regional summit, as it emerged the tiny island of Cape Verde was ahead of the pack on the continent.

“We [must] rely on our own efforts (to mobilise) domestic resources, because of the shift in public development aid and the volatility of capital markets,” President Macky Sall said at the recent Dakar Financing Summit.

The two-day meeting of NEPAD - the New Partnership for Africa’s Development - brought together the leaders of Mali, Nigeria, and Benin, with 300 delegates from across the continent.

Closing the event last Sunday, Sall called for greater integration of the economies and infrastructure of African countries, and a “paradigm shift” in the way the resources of the continent are used, news agency AFP reported.

He also said that while Africa has “certain urgent needs”, it should be seen “not as a receptacle for aid but as a place of opportunity, investment, and partnership”.

The meeting, which had been due to be held last December, was essentially a roadshow to sell key projects to investors and to assuage their doubts over the risks involved. 

The potential returns on their money were also tabled. Investors have in recent years complained about the lack of bankable African projects they could invest in, despite the gaping infrastructure deficit. 

Bad road ‘penalty’
The African Development Bank (AfDB) has laid out some of the challenges facing the continent. The proportion of paved roads on the continent today is five times less than those in developed countries, while the road access rate is only 34%, compared with 50% in other parts of the developing world.

Because of this, transport costs alone are 63% higher in Africa than in developed countries, and in some cases, crosses the 100% mark. 

The costs of moving goods representing between 30% and 50% of total export value in Africa, and for the continent’s 16 landlocked countries, these could add up to three quarters of their total export value.

Only 30% of Africa’s population has access to electricity, against 70–90% in other parts of the developing world, while only 4% of its water resources are developed, including for irrigation and hydropower use.

While growing, the internet penetration rate on the continent is also only about 6%, compared to an average of 40% in other developing countries.

All these dampers have a negative impact on the continent’s competitiveness and its integration into the global economy.

Nepad, the African Union’s economic development vehicle adopted in 2001, has struggled with different strategies to meet the infrastructure challenge, with mixed results.

The Programme for Infrastructure Development in Africa (PIDA) is the latest stab at this and is developed jointly with the AU and the AfDB.

PIDA’s blueprint envisages some 37,200km of highways, 30,200km of railways and another 16,500km of interconnected power lines by 2040. The plan assumes an economic growth rate of 6% a year until 2040, in keeping with recent estimates by the Bretton Woods institutions.

Growing numbers
This means that by that year, the average per capita income on the continent will be $10,000, leading to a major strain in the delivery of power, transport, water and ICT infrastructure.

The plan also projects 54,150MW of hydroelectric power generation capacity, and 1.3 billion tonnes of extra throughput capacity at African ports. 

The bill for all these is estimated at $360-billion by 2040, and $68 billion by 2020, leading to an annual funding gap of $31 billion. 

The World Bank’s figures are that Africa will need to invest $93-billion a year over the next decade to meet its infrastructure shortfall.

The Dakar summit, called by PIDA to further demonstrate high-level political will, suggested a raft of funding models that private investors could buy into. 

Some 16 well-packaged projects out of 51 that have so far been identified were offered up as pilots for investors to pore over. 

They include the extension of the port in Dar es Salaam and a gas pipeline between Nigeria and Algeria. Others are the construction of a 4,500-km Algiers-Lagos highway which will open up Trans-Saharan trade, and a $25-billon infrastructure development plan linking South Sudan, Ethiopia and Kenya.

Credit to African stars
But as private money is courted, experts also said that the role of Africa in financing its own infrastructure has not been well articulated as international donors bask in the limelight.

Of the $90 billion spent on infrastructure projects on the continent, half was from the domestic resources of African countries, Mr Carlos Lopes, the executive secretary of the Economic Commission for Africa said. 

Cape Verde leads the pack in Africa, spending 44% of its own domestic resources to finance its infrastructure projects. The island country is currently running a government debt of 93% of GDP compared to 69% in 2009 due to public sector borrowing to finance large infrastructure projects,  according to the African Economic Outlook.

Namibia, Uganda and South Africa are next, spending 39, 28 and 24% of their own resources respectively, including through innovative ways such as infrastructure bonds, securitisation of remittances and sovereign funds.

Lopes said that the continent’s ability to finance infrastructure projects would depend on addressing some key bottlenecks. 

“There is for instance the obvious divergence in legal systems in Africa which has implications on infrastructure finance and development, particularly in the regional context,” he said.

Transparency in procurement was also another a factor which could be a disincentive to investors, he added.

East Africa is currently looking to build a $14 billion railway that links four countries, but the first phase in Kenya has been rocked by procurement controversies. 

Another key concern is Africa is bleeding funds through contracting non-African experts for such heavy engineering work.

Estimates suggest the continent spends up to $4 billion on this, despite having over 300,000 highly qualified Africans in the diaspora.

“On the face of it, Africa’s engineering challenges are daunting. Leading economies such as South Africa and Nigeria suffer from critical shortages that are worsened by international skill migration,” Harvard Professor Calestous Juma  wrote recently in the Mail&Guardian Africa.

“African governments need to revise their project tendering systems so that they specifically provide for engineering training and the involvement of local engineering firms,” Prof Juma said. 

It is estimated that closing Africa’s infrastructure deficits will increase the continent’s per capita economic growth by 2% a year and increase productivity of firms by as much as 40%.

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