In the city of Lagos, Africa’s richest man has embarked on an ambitious task. He wants to build a $14bn oil refinery with the capacity to produce 650,000 barrels per day. Expected to commence operations in 2021, Aliko Dangote’s refinery is one of the many major ongoing infrastructure projects in the continent and a potential solution to Nigeria’s oil import problem.
Across the region, there is a lack of adequate physical infrastructure in sectors such as energy, transportation and telecommunications. In terms of social infrastructure, like water supply, sanitation, education and healthcare, significant gaps still exist which directly impact the lives and livelihoods of citizens. In addition to the familiar factors which impede infrastructure development, the continent’s difficult geography further complicates the problem.
Let’s take the energy sector as an example. Access to reliable and affordable electricity is still a myth in many African countries. According to estimates, around 600 million (2 out of 3 people) do not have access to electricity. Majority of African households still rely on subsidised petrol or diesel-powered generators for electricity. In 2018, Africa connected only 20 million people to electricity, the number was fivefold in India. While the continent has made substantial progress in this area, there is still so much work to be done.
Addressing the infrastructure deficit is crucial for reducing poverty, catalysing economic growth and enhancing living standards. It is also important for enabling businesses to thrive and increasing overall productivity. And, we know that productivity is great for GDP and other economic indicators that denote progress.
According to a World Bank study, the dire state of infrastructure in the continent has reduced national economic growth by 2% points annually and decreased business productivity by at least 40%.
Most of the bottlenecks that stifle the growth and survival of businesses in African countries are related to infrastructure. From small to medium and large enterprises, no one is left out. They all use the same bad roads and bear the same high energy costs. These costs lower productivity and increase production overhead, which is then passed on to consumers in the form of higher prices. More so, high production costs create entry barriers, deter innovation and lower international competitiveness.
In terms of commercial activities, trade within and outside Africa trade has been restricted due to poor physical infrastructure. Infrastructure will help promote regional integration and lower transaction costs across the continent. This is why the AfCFTA is such a crucial part of the continent’s developmental future.
Construction is capital intensive
Infrastructure projects are not cheap and funding remains a major challenge.
Estimates from the African Development Bank suggest that to meet up with demand, African infrastructure needs between $130 to $170bn annually. Similarly, there is a spending deficit of $108bn.
These estimates reflect the minimum infrastructure required to sustain growth. But, for many African countries, the ability to finance their infrastructural needs has become more constrained due to rising public debt, paucity of resources and a fast-growing population. This is also compounded by the lack of technical capacity to manage complex infrastructural projects which often results to reliance on expatriates with the concomitant foreign exchange outlay.
Perhaps, this is why the continent has looked to China to tackle its infrastructural inadequacies.
China is Building Africa
We cannot talk about infrastructure in Africa without citing China.
The East Asian country is the single largest financier of African infrastructure, constructing one in three projects and financing one in five. The Chinese government is involved in infrastructure projects in more than 35 African countries, most of which are concentrated in Angola, Nigeria, Ethiopia and Sudan and focused on the energy, transportation and ICT sector.
There is a lot of controversy surrounding what is often labelled as a neo-colonialist relationship between the continent and China. Africa needs infrastructure, China has the money and expertise to build it. So, what is the issue?
The main bone of contention with China’s involvement in Africa’s infrastructure is the amount of debt the continent is piling up. The fear of a Chinese fuelled debt crisis looms large. There is also the “Made in China” perception driven by anecdotes of collapsing roads and hospitals which suggest that Chinese-built infrastructure is inferior. However, these perceptions are not always accurate. A trip to China might change your mind.
Whilst the concerns about China’s intentions are valid, the bottom line remains that Africa desperately needs to modernise its infrastructure and China is willing to do the job. However, African governments need to be tactical in managing these projects and ensure that their countries and the continent as a whole reap the benefits of its massive investment.
Bridging the gap
Now, we need to remember that Africa is not a country, so there is no one size fits all solution to its infrastructural problem. The challenges and needs of oil-rich Nigeria will differ from that of fragile Congo. Even so, a regional approach to infrastructure will be highly beneficial. And there are economies of scale gains that we cannot disregard.
The key to bridging the financing gap in the infrastructural sector is strategic partnerships, especially with foreign partners who are willing to invest.
The good news is that there is an availability of private-sector finance. The bad news is that investors experience difficulty in matching these funds to viable projects in the continent and are skeptical about investing due to political and economic risk factors.
There is also the pervasive issue of corruption in the form of “white elephant” projects, bribes and so on. African countries have a reputation for misappropriating funds meant for schools and building bridges that lead to nowhere. Not only does this prevent the provision of infrastructure that might have changed lives, but it also increases the risk perception, further driving investors away from the continent.
Innovative financing schemes such as Public-Private Partnerships (PPPs) can help governments deliver infrastructure cost-effectively and efficiently. But, for this to work, governments need to be proactive by creating a favourable institutional, legislative and regulatory environment.
The benefits of infrastructure on inclusive economic growth and development are clear, just look at the East Asian economies such as Japan, Hong Kong and South Korea. These are shining examples which Africa can learn from.
Ultimately, African governments must recognize that infrastructure is beyond the construction of large refineries and dams. It is also about ensuring that children can go to school in a conducive environment and study at home without the interference of a flickering candle, mothers can get the medical care that they need and citizens can live a happier and more fulfilling life. In short, infrastructure is social service.
Thank you for reading