Africa’s infrastructure crossroads
Many African economies are seeing a boom in exports and economic growth is creating demand for energy and a range of services. But the region still has a large infrastructure deficit. This is now the time to seize opportunities for innovative financing and transformative business models.
Africa stands at a crossroads. Economic growth has taken root across much of the region. In many countries, exports are booming, foreign investment is on the rise and dependence on aid is declining. Governance reforms are transforming the political landscape. Democracy, transparency and accountability have improved, giving Africa’s citizens a greater voice in decisions that affect their lives.
At the same time, many African governments are failing to convert the wealth created by economic growth into opportunities that all Africans can exploit to build a better future. Inequality is increasing. Poverty is not falling nearly as fast as it should, and Africa’s share of global malnutrition and child deaths is rising fast.
Worryingly, Africa’s economic trends are diverging across the continent. While nearly one-third of African countries will grow at around 5 percent, 12 others, comprising 40 percent of the region’s population, will see a slowdown (Regional Economic Outlook, October 2017, IMF). To watch is the sharp increase in public debt which has reached 50 per cent of GDP in nearly half of sub-Saharan African countries, sounding alarm bells at the IMF (Regional Economic Outlook, October 2017) .
But Africa’s infrastructure gap is huge.
The infrastructure challenge
- Two in three Africans – 620 million people – lack access to electricity.
- Excluding South Africa, Sub Saharan Africa’s electricity consumption is less than that of Spain.
- 600,000 Africans die each year as a result of household air pollution.
- Restricted access to energy leaves some of the world’s poorest people paying some of the world’s highest prices for power.
Africa has the world’s least developed network of paved roads. Companies using Africa’s ports face the world’s longest delays in delivery. Social infrastructure is equally underdeveloped. Only 30 per cent of the region’s population has access to improved sanitation facilities.
There is compelling evidence that infrastructure shortfalls undermine investment opportunities and have equally marked effects on people’s daily lives. In short, a lack of infrastructure is a bottleneck for both growth and opportunity. The same is true of finance. The reality is that Africa faces a twin deficit in infrastructure and inclusive finance.
Seizing the opportunity
Economic growth is increasing demand for energy, water, sanitation, transport, and information and communications technology (ICT). Trade opportunities are expanding and the business environment is improving.
Population growth is adding to demand. Reported returns to foreign investors in power projects in Sub-Saharan Africa are higher than in any other developing region. And the G20 has identified African infrastructure financing as a priority.
To close the region’s vast deficits in infrastructure, governments have great potential to mobilize tax revenues and external finance needed to underpin public investment. New and innovative financing to close the financing gap is becoming available. With its growing population, increasing consumer demand, and massive infrastructure needs, Africa is ideally placed to benefit from catalytic private sector investments. The next step is to bring together public and private sectors to drive the deals as quickly as possible.
And new technologies, such as blockchain, have potential to disrupt the traditionally closed sector – with a lack of accountability and transparency often nurturing corruption – with a more open, trusted process.
Africa’s energy leapfrog
African countries are rewriting the rules of the global multi-trillion dollar energy industry. Africa’s highly centralized energy systems often benefit the rich and bypass the poor. They are mostly underpowered, inefficient and unequal. Chronic under-supply of secure and affordable electricity is a barrier to growth, job creation and poverty reduction.
But in 2018, huge transformations in energy across Africa are anticipated where technology and ingenuity are revolutionizing the sector. Demand for modern energy is set to surge, fuelled by economic growth, demographic change and urbanisation. As the costs of low-carbon energy fall, Africa could leapfrog into a new era of power generation. Utility reform, new technologies and new business models could be as transformative in energy as the mobile phone has been in telecommunications. Consumers are becoming empowered and antiquated business models are being turned upside-down.
Africa’s renewables revolution is happening both on and off-grid enabling the continent to show the way to a low-carbon future, while putting in place the policies needed to reduce its vulnerability to the effects of climate change.
Mini-grids, smart metering and mobile money have all arrived in Africa. South Africa has emerged as a global leader in renewable energy, with wind-power now competitive with coal in terms of price. Other countries – Ethiopia, Kenya, Morocco and Rwanda, among them – are attracting large investments in renewable energy.
A “triple win” is within the region’s grasp, as renewable technologies create opportunities to increase agricultural productivity, improve resilience to climate change, and contribute to long-term reductions in dangerous carbon emissions.
Closing Africa’s infrastructure gap means facing serious and persistent problems, yet they are solvable. Many governments across Africa are showing leadership. Next steps include putting in place the necessary integrated plans and policies, to overcome market barriers, and providing incentives for the business models and finance that can scale up Africa’s infrastructure for an urgently needed economic transformation. The time is right for African governments and their infrastructure partners to cooperate and enable all Africans to benefit from their continent’s extraordinary wealth.
African Center for Economic Transformation (ACET)
Take a look at all our stories in this March 2018 issue.
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