The African Development Bank Group Chief Economist Complex Economic Brief Infrastructure Deficit and Opportunities in Africa Volume1, Issue September, 2010 1. Introduction There are huge investment The good news is governments have Contents: opportunities in Africa, especially in started exploring opportunities for 1. Introduction infrastructure, where the benefits are tapping into private financing, creating expected to be high. In particular, new partnerships and reducing wastage Africa’s absolute and relative lack of in such investments. This strategic shift 2. The State of infrastructure points to the existence has come about on the realization that Infrastructure Supply in of untapped productive potential, scaling up financing from traditional Africa which could be unlocked through sources alone would not be adequate to scaling up investments in the sector. close the infrastructure gap. Also, there Notably, infrastructure plays a central is evidence that those countries that role in improving competitiveness, have invested strategically in 3. Africa’s Infrastructure facilitating domestic and international infrastructure are reaping the benefits2. Financing trade, and enhancing the continent’s It is therefore crucial to open Requirements integration into the global economy. opportunities to attract new investors as Coupled with better human well as exploring new mechanisms for development outcomes that improved financing infrastructure in Africa. 4. Mobilizing Financing infrastructure promises, the spillover It is in this context that this brief for Infrastructure in effects and the dynamism that would attempts to assess Africa’s Africa be generated could support the infrastructure gaps and financing continent’s economic growth and requirements to close such gaps. It also 5. The Role of the AfDB poverty reduction efforts. Similarly, identifies financing sources and in Infrastructure improved infrastructure could help suggests new sources and financing Development eliminate some of the binding instruments. This is followed by a brief constraints to the realization of the narrative of the Bank’s role in 6. Conclusions benefits of globalization. infrastructure. In concluding, the main message is that efforts by African The estimated financing requirement governments to close the gaps present to close Africa’s infrastructure deficit huge investment opportunities to all amounts to USD 93 billion annually types of investors, especially the private until 20201. In as much as this sector. financing requirement is a challenge, Mthuli Ncube African governments have a wide [email protected] range of policy options that could +216 7110 2062 open new sources of finance. Charles Leyeka Lufumpa [email protected] +216 7110 2175 Prepared by the following staff: Albert Mafusire (a.mafusire @afdb.org, Tel +216 7110 2521) Leonce Ndikumana ;John Anyanwu ([email protected], Tel +216 7110 2225);Zuzana Brixiova [email protected] ([email protected], Tel +216 7110 2335); and Maurice Mubila ([email protected], Tel +216 +216 7110 2076 7110 3653) Infrastructure Deficit and Opportunities in Africa Page 2 2. The State of Infrastructure 2.1 Where do the Supply in Africa Opportunities Lie? Infrastructure investments in Africa Electricity – In 2008, only 38% of “The continent’s, road have not kept pace with growth in Africans had access to electricity freight is about 4 times demand, creating a huge deficit. Less compared to an average of 68% for all more expensive, power than 40% of the continent’s developing countries, 53% for South costs 14 US cents per population has access to electricity, Asia and 80-90% for Latin America. kilowatt-hour against 5 about a third of the rural population The figure is even lower for Sub- – 10 US cents and has access to roads and only 5% of Saharan Africa (SSA), currently at mobile telephony costs agriculture is under irrigation. The 26%. Furthermore, about 30 African USD 12 per month situation is no better for social countries endured on average 11.5 infrastructure, with only 34% of the power outages in 2007. The power compared to USD 8 population having access to improved outages were due largely to lack of elsewhere.” sanitation and a slightly better regional interconnectivity of the situation for clean water at about 65%. electricity grids and shortages in On the other hand, the Information affected countries (Annex 1b). During and Communications Technology this period, regional surpluses in (ICT) sub-sector is characterized by generation capacity were noted for all huge differences across specific the five sub-regions except for East services. In 2008, four out of ten Africa, which had intermittent Africans had access to mobile phones, shortages (Figure 1). Some of the with penetration rates growing fastest surplus countries like South Africa compared to the rest of the world. now have deficits due to increases in However, internet density is just demand. The costs of power outages above 80 persons per thousand (less are significant, with Africa loosing than one in ten), while the figure for almost 12.5% of production time fixed telephones are even lower. compared to 7% for South Asia, which the next worst case (Figure 2). Furthermore, Africa faces higher Therefore potential productivity gains access costs compared to other from electricity supply, together with developing countries. The continent’s, the associated income effect point to a road freight is about 4 times more market with significant growth expensive, power costs 14 US cents potential. per kilowatt-hour against 5 – 10 US cents and mobile telephony costs USD Indeed the emergence of independent 12 per month compared to USD 8 power producers (IPPs) signals elsewhere. There is no doubt that the sweeping changes in the power sector. African market is still underserved For instance, the National Energy and the returns to investors are high. Regulator of South Africa has Investors that have gone into the established a regulatory environment "In Morocco, nearly telecommunications and finance sub- that would allow upward adjustments two-thirds of electricity sectors, following improved in tariffs and thus improve the production is by private regulatory conditions have realized viability of private sector suppliers. In Morocco, nearly two-thirds of producers.” higher returns compared to any other region in the world. UNCTAD electricity production is by private reported that since 1990, the rate of producers, the Jorf Lasfar Energy return on foreign direct investment Company - presently Africa's largest (FDI) in Africa has averaged 29%, IPP, Compagnie Eolienne de Detroit and since 1991 it has been higher than (CED) and Energie Electrique de in all other regions, in many years by Tahaddart (EET). a factor of two.3 Infrastructure Deficit and Opportunities in Africa Page 3 4 More importantly, the majority of and cheaper forms of energy. These project financing for these companies developments clearly show opportunities was sourced from local Moroccan banks for private suppliers, in a sector that is and the sector is now diversifying into characterized by shortages. “Having realized the clean energy and other more efficient inadequacy of public Figure 1: Electricity Balance in Africa; million kilowatt-hours (-deficit; + surplus) funds in developing road infrastructure Africa is moving quickly into toll road.” Source: AfDB Statistics Figure 2: Working hours lost due to power outages, 2009 Source: AICD, 2009 “Between 1990 and 1999 Africa’s private Transport Infrastructure – Roads – from 0.5 km per thousand of persons in SSA’s total road network is only 204 Malawi to 35.5 km in Namibia. Having investments in roads km per 1,000 km2 of land area, of realized the inadequacy of public funds was only USD1.4 which only about 25% is paved, in developing road infrastructure Africa billion, these compared to the world average of 944 is moving quickly into toll roads. While investments increased by km per 1000 km2 of land area. This Africa was a late starter, it has more than USD 21 translates into 3.6 km of road per 1,000 increased private sector participation in billion between 2000 persons for the region, relative to a roads. Between 1990 and 1999 Africa’s and 2005.” world average of about 7 km per 1000 private investments in roads was only persons. Behind these numbers USD1.4 billion, these investments however lie huge intra-African increased by more than USD 21 billion disparities (regional and trans-African between 2000 and 2005.1 The USD 385 links are missing, see Annex 1a), with million Lekki-Epe toll road in Lagos is the availability of rural roads ranging a recent example. Infrastructure Deficit and Opportunities in Africa Page 4 Such investments are expected to be Ports – Whereas Africa operates 64 even bigger in the near future, given ports, huge problems remain with the existing gaps in major road links. respect to capacity and performance of For example, the Maghreb Highway in existing facilities as well as handling North Africa is expected to cost USD costs. Over-the-quay container- “The challenge with 11.5 billion over a ten-year period to handling performance is below 20 regards to transport 2018. moves/hour, compared to 25–30 in infrastructure is not modern terminals around the world. In only limited to the Rail – Rail networks are the least addition, handling costs average 50% physical deficit but also developed in Africa, with very little more than in other parts of the world. lack of linkages additions to the systems developed in With about half of the coastal countries between roads and rail the colonial period. The 1067km long operating port facilities introducing lines, and poor Tazara rail line developed in the 1970s sectoral legislation and regulatory connectivity to ports.” is a notable exception. Since the 1990s, reforms, new investment opportunities the lengths of rails have remained will come onboard. Currently, private unchanged in many countries. In 2007, investments in ports are low yet there is Africa has 69 000 km of which 55 000 a great need for transshipment facilities.