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Developing African Infrastructure for the Continent’s Structural Transformation
Across Africa, investments in physical and social infrastructure have failed to keep pace with growth and demand, creating a serious infrastructure deficit that slows investment, the achievement of broad-based and inclusive growth, and poverty reduction.
The figures are revealing. More than half of the countries in Africa suffer chronic power outages, stifling industrialization and other economic progress. The continent’s transport infrastructure remains fickle, hampering trade and economic growth. Indeed, high transportation costs, due to inadequate road and rail networks and insufficient port facilities, often add up 75 per cent to the price of Africa’s exports, undermining their competitiveness on the global markets. Meanwhile, inadequate water and sanitation infrastructure costs Africa the equivalent of some five per cent of its GDP.
Poor infrastructure also hampers intra-regional trade and integration. This is despite the widespread agreement that the expansion of hard cross-border infrastructure in transport, energy and telecommunications sectors is critical to Africa’s economic advancement. Indeed, inadequate infrastructure is often cited as the single largest obstacle to doing business on the continent.
Without major investments in infrastructure, one thing is clear: Africa’s economic and social development will continue to seriously lag behind that of the rest of the world. The “structural transformation” that the AfDB and its partners are determined to achieve will not materialize. Yet Africa’s infrastructure deficit can be redressed.
Building on the successes of the last decade, the AfDB believes, Africa can meet its vital infrastructure needs. According to the African Development Bank’s Strategy for 2013-2022: At the Center of Africa’s Transformation, Africa has become the world’s second fastest-growing continent and is now laying the ground for a major “structural transformation”, including that of its infrastructure.
Convinced that infrastructure development will be a critical catalyst for Africa’s structural transformation, the AfDB has made it one of the cornerstones of its 2013-2022 strategy. Coupled with sound policies, the Bank says, better infrastructure will drive Africa’s transformation by enhancing regional integration, private sector development, investment, entrepreneurship and micro, small and medium enterprises. It will also enhance African productivity and competitiveness that should aid the continent’s structural transformation.
In implementing this strategy, the Bank will dedicate a substantial proportion of its new commitments to the improvement of transport and logistics chains, increasing energy output, enhancing the development of water resources, and expanding broadband telecommunications. It will also support the management of urban growth and the development of sustainable urban infrastructure systems, particularly urban transport and urban water, sanitation and waste management. Further, the Bank will support policy, institutional and regulatory reforms to promote private participation and enhance the efficiency and sustainability of infrastructure investments. It will also strive to maintain its leadership role in continental infrastructure initiatives, including the New Partnership for Africa’s Development (NEPAD) and the Infrastructure Consortium for Africa, it will expand its analytical and advisory capabilities in infrastructure.
Already, the Bank has embarked on a number of creative approaches designed to accelerate the development of Africa’s infrastructure. It is actively promoting confidence in African infrastructure projects financed through Public-Private Partnership Investments (PPPIs) to lenders who may otherwise be reluctant to invest on the continent.
With a clear mandate from the African Union, the Bank it is helping to lead the continent-wide Programme for Infrastructure Development in Africa (PIDA). Adopted by the African Heads of States in January 2012, PIDA galvanizes the continent’s efforts to develop key regional infrastructure.
The Bank also continues to actively support the development of African infrastructure through the NEPAD Infrastructure Project Preparation Facility, the African Water Facility, the Rural Water Supply and Sanitation Initiative, and the Multi-Donor Water Partnership Program for Africa.
Yet Bank funding alone will not suffice and financing will remain a major challenge. It is estimated that Africa will have to invest US $93 billion annually, until 2020, to close its infrastructure deficit. The investment cannot be met by the resources currently available to African governments. Even the scaling up of infrastructure financing from the traditional sources, including taxes, government borrowing and aid, will not suffice.
Home to more than 200 million people, with as many as 80 per cent surviving on subsistence agriculture and more than 50 per cent living on less than US $1.25 a day, and legacies of protracted conflict, Africa’s fragile states face particular problems. Poor infrastructure depresses their productivity by an estimated 40 per cent. Their limited social cohesion, weak governance institutions, high unemployment, poverty and inequality, a high propensity for political instability, and a low capacity to absorb development funds, all weaken their ability to raise funding through more traditional means and markets.
Africa, it is clear, will need new and innovative sources of finance to clear its infrastructure deficit. The continent’s fragile states will require tailor-made solutions and special tools to address their urgent development challenges.
According to its 2013-2022 strategy, the Bank stands ready to lead the way. With a proven track record and expertise in issuing bonds in international capital markets, it will advise African governments seeking access to international debt markets to finance infrastructure projects.
Its African Financial Markets Initiative will help Africa raise the much sought-after funding. “The goal is to help African financial markets build the capacity to raise long-term finance for infrastructure development and the private sector efficiently and effectively,” the strategy says.
Green bonds recently issued by the Bank could set the stage for attracting a new class of investors, including those in infrastructure. As South-South investment grows, the Bank will develop innovative capital market instruments, including infrastructure bonds for Africa.
For the decade to come, the AfDB is certain to be Africa’s premier infrastructure development partner.