Infrastructure development is the cornerstone for sustainable economic development of each country in Africa, writes Kimberly J. Heimert.
Studies show that an increase in infrastructure investment in developing economies has significant positive effects on economic growth. According to a World Bank study, from 1990 to 2005, infrastructure development in Africa contributed almost 1% to per capita economic growth, compared with 0.68% for other structural policies.
According to the World Bank’s 2017 edition of Africa Pulse, Sub-Saharan Africa’s per capita gross domestic product would increase by 1.7% per year if the quantity and quality of its infrastructure were to match the developing world’s median.
Unlike single-market projects, regional infrastructure projects in Africa create economies of scale, are drivers of economic growth, and provide opportunities to strengthen Africa’s resilience.
In addition, such projects boost intra-African trade, which currently accounts for only 18% of trade within Africa, according to a joint African Development Bank (AfDB), Organization for the Economic Coordination and Development (OECD), and United Nations Development Programme (UNDP) report, and are key to creating more fully integrated economies, which is particularly important for landlocked and smaller markets.
Supporting power infrastructure networks
Regional infrastructure that allows the provision of power across national borders will encourage the development of power projects in resource rich areas, even if the population within national borders would not otherwise support such development.
For example, access to reliable and affordable energy in four west African countries has been transformed with the inauguration of a new 1,303 km electricity interconnector in June 2017.
This first cross-border energy supply between Cote d’Ivoire, Liberia, Sierra Leone, and Guinea is intended to support economic development and allow existing and future hydropower projects to benefit the region.
Mining and mobility
Regional projects are particularly critical for landlocked countries rich in minerals for ‘pit to port’ transportation of extracted minerals. For example, prospective metal mining projects in Tanzania, as well as other projects further inland in Burundi, Rwanda, and Uganda will increase the need for reliable transportation systems within the Central Corridor.
The development of infrastructure that flows smoothly across borders and throughout regions and the continent is not only important for extraction industries; it also is a necessary precursor to developing and delivering goods and services across borders.
The establishment of transport corridors should revitalise existing regional markets, create new markets, and support the establishment of value chains by encouraging the development of commercial and service hubs along the corridors.
Calls have been made by the AfDB, OECD, and UNDP to reinforce internal growth centers, which would reduce the time and cost of doing business in Africa. In particular, they have suggested that major transport corridors, such as the Maputo Development Corridor (linking South Africa to Mozambique), the Trans-Kalahari Corridor (linking Botswana, Namibia, South Africa, and Tanzania), and the recent electric rail linking Djibouti and Ethiopia, be implemented throughout Africa to facilitate trade.
Better information and telecommunications technology (ICT) will cut across sectors by allowing rapid and free flow of information, which among other things, will facilitate the development of the agricultural sector by helping farmers access credit, use land and water more efficiently, obtain weather, crop and market information, and trace markets.
Finance and investment
The costs for Africa’s infrastructure development should not be underestimated. A World Bank study estimates that $93 billion a year (about 15% of the continent’s gross domestic product) will be needed to develop the infrastructure necessary to ensure successful economic development across Sub-Saharan Africa.
African governments historically have financed a significant portion of infrastructure development. Therefore, infrastructure development has been constrained by the size of government budgets.
It is now, however, widely accepted that there is not a ‘single solution’ to Africa’s infrastructure financing gap.
Given the scale of the necessary investment, it is clear that it cannot be tackled by the public or private sector in isolation. An effective collaboration of the public and private markets is necessary, with the private sector playing a pivotal role.
However, there are significant political challenges to implementing regional infrastructure projects with private sector financing.
Regional infrastructure projects require long-term policy planning and frameworks that transcend political parties, have broad political consensus, and continue beyond the next election or political cycle, none of which is within the control of the private sector.
To address the challenges of implementing regional infrastructure projects, African governments need to create an environment that leads to ’bankable’ projects – that is, projects that banks will finance.
Project bankability and investor confidence
There are many important components to creating a bankable project, but a fundamental requirement is ensuring that there is sufficient political will to successfully implement the project.
Inconsistent or insufficient political will, a lack of leadership from African governments, and different priorities among political actors can detract from the implementation of regional infrastructure agendas, including those developed and endorsed by African governments within international and regional bodies.
For example, a 2009 World Bank report indicates that the New Partnership for Africa’s Development (NEPAD), an economic development programme of the African Union, would be more successful in building consensus around economically viable regional infrastructure projects if it received more support from African heads of state.
A lack of cross-border political will can be caused by a number of factors, including different sovereign political priorities and agendas, historical legacies of political differences, inter-country rivalries, fear of political and/or economic domination, and acute power imbalances among various countries within a region.
Overcoming these challenges requires strong and committed leadership within a country. Political leaders need to realise that countries are stronger when acting cooperatively with others in their region.
They need to work with other countries to establish stable legal systems and institutions that will facilitate private sector participation and ensure that such systems are able to work seamlessly with their neighboring countries’ legal systems.
AfDB has stated that many countries lack adequate legal and regulatory frameworks and lack technical skills to manage public private partnership programmes and projects. It also has warned that ‘unfavorable investor perceptions’” of country risk must be overcome.
The International Monetary Fund (IMF) has said that Africa needs structural reforms to promote a strong private sector investment climate.
Achieving the requisite level of institutional, legal, regulatory, and technical expertise to successfully deliver complex infrastructure projects requires committed and coordinated political will.
For example, public private partnership or concession arrangements that are substantially different, in terms of details and/or sophistication, in neighboring countries could derail a project that requires regional involvement.
Strengthening the institutional basis for cooperation with the governments of relevant neighboring countries will support the successful implementation of regional infrastructure projects.
Top level collaboration
Political and financial leaders in Africa have established a number of different institutions and initiatives on a regional and continental basis to pursue more regional cooperation and infrastructure projects, including NEPAD, PIDA (the Programme for Infrastructure Development in Africa, created by NEPAD in 2011 to identify and assess key cross-border infrastructure investments), PAP (PIDA’s Priority Action Plan, which includes 51 infrastructure projects to be implemented by 2020, at a cost of $68 billion), and RIDMP (the Regional Infrastructure Development Master Plan, adopted in 2012 by members of the Southern Africa Development Community as a network for coordinating regional projects across specific sectors).
NEPAD specifically acknowledged the importance of political will in delivering the aims of the partnership – calling on African leaders to take joint responsibility for conflict resolution, promoting democracy, restoring and maintaining macroeconomic stability, instituting transparent legal and regulatory frameworks for financial markets, and building the capacity of African states to set and enforce the legal framework, and to maintain law and order, in addition to other social priorities.
However, the efficacy of these institutions and initiatives has been limited. African leaders should carefully examine those institutions and initiatives and empower those that are most likely to be effective facilitators of regional infrastructure projects.
Regional infrastructure development in Africa is challenging, but it is a challenge that must be met for the continent to achieve its economic development goals. With the proper political will to align various sovereign political priorities and agendas, develop coordinated legal and regulatory regimes, empower regional institutions, and address historical legacies of political differences, African leaders can create the necessary environment for successful implementation of vital regional infrastructure projects in Africa, paving the way for fulsome economic development throughout the continent.
About the author
Kimberly J. Heimert is counsel in the Project Development and Finance practice of Shearman & Sterling LLP, based in their Washington, D.C. office.
Kimberly recently joined the firm after serving in President Obama’s administration as General Counsel of the Overseas Private Investment Corporation (OPIC), the U.S. government’s development finance institution.
Niki Amalu and Sarah Kirkness of Shearman & Sterling also contributed to this article.