- A study recently conducted in 24 African countries shows that the poor state of infrastructure in Sub Saharan Africa - its electricity, water, roads, and information and communications technology (ICT) - cuts national economic growth by 2 percentage points every year and reduces business productivity by as much as 40 percent.
The study, “Africa’s Infrastructure: A Time for Transformation” finds that Africa has the weakest infrastructure in the world, but ironically Africans in some countries pay twice as much for basic services as people elsewhere. This study also argues that well functioning infrastructure is essential to Africa’s economic performance and that improving inefficiencies and reducing waste could result in major improvements in African’s lives.
The report estimates that US$93 billion are needed annually over the next decade, more than twice what was previously thought. Almost half of this amount is needed to address the continent’s current power supply crisis that is hindering growth. The new estimate amounts to roughly 15 percent of the continent’s gross domestic product (GDP), comparable to what China invested in infrastructure over the last decade.
The study also found that existing spending on African infrastructure is much higher than previously known, $45 billion a year. Also surprising was the fact that most of this is domestically financed by African tax payers and consumers. The study also found that there is also considerable wastage to address; a number of efficiency improvements could potentially expand the available resources by a further $17 billion.
However, even if major efficiencies are gained there is still a funding gap of $31 billion every year, much of it for power and water infrastructure in fragile states, the study points out. Relative to the size of their economies, the funding gap is daunting for the region’s low-income countries (who would need to spend an additional 9 percent of their GDP) and particularly for the region’s fragile states (who would need to spend an additional 25 percent of their GDP), it added.
It countinued that resource-rich countries like Nigeria and Zambia face a more manageable funding gap of 4 percent of GDP. Particularly now with the global financial crisis, investing in African infrastructure is critical for Africa’s future, the study said.
“Modern infrastructure is the backbone of an economy and the lack of it inhibits economic growth,” said Obiageli Ezekwesili, World Bank Vice President for the Africa Region. “This report shows that investing more funds without tackling inefficiencies would be like pouring water into a leaking bucket. Africa can plug those leaks through reforms and policy improvements which will serve as a signal to investors that Africa is ready for business.”
The report recommends addressing the $17 billion annual efficiency gap and closing the remaining $31 billion annual funding gap for African infrastructure. Closing the efficiency gap requires improving management of utilities, ensuring adequate maintenance, promoting regional integration, recovering costs while recasting subsidies to enable broader access, and improving allocation and spending of public resources. To close the funding gap a wide range of sources will need, including public budgets, resource rents, local capital markets, private sector and non-OECD finance, as well as traditional donor assistance.
The study also points out that countries with the greatest infrastructure needs are often the least attractive to investors. Many of the countries in Africa will probably take longer than a decade to catch-up on infrastructure and will probably have to use lower cost technologies. But action is needed urgently, the report argues, and the global financial crisis is underscoring the need for a massive effort to overhaul Africa’s infrastructure, it said.
“Africa’s Infrastructure: A Time for Transformation” takes a holistic look at four crucial sectors - energy, water, transport, and ICT - that underpin national economies and are critical for reducing poverty in Africa. Prioritizing these sectors, increasing investments, and improving efficiency can help African countries avert the worsening impacts of the financial crisis and begin laying the foundations for future growth as the global economy rebounds.
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