Economy

AfDB says Africa needs $170bn annually to bridge infrastructure gap

by KELVIN UMWENI

October 12, 2018 | 12:31 pm
  |     |     |   Start Conversation

Significant strides have been recorded in African infrastructure development since the 2000s, but the shortage is still stark, obstructing African economies from diversifying, and preventing them from realising their full potential.

 

The eight edition of the Rand Merchant Bank’s (RMB) Where to invest in Africa focuses on the need for efficient infrastructure which is key to uncovering opportunities and unlocking Africa’s growth potential.  The report came up with rankings for the 53 economies on the continent based on the measurement of the quality of their infrastructure.

 

“The report encapsulates a wide range of investment opportunities on the continent. It highlights opportunities in Nigeria with a specific focus on infrastructure as a catalyst of economic development”, Michael Larbie, CEO RMB Nigeria, said.

 

RMB’s Where to invest in Africa classifies infrastructure into hard – electricity, Information and Communication Technology (ICT), and water and sanitation – and soft infrastructures which encompass health and education.

 

The report uses Africa Development Bank Group’s (AfDB) Africa Infrastructure Development Index (AIDI), which looks at the quality of electricity, ICT, water and sanitation infrastructure, as a proxy for hard infrastructure development.

 

On the other hand, the Human Development Index (HDI) of the United Nations Development Program (UNDP) was adopted as a measurement of the quality of soft-infrastructure development.  The ranking thus comprises a simple weighted average of the HDI and AIDI with a score of 10 representing the best quality of infrastructure, and 0, the worst.

 

The top 10 best performing economies on the continent on infrastructure quality are a mix between the island economies, Southern Africa and Northern Africa. Seychelles, came top with a score of 8.6 out of 10, bolstered by its “high-quality tourism infrastructure and strong ICT capabilities” – the island economy of Seychelles was also ranked second in Africa by the International Telecommunication Union (ITU) on its ICT Development Index and 90th on its scale of 176 countries worldwide.

 

Other countries that emerged best on infrastructure quality ranking are Egypt, Mauritius and Libya with 7.7 score each. South Africa, Tunisia, Algeria and Morocco had scores of 7.3, 7.1, 6.5 and 6.5 respectively.  Nigeria, Africa’s largest economy was ranked 22nd position with a score of 3.8 out of 10, slightly above Angola, Uganda and Tanzania with scores of 3.6, 3.5 and 3.3 respectively.

 

The AfDB estimates that Africa needs about US$130bn-US$170bn annually to close its infrastructure gap.

 

“The good news is that this shortfall represents an opportunity for businesses involved in the development or financing of infrastructure projects,” Celeste Fauconnier and Neville Mandimika, co-authors of the report said.

 

RMB believes that there will only be a marginal increase in infrastructure investment between 2018 and 2020 on the continent, as governments focus on fiscal consolidation to reduce their recently racked-up debt burdens.

 

RMB’s findings are corroborated by the Brookings Institution, an American research group  which says that for Africa to sustain economic growth rates between 3  to 3.5 per cent, infrastructure spending as a proportion of GDP needs to be between 5 per cent and 6 per cent annually, from its current 2 per cent.

 

Nigeria’s infrastructural spending as a proportion of GDP is currently less than 1 per cent relative to those of Angola, Mauritania, Togo, Gabon and Cote d’Ivoire, each at above 5 per cent .

 

 

While the need to address the continent’s widening infrastructure gap has become imperative in the light of the importance it wields in promoting investment and stimulating business activities, certain challenges still exist that daunt the realization of the task, of which the non participation of the private sector in driving infrastructure development a major challenge.

 

Low involvement of the private sector is fuelled by weak legal, regulatory and institutional frameworks; weak infrastructure planning and project preparation; ineffective governance; and corruption.

 

Over the last decade, there has been emphasis on infrastructure development shifting from ICT projects to electricity generation and improvements in road infrastructure. This trend, RMB believes, will continue over the medium term, as badly built – or poorly maintained – roads and the unavailability or irregular supply of electricity proves exceedingly costly to businesses operating in Africa.

 

Electricity, for example, is a vital energy infrastructure needed for industrialization and growth. But the level of electrification in Africa has been relatively slow over the years.

 

In 2016, it was estimated that over 600 million Africans have no access to electricity with per-capita power consumption in Sub-Saharan Africa (excluding South Africa) standing at 180kWh compared with 6,500kWh and 13,000kWh in Europe and US respectively.  In the Electricity Composite Index developed by Africa Development Bank Group (AfDB), Nigeria was ranked 30th out of the 53 countries in Africa. About 74 million Nigerians, 10 per cent of Sub-Saharan total, do not have access to electricity.

 

To bridge the chasm between demand for and supply of electricity, research analysts at RMB are pushing for the adoption of energy distribution solutions such as the utilization of micro grids.

 

“The Sustainable Energy for All (former UN Secretary-General Ban Ki-moon’s initiative to realise universal energy access, enhance energy efficiency and extend the use of renewable energy) predicted that Africa will be home to 35,000 micro grids by 2021. Micro grids are expected to play a major role in supporting Africa’s electrification drive and adoption of energy storage across the continent in the future”, the report says.

 

More so, the adoption of collaborative approach to boost regional electricity interconnectivity will go a long way to arresting the age-long problem of power in Africa.  While citing the West Africa Power Pool (WAPP), a cooperation of 14 countries (including Côte d’Ivoire, Ghana, Nigeria and Senegal) with 27 national electricity utilities working towards an integrated regional power market, as an example of government’s attempt at increasing energy efficiency and security hence reducing electricity costs, the RMB’s “Where to Invest in Africa” report noted that such arrangements are however hampered by logistical and bureaucratic challenges.

 

As a remedy, RMB admonished interested countries in such arrangement to improvetheir creditworthiness; strengthen contracts; provide guarantees and engage regional institutions in such collaborative efforts. Encouraging investment in the renewable energy sub-sector will equally soften the challenges inherent in accessing electricity and shrink the deficit between electricity provision, distribution and consumption.

 

In South Africa for example, the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) which involves a competitive tender process designed to facilitate private-sector investment into grid-connected renewable-energy generation aims to tap 17,800MW from renewable energy sources.  Kenya’s M-KOSA, since the beginning of 2018, has connected over 600,000 homes to affordable solar power.

 

“M-KOPA Solar brings high-quality solar energy to homes in East Africa by using a pay-per-use instalment plan. For a small deposit, the company sells solar systems to consumers who can then purchase daily credits for less than the price of traditional kerosene lighting. After one year of payments, customers own their solar systems outright and can upgrade to more power,” the report emphasises.

 

While stating that soft infrastructures ought to be given the needed attention just like hard infrastructures, the report decried the neglect of soft infrastructure development in Africa and affirmed that the political nature of soft infrastructure and the lack of sufficient financing options are the major challenges the sector faces.

 

RMB called on governments to partner the private sector in improving the standards of soft infrastructures in their respective countries.

 

“These partnerships could range from the planning or managing of soft projects to their actual construction, operating and monitoring,” RMB analysts said.

 

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by KELVIN UMWENI

October 12, 2018 | 12:31 pm
  |     |     |   Start Conversation

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