Looking back, the World Economic Forum 2012 on Africa: Episode Two

Under the theme “Delivering on Africa’s Promise”, the 23rd World Economic Forum (WEF) on Africa will provide an important platform for regional and global leaders from business, government and civil society to deepen the continent’s integration agenda and renew commitment to a sustainable path of growth and development. Check out the first Looking back, the World Economic Forum 2012 on Africa episode here. 

Infrastructure challenges in Africa

Modern infrastructure is the backbone of any economy. Inefficient infrastructure is an impediment to sustainable economic growth.

Infrastructure development continues to be significant in Africa. It is, however, important to focus on the dual nature of infrastructure development – namely development of the people as well as physical development.

Rapid urbanisation and a growing population

Africa’s population is expected to grow to approximately two billion by 2050. Rapid urbanisation coupled with this growing population has resulted in huge infrastructure investment requirements. There are, however, many challenges hindering the implementation of infrastructure projects in Africa.

Currently, most infrastructure projects on the continent are financed domestically via African tax payers. This model is, however, not proving to be sustainable.

Investors seem hesitant to embark upon projects within the sector

According to a recent report by the Organisation for Economic Cooperation and Development (OECD), Africa needs US$93 billion annually over the next decade to fund infrastructure projects. Currently, however, only US$45 billion is being invested, leaving a funding gap of US$48 billion. Despite this massive funding gap, investors are still somewhat hesitant to embark upon projects within the infrastructure sector.

In order to fill this funding gap, and to increase investor confidence, governments need to generate a pool of bankable projects.

Many governments have introduced incentives to make the infrastructure sector more appealing to investors.

Over the past decade, Africa has experienced an 87 percent increase in FDI (Foreign Direct Investment) inflows. It is, however, important to make the distinction between FDI and international capital flows, and official development aid. An economic case for infrastructure projects needs to be made, and this will only happen after the successful conclusion of numerous bankable projects. These catalyst projects are essential in ‘kick-starting’ the process of sustainable investment into the infrastructure space. Many infrastructure projects in Africa are nearing completion and have shown above-market returns.

Embracing Public Private Partnerships

Governments across Africa are embracing Public Private Partnerships (PPPs) within the infrastructure sector. The adoption of a sound PPP model that is acceptable to funders can help mitigate risk and certain challenges.

A priority for many governments within the infrastructure sector is power generation. There are an increasing number of power-purchasing agreements being signed and concluded across the continent. There is growing foreign investment within the power sector.

In terms of transport infrastructure, many countries across Africa are experiencing major bottle-necks in terms of getting commodities out of the country. There has been a significant delay in the development of transport infrastructure, especially rail infrastructure.

Regional integration plays a role in supporting infrastructure development

Regional integration plays a part in supporting infrastructure development. The past decade has seen the establishment of a number of regional power pools across the continent and a significant amount of trade takes place across these pools. Going forward, the ideal situation would be one where there is greater integration amongst the countries in terms of transmission network infrastructure and the ability to distribute power over far greater distances than is currently possible.

Historically, many governments found it difficult to prioritise infrastructure development in the ICT sector when basic infrastructure requirements (power, rail, roads … etc.) were in deficit. Governments are now, however, starting to see the importance of development within the ICT space. A focus on ICT development in Kenya, for example, has had a significant impact on GDP growth rates.

Africa is playing a catch-up game

In the international development finance spectrum, Africa is playing a catch-up game. The continent fell behind in the 1970’s and 1980’s. Recovery started in the mineral and resource sectors. The fact that infrastructure is now on Africa’s agenda is, in itself, progress.

Over the next two weeks KPMG Africa will cover a series of topics and discussions that will be central to the World Economic Forum (WEF) on Africa. 

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David Okwara

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