Transforming Africa’s Infrastructure

November 12, 2009

  • A new report, Africa’s Infrastructure: A Time for Transformation, highlights the results of an in-depth assessment of the continent’s infrastructure
  • Of the $93 billion needed to improve Africa’s infrastructure, almost half is needed to boost the continent’s power supply
  • The global financial crisis is likely to arrest growth and reduce the funds available for infrastructure

WASHINGTON, November 12, 2009—Over the last few years, Africa has benefitted from some significant improvements in infrastructure. Over 50 percent of Africa’s population lived in range of a GSM mobile phone signal in 2006. Five African countries have already met the millennium targets for universal water access and 12 others are on-track to do so; and around 80 percent of Africa’s main road network is in good or fair condition.

However, this is only part of the story; daunting challenges remain. Only one in three rural Africans has access to an all-season road; more than 20 percent of the population in Cameroon, Ghana, Mauritania, Niger, and Tanzania must travel more than two kilometers to their primary water supply; African consumers pay twice as much for basic services as people elsewhere in the world; and a monthly basket of prepaid mobile telephone services costs $12 in Africa but only $2 in South Asia. These are examples of Africa’s infrastructure challenges.

The World Bank just announced in its study, Africa’s Infrastructure: A Time for Transformation, 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 two percentage points every year and reduces productivity by as much as 40 percent. The study team conducted an in-depth assessment of the state of infrastructure in 24 countries across the continent.

To close the infrastructure gap with other parts of the world, meet the Millennium Development Goals, and achieve national development targets in Africa within 10 years, an annual spending of $93 billion would be required. This estimate is more than double what was originally thought. This estimate is still short of what China allocated to infrastructure during the last 20 years, which only in terms of capital investment was the equivalent to 15 percent of its GDP.

Fragile states face the most daunting burden of meeting the spending needs for infrastructure; to catch-up on infrastructure over the next decade fragile states would need to devote more than a third of their GDP. The conundrum is that countries with the greatest infrastructure needs are often the countries that are least attractive to investors. Many African countries, particularly fragile states, have taken longer to catch up on infrastructure and have considered lower-cost technologies. Urgent action is needed, the report argues, and the global financial crisis further underscores the need for a massive effort to overhaul Africa’s infrastructure.

Generating Power

Access to energy is critical for economic growth and poverty alleviation; no country in the world has developed its economy without abundant energy supplies. Today, chronic power shortages plague 30 African countries and only one in four Africans has access to electricity. The entire installed generation capacity of 48 Sub Saharan African countries is 68 gigawatts, no more than Spain’s. Firms in many African countries indicate that the largest obstacle to doing business is the power constraint. Outside of South Africa, power consumption is barely one percent of the level in high income countries.

The report finds that of the $93 billion needed to improve Africa’s infrastructure, almost half is needed to boost the continent’s power supply. The financing is needed to support the installation of new power generation capacity at the rate of seven times the annual average of the last 10 years. In addition, the existing capacity also needs refurbishment because, as it stands today, a quarter of Africa’s installed power generation capacity is not operational.

Improving the operating efficiency of power utilities through reforms at the institutional level would save Africa $2.7 billion a year—a significant contribution. Presently, less than 90 percent of charges billed to customers are actually collected by utilities, compared with 100 percent for a well-run utility. In Burkina Faso, Ghana, Niger, or Uganda–-to name a few–-uncollected power bills are as high as a whole percent of the GDP. Improving efficiency could facilitate improvements in maintenance or increases in investments for infrastructure.

“At 18 cents per kilowatt-hour on average, Africa’s power is very expensive to produce by global standards,” says Briceno-Garmendia.

While improving maintenance of power is key for increasing access for Africans, regional trade is another important piece in the puzzle of lowering costs for African consumers. The study finds that regional power trade could save Africa US$2 billion per year in energy costs.

Financing Infrastructure

Africa is already spending $45 billion a year on infrastructure. A bulk of this infrastructure spending comes from domestic sources. However, infrastructure providers waste $8 billion a year on excessive staffing, distribution losses, undercollecting revenue and inadequate maintenance. African utilities are unable to collect some $2.4 billion a year of services billed. Efficient use of existing resources can release an additional $17.4 billion in finance for infrastructure every year. However, even after the full potential of efficiency gains are realized, a substantial funding gap of US$31 billion will remain, particularly for water and power infrastructure in fragile states.

Closing Africa’s US$31 billion-per-year infrastructure funding gap is a critical effort that countries and the international investment community can make to address the massive shortfalls in infrastructure development. External finance for Africa’s infrastructure was buoyant in the years leading up to the global financial crisis, swelling from $4 billion in 2002 to $20 billion in 2007. Domestic finance in many countries during the same period benefitted from the growth and high prices of natural resources.

However, the current global financial crisis is likely to arrest that growth, reducing the funds available for infrastructure and checking the demand for infrastructure services. To close the funding gap a wide combination of resources will be needed, including public budgets, resource rents, local capital markets, private sector and non-OECD finance, as well as traditional donor assistance. The report concludes that many countries may have to consider other ways of aligning infrastructure targets with the available resource envelope.

“African countries face daunting challenges in increasing investment and improving maintenance and upkeep of their infrastructure stock,” says Foster. “The good news is that no one can doubt that investments in maintenance yield solid returns—we found that every $1 invested in upkeep of roads returns $4 in asset longevity and service.”

About the Report

Africa’s Infrastructure: A Time for Transformation highlights the results of the Africa Infrastructure Country Diagnostic (AICD), a study conducted by a partnership of institutions including the African Union Commission, African Development Bank, Development Bank of Southern Africa, Infrastructure Consortium for Africa, the New Partnership for Africa’s Development, and the World Bank.

The study is one of the most detailed ever undertaken on the African continent. Surveys were conducted among 16 rail operators, 20 road entities, 30 power utilities, 30 ports, 60 airports, 80 water utilities, and over 100 ICT operators, as well as the relevant ministries in 24 countries. The results were derived from detailed analysis of spending needs (based on country-level microeconomic models), fiscal costs (which involved collecting and analysis of new data) and sector performance benchmarks (covering operational and financial aspects as well as the country’s institutional framework).