Why More and Better Infrastructure?

Inadequate infrastructure is holding back Africa’s economic growth per capita by 2% each year, and reducing firms’ productivity by as much as 40 percent.  In order for Africa to become competitive, or realise its productive potential, massive improvements in infrastructure are needed.

Good infrastructure has always played a leading role in economic development and is a precondition for, and an enabler of, growth for private sector development and for trade:

• Building and maintaining roads and railways boosts output and jobs;
• Countries with reliable energy and electricity services and low transport costs find it easier to trade and therefore achieve faster growth;
• Clean water and sanitation are essential for health which in turn is needed for labour productivity.

The Commission for Africa report – released in 2005 at the time of the G8 Gleneagles summit – specifically recommended the scaling up of critical infrastructure investments to raise productivity, support trade, and thereby sustain growth and poverty reduction on the continent.

New evidence (from the Africa Infrastructure Country Diagnostic study) suggests that Africa’s infrastructure spending needs are about twice as large as those estimated by the Commission for Africa in 2005.  Africa is spending much more on infrastructure, but even so the magnitude of the funding gap remains large.

On a more positive note, the opening-up of complimentary sources of finance is a hopeful trend for the continent.  This includes the recent rise of official economic assistance to the African infrastructure sectors from China, India and the Arab Funds.  Private finance for infrastructure in Africa has also grown significantly from the mid-1990s.

Financing Needs

There have been many recent estimates of Africa’s infrastructure financing needs.  Perhaps the most referenced is the report of the Commission for Africa in 2005, which estimated the continent’s needs at $20 billion a year.  The estimate was based on World Bank calculations that infrastructure investments in sub-Saharan Africa should exceed 5% of GDP to achieve the UN Millennium Development Goals and an additional 4% of GDP should be added for operation and maintenance to ensure sustainability of infrastructural investment.

The more recent Africa Infrastructure Country Diagnostic (AICD) study, carried out by the World Bank on behalf of the Infrastructure Consortium for Africa, shows annual infrastructure investment needs alone in Africa to be in the region of $40 billion per year, with maintenance and operating costs of the same magnitude – twice the Commission for Africa estimate.