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New Study Shows that Transforming African Infrastructure will require an Additional $31 Billion a Year and Huge Efficiency Gains

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Press Release No:2009/AFR/138

Contacts:

ICA: Nick Sheppard, tel: +44 1908 337938 or + 44 7724 241214, email: n.sheppard@afdb.org

World Bank, Washington: Francois Gouahinga, tel: +1 202 473 0696, email: fgouahinga@worldbank.org

World Bank, South Africa: Sarwat Hussain, tel +27 73 888 1778, email: shussain@worldbank.org

 

MIDRAND, South Africa, November 12, 2009  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.

 

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 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 Africa’s 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 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. 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). 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.

 

Modern infrastructure is the backbone of an economy and the lack of it inhibits economic growth,” says 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.

 

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.

 

 “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.

·         Power: Inadequate access to energy is the single largest impediment to economic growth. No country in the world has developed its economy without abundant energy supplies. Chronic power shortages affect 30 Africa countries; the entire installed generation capacity of 48 Sub Saharan African countries is 68 gigawatts, no more than Spain’s, and 25 percent of that capacity is unavailable because of aging plants and poor maintenance. At US$0.18 per kilowatt-hour on average, Africa’s power is expensive to produce by global standards, yet regional trade could significantly lower costs.

·         Water: High hydro-climatic variability, inadequate storage, rising demand, and lack of transboundary cooperation undermine the African water sector. Less than 60 percent of Africa’s population has access to drinking water and only a handful of countries are on track to reach the Millennium Development Goals. With more than 60 transboundary rivers in Africa, developing large-scale infrastructure to manage water use and avoid conflicts is a huge challenge. Over the last 40 years, only 4 million hectares of new irrigation have been developed, compared to 25 and 32 million hectares for China and India respectively.

·         Transport: Ineffective linkages between different transport modes (air, road, and rail), declining air connectivity, poorly equipped ports, ageing rail networks, and inadequate access to all-season roads are key problems facing Africa’s transport system. Only 40 percent of rural Africans live within two kilometers of an all-season road, compared to some 65 percent in other developing regions.  Improving road accessibility in rural areas is critical to raising agricultural productivity across Africa.  Limited competition in the trucking industry keeps road freight tariffs unnecessarily high, while red tape along international trade corridors, keeps the movement of freight below 12 kilometers an hour –as fast as a horse and a buggy – even though truck speeds can be 60 km/hour.

·         ICT: The number of African mobile phone users has increased from 10 million in 2000 to more than 180 million in 2007. During 1992-2005, private sector investment in ICT infrastructure topped $20 billion but high prices of services remain a problem. In 2007 the average price of prepaid mobile services cost $12.58 a month in Africa, six times the $2 cost in Bangladesh, India, and Pakistan.

 

The 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 – 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).

 

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