External Partnerships, Infrastructure and Africa’s Growth Story

Africa's infrastructure story is the new rallying cry for mobilizing private sector investment to drive Africa's economic growth. There is hardly any major continental event, from the African Union summits to World Economic Forum Africa chapters, whose agenda does not include Africa's infrastructure development. This has become the new platform to structure global partnerships and resource mobilization for Africa's development. Focus on Africa's infrastructure also signifies a change of tenure in Africa's developmental agenda away from narrow emphasis on aid delivered by foreign governments to infrastructure development through public-private partnerships. The US-Africa Summit that took place early this month, themed around "Investing in the Next Generation" underlined the significance of infrastructure, framed as "Powering Africa: Increasing Power in Sub-Saharan Africa" as a catalyst for more sustained development.

The new infrastructure narrative

Although the Power Africa initiative has pledged quite significant contribution by the private sector towards infrastructure development at US$26 billion to date, there are a number of other initiatives that are competing for Africa's infrastructure space and growing commercial opportunities. These include those under the Japan-Africa TICAD IV; Forum on China-Africa Cooperation; and India-Africa conclave; as well as bilateral deals tied to access to natural resources that individual, and resource-rich, African countries strike with rising economies such as China.

Significantly, the new infrastructure narrative on the African continent has also helped to foster cooperation amongst various African institutions that in the past operated from silos and executed their mandates in a fragmented way. This new, infrastructure-driven, window of opportunity for Africa's growth is championed collectively by entities such as the African Union, New Economic Partnership for Africa's Development, the African Development Bank (AfDB), and the various regional economic communities straddling Southern, Eastern, Central, and West Africa. One major challenge is likely to lie with the efficient management and execution of the growing portfolio of infrastructure projects delivered through multiple channels in the continent.

Understanding each other: public and private partnerships

One of the positive aspect of this development is the fact that, gradually, African governments and the private sector are learning to understand each other and work together to harness infrastructure for Africa's growth. Historically, the private sector has always been regarded with skepticism by Africa's political elites who preferred that government should be over-extended in every facet of economic life. Today, this picture is changing. Importantly, there is a considerable degree of responsibility and initiative that Africa's policymakers are also taking rather than relying solely on external actors, as has been the case since independence.

For example, African Heads of State adopted the Programme for Infrastructure Development in Africa in 2012 precisely to underline the importance of ownership and taking a lead in charting their continent's future.  So far, there has been some notable, albeit glacial, progress in attracting interest both within and outside of Africa to the continent's infrastructure opportunities. Private equity groups such as Carlyle and Blackstone; and sovereign wealth funds such as Singapore's Temasek; and pension fund managers such as South Africa's Public Investment Corporation are upbeat about Africa's story and the promise of infrastructure boom. They are prepared to invest money into this new growth story. Africa's richest man, Aliko Dangote, has partnered with the US-based Blackstone private equity fund on a combined US5$bn pool to channel towards Africa's energy infrastructure by 2019.

In May this year, the African Development Bank (AfDB) launched an Africa Infrastructure Fund, which is to be initially capitalized at US$3bn. This will serve as a magnet to attract more funding to the continent. The Fund promises to be innovative in that it seeks to leverage resources from African central bank reserves, pension funds, sovereign wealth funds, as well as the African Diaspora and high net worth individuals on the continent to help close Africa's infrastructure funding gap. It is no doubt a long stretch to close Africa's infrastructure funding gap at US$93 billion per year until 2020, according to the World Bank.

Potential snags and challenges to Africa's infrastructure development

However, infrastructure development on the African continent is not without its challenges. First, its success hinges on properly designed and well-executed public-private partnerships and should not depend exclusively on the public sector and donors. For this to be possible, a clear and transparent regulatory framework is necessary. Many African countries have and others are in need of credible institutions and solid rule of law. Moreover, public-private partnerships are complex legally, financially and technically, and often depend on the effectiveness of the contracts in meeting the expectations of the private sector. Many countries in sub-Saharan Africa, with the exception of South Africa and Kenya, lack the experience, legal framework, and technical expertise for negotiating such contracts.

Second, the gap in project finance makes it difficult to generate sufficient bankable projects to attract the private sector in Africa's infrastructure. The cost of project preparation is estimated at between 3 percent and 3.5 percent of the total project costs. It is often difficult for countries to raise this portion as risk is high at this point. Generally, the private sector is sensitive to a country's perceived risk profile. Private investors tend to be driven, in the main, by need to generate satisfactory returns on investment at minimum risk.

Third, it is imperative for sustainability that major infrastructure projects in the energy sector are rigorously evaluated for sensitivity to environment and climate concerns. As such, renewable energies should receive greater attention in the new investment flows into the African continent.

"De-risking" infrastructure

The above are not insurmountable challenges. The AfDB has been at the forefront of mobilizing technical and financial expertise for various infrastructure projects. Relatively experienced development finance institutions such as the Development Bank of Southern Africa, which also possess technical capacities for environmental and social evaluations, can also lend a hand. Increasingly, the AfDB is placing a strong emphasis on "de-risking" infrastructure by taking on the burden of providing risk-mitigating measures and offering guarantees. African leaders should use the new window of infrastructure boom to enlarge the space for private sector-driven growth, and to light the path for a different and prosperous future. It should not be enough to go on a pilgrimage to Beijing or Washington, but they should own their own development and have much clearer set of objectives about Africa's long-term future.

Dr. Mzukisi Qobo is Deputy Director at the Centre for the Study of Governance Innovation (GovInn), and Senior Lecturer in the Department of Political Sciences, University of Pretoria.

Photo Credit: © 2006 Jonathan Ernst/The World Bank via Flickr. License: https://creativecommons.org/licenses/by-nc-nd/2.0/