Business News of 2014-01-20

Comment: Africa needs strategic partnership to develop infrastructure

The African continent is increasingly becoming the global common hub for doing business. A continent which not long ago was described as a 'hopeless continent' has risen above all odds to actually show the potential that it possesses.
Not only is Africa attracting the world and depicting that it is capable of containing them, but increasingly identifying and nurturing operators from within itself. Africa's economic structural reforms have shown a strong resilient following the global economic crisis in 2008 by rebounding back very quickly since the last decade and going forward, looking more robust.
The world has, therefore, identified Africa as the next best destination to do business. However, this enthusiasm is hindered by Africa’s poor infrastructural stature. This economic efficiency is, therefore, not harmonised due to difficulty in accessing African markets.
Energy, water, sanitation, telecoms and transport have long been identified as the major infrastructural setback to the continent. Energy supply continues to be Africa's largest infrastructure challenge, with 30 countries experiencing frequent power outages and just over a third of Africa's population having access to electricity.
Road constitutes 90 per cent of Africa’s urban transportation. Poor infrastructure is costing each member country's growth to reduce by a two percentage point each year and also reducing productivity by as much as 40 per cent.
According to the World Bank, about $93 billion is needed annually to be able to fund Africa's infrastructure for the next 10 years. This is about 15 per cent of the region's GDP. About $60 billion of this would be used to fund new projects and the rest would go into the maintenance of the existing ones. Given the substantial amount involved, governments will need to be innovative in the search for sustainable approaches to infrastructural development, as well as financing. The private sector will need to play an increasingly important role. Governments will do well to create conditions where private-sector engagement is encouraged, probably through public-private partnerships (PPPs).
The infrastructural challenge facing the African continent is manifested in various forms ranging from region to region. According to a development research brief by the African Development Bank (AfDB) in 2009, less than 10 per cent (in 10 countries) and less than 50 per cent (in 33 countries) of roads in Africa are paved, 40 per cent of the population lacks access to safe water and 60 per cent lacks basic sanitation. Only 30 per cent of the rural population in sub-Saharan Africa has access to all-season roads.
Transport costs in Africa are among the highest in the world; only 30 per cent of the African population has access to electricity. Africa has the lowest telephone penetration – 14 per cent (the world’s average is 52 per cent). Africa has the lowest Internet penetration – 3 per cent (the world’s average is 14 per cent).
To release the potential of Africa, therefore, requires the need to reduce the cost of doing business across borders. This means major investments in transport infrastructure, including roads, ports, internal container depots, inland waterways and railways are needed, as well as increase in energy production capacities. The strides being made by national governments, regional and continental bodies in transforming Africa to a modern and growth-induced economy will be a positive step for global prosperity.
In terms of access to water and sanitation improvements, there is a global goal of halving the proportion of people without sustainable access to safe drinking water and basic sanitation by 2015. While this may be met at current rates, Africa will achieve the targets only in 2040, with some of the poorer countries not meeting them before 2050. Only 60 per cent of Africans have access to improved sources of drinking water and more than half still do not have access to improved sanitation facilities [APR Report 2010].
Lack of adequate infrastructure has raised the transaction costs of business in most African economies. Today, African countries exhibit the lowest levels of productivity and are among the least competitive economies in the world. Empirical research has shown that there is a positive relationship between infrastructure investment and economic growth.
Productivity growth—and, thus, increasing competitiveness—is higher in countries with an adequate supply of infrastructure services. With adequate infrastructure, African firms can achieve productivity gains of up to 40 per cent. There is, therefore, the need for strategic partnerships for development of infrastructure to help raise capital, accelerate project delivery, reduce operating costs and improve maintenance. Such infrastructure will enable Africa to compete effectively, tap into regional markets and benefit from globalisation through investment and trade.
Infrastructure is also important for the promotion of inclusive and sustainable growth, especially rural infrastructure—notably feeder roads that connect rural communities to national markets— because it enables individuals, households, communities and small businesses to embark on income-generating activities.