By Prof Mthuli Ncube, Managing Director, head of QG Research Lab
Infrastructure development lowers the costs of doing business and supports growth and economic development
Infrastructure development contributes to economic activity by lowering the costs of doing business, improving the competitiveness of local production, and facilitating trade and foreign direct investment. Firms with reliable power supply are able to produce more. Those with access to a world-class highway network can reach their customers faster and cheaper, while those with easy port access are able to source their inputs and export their finished products at a lower cost. Construction of infrastructure has the added benefit of directly contributing to economic output. Hence, in addition to being a factor of production that influences a firm’s production and location decisions, infrastructure contributes to the development of both upstream and downstream industries as well as financial markets.
African countries with the most advanced manufacturing export industries, such as South Africa and Mauritius, have benefited from world-class infrastructure to support their industries. With adequate infrastructure, African firms could achieve productivity gains of up to 40%. And bringing Africa’s infrastructure stock to the level of Mauritius’ could enhance Africa’s GDP growth by as much as 2.2% percent per year.
Africa suffers from a critical shortage of infrastructure. Its infrastructure coverage lags behind other developing countries, particularly regarding access to electricity, transport networks, water and sanitation, irrigation, and information and communication technologies. Power deficits are the continent’s biggest infrastructure challenge: per capita power generation is less than half the rest of the developing world. Not only does electricity access need to be increased, but supply has also become less stable, with regular outages reported in at least 30 countries. About 60% of the population in Africa has no access to electricity. Power outages are estimated to cost Africa between 1 and 2% of GDP. Initiatives such as, Power Africa, from the US government are designed to boost foreign investment in the sector.
Transportation bottlenecks are equally critical. While Africa’s road kilometers per capita have been on the rise thanks to the traditionally extensive public investments into the sector, the continent’s highways remain largely fragmented. In addition, road infrastructure in African low-income countries is still plagued by poor quality, as well as low connectivity to ports and international commercial centers. Paved roads account for about 5% or less of total roads in some of the least developed countries. In these markets, poor road infrastructure forces some firms to serve only the local market.
Rail infrastructure is, by comparison, far less developed. Only 33 countries have operational rail networks, which are geared toward long-haul general freight, mineral freight, and non-urban passenger services. Most of these countries operate single track and un-electrified systems. Decades of under-capitalization, poor management and general neglect of railways on the continent has rendered some networks defunct, while the majority of operational networks experience a variety of capacity, efficiency and safety problems. When they exist, however, railways tend to be linked to ports and carry lower long-haul costs per unit of freight relative to roads.
Maritime transport in Africa suffers from limited berth and storage capacity. African ports struggle to efficiently handle vessels exceeding 2,000 twenty-foot equivalent units (TEUs), compared to East Asian ports, which have enough capacity to handle vessels of up to 11,000 TEUs. In 2007, African vessels accounted for less than 0.6% of the world’s merchant fleet. In the same year, Port Said (Egypt) and the Port of Durban (South Africa) were the only African ports ranked in the top 50 for container traffic, and the continent’s containerized cargo throughput was half the volumes handled by large ports in China and Singapore. Africa’s ports are also running out of capacity. While port throughput has grown by about 10% annually since 2007, reflecting growing interest from emerging market economies in Africa’s natural resources, capacity expansions have not grown as fast.
Air transport services also remain largely inefficient and expensive. Most African airlines’ fleets are aging, airports struggle to meet international security standards, and air travel within the continent is among the most costly in the world. The air transport industry, however, is making significant strides. Three major hubs have emerged in sub-Saharan Africa – Johannesburg, Nairobi, and Addis Ababa – dominating both international and domestic markets. New budget airlines are also gaining ground in deregulated markets such as Nigeria, Kenya, the DRC and South Africa, improving service and reducing prices
Access to clean water has improved over the past two decades. While only 49% of sub-Saharan Africans had access to clean water in 1990, the rate had improved to about 70% by 2014. Africa still lags behind other developing regions, however. Access to improved water sources is significantly higher in Latin America and the Caribbean (91%) and in South Asia (87%) than in Africa (70%). In addition, 60% of the population has no access to improved sanitation, and under 10% of agriculture is under irrigation.
Access to ICTs, on the other hand, has not only dramatically improved in the past decade, but also exceeds levels observed in some other developing regions. The proportion of Africans with access to mobile telephones has risen from about 1% in 2000, to over 70% by 2014, well above the access rates for South Asia. This has unleashed the growth of mobile-banking services that are deepening financial inclusion, with East Africa leading the way.
Investing in Africa’s infrastructure, in order to close the gap, requires both public and private sectors to work together through public-private-partnerships(PPPs). There is also need to harness the savings from the African and global pension fund industry. Equally, making use of revenues earned from natural resources in Africa, through Sovereign Wealth Funds, is key to domestic resource mobilization for infrastructure investments.
For more on Infrastructure in Africa, see the new book by M. Ncube