Editor’s Note: On September 21, the Department of Commerce and Bloomberg Philanthropies are hosting the second U.S.-Africa Business Forum. Building on the forum in 2014, this year’s meeting again hosts heads of state, U.S. CEOs, and African business leaders, but aims to go beyond past commitments and towards effective implementation. This year’s forum will focus on seven sectors important to African economies and which offer opportunities for investors—namely finance and capital investment, infrastructure, power and energy, agriculture, consumer goods, and information communication technology. The below piece reviews the theme of infrastructure as an opportunity for investment on the African continent.
The foundational necessity of providing core infrastructure throughout Africa has gained momentum in the last decade. This has led to ambitious initiatives such as the estimated $360 billion Program for Infrastructure Development in Africa (PIDA), which aims to promote socio-economic development and poverty reduction through improved access to integrated regional and continental infrastructure networks and services. Such cross-border flagship initiatives have answered the call to reduce Africa’s infrastructure deficit on a broad scale with promising significant impacts on the future African economy.
Private participation in infrastructure (PPI) financing in Africa is also continuing to grow robustly, even as global PPI to low- and middle-income countries is falling. PPI in sub-Saharan Africa grew by 9.5 percent on average over the past 10 years, almost double the region’s GDP growth rate of 4.5 percent. While PPI has increased for a wide range of African countries since 2005, it has mainly benefitted the telecom and electricity sectors, which have received over 80 percent of all infrastructure investment commitments between 2005 and 2013. This has left a clear investment deficit in the transport and water treatment/utility sectors.
One key consideration to address this gap in financing is understanding the critical role of the civil works sector. Of particular interest is Africa’s weak construction industry. A report on Aid Procurement and the Development of Local Industry looks at the composition of firms winning contracts in World Bank projects that have been submitted to international competitive bidding. It analyzes this transaction-level data on procurement as an indicator for measuring the capacity of a region to undertake civil works. The report’s findings suggest Africa lags far behind other regions in local civil works capacity. While East Asia, Europe, Latin America, and South Asia all secured above 85 percent of World Bank civil works contracts for their respective region in 2013, sub-Saharan Africa only managed to secure about 56 percent of their regions civil works contracts. This signals weak development of a competitive construction industry in Africa. U.S.-Africa Business Forum investors should enable strategic private investment that can help catalyze growth in this industry, building Africa’s capacity to undertake civil works and directly address the region’s infrastructure gaps.