Financing African Infrastructure: Can the World Deliver?

On Tuesday, April 21, the Africa Growth Initiative (AGI) at Brookings hosted a roundtable discussion on the recently published report by Jeffrey Gutman, Amadou Sy, and Soumya Chattopadhyay. The report, entitled Financing African Infrastructure: Can the World Deliver?, builds upon a 2009 World Bank baseline assessment of African infrastructure services in order to examine the recent, unprecedented growth in infrastructure investment in sub-Saharan Africa as well as provide granular analysis of the variation in financing across countries, sectors, and the urban-rural divide.

Sources and destinations of infrastructure finance

In their presentation, the authors highlighted the rise of both internal and external African infrastructure financing that has been occurring since the early 1990s. Specifically, investment from private participation in infrastructure (PPI) and non-traditional sources of financing, especially China, have experienced major growth over this time period. Nevertheless, official development finance (ODF) and the multilateral banks remain relevant to the region, and domestic finance continues to be the most important source of infrastructure financing to the continent.

The authors noted that investments in African infrastructure are widely distributed across countries and sectors, though investors’ interests vary, with some emphasizing certain countries and sectors more than others (see PowerPoint for more detail). 

Participants were surprised to learn that no countries are noticeably deprived of infrastructure finance, as even fragile states receive large investments relative to the size of their GDPs.

Participants were surprised to learn that no countries are noticeably deprived of infrastructure finance, as even fragile states receive large investments relative to the size of their GDPs.

The authors emphasized that the current complementarity in African  infrastructure financing across sources is serendipitous. At the moment, there is a lack of coordination among the different sources. They noted that, while frameworks for coordinating African infrastructure financing—such as the Infrastructure Consortium for Africa (ICA), Africa 2050, and Programme for Infrastructure Development in Africa (PIDA)—already exist, they do not incorporate investments from the newer actors and are therefore ill-suited for harmonizing the current African infrastructure financing landscape. Participants suggested that new efforts at coordinating finance among the difference sources and recipient countries would ideally be led by a united front of African governments and could be facilitated by the African Development Bank (AfDB). The AfDB could also unite African governments in producing more finely grained and comprehensive data on infrastructure needs and financing throughout the continent. In addition to these concerns, many participants agreed that competition among bilateral partners, each seeking to obtain the best deals with African countries, has undercut multilateral efforts to provide and coordinate financing.

The authors emphasized that the current complementarity in African infrastructure financing across sources is serendipitous.

The African institutional and economic environment

Noting the surge in financing for African infrastructure projects, including external borrowing, some participants expressed concerns that African countries could face debt crises if, for example, the global economic environment experiences a downturn, or governments are unsuccessful in managing their debt. According to one participant, the IMF’s framework for debt sustainability and risk shows that most African countries (with the exception of Ghana) are in no eminent danger of a debt crisis. However, it was suggested that African countries strengthen their debt management systems, including their domestic revenue mobilization, to prevent future debt crises.

Additionally, participants highlighted an issue that was not explicitly explored in the report: how investments are moving faster than capacity development. Many African countries simply do not have the human and institutional capacity to support major investments in infrastructure. For example, in most regions of the world, 90 percent of World Bank projects are won by local or regional firms; however, in Africa, this figure does not surpass 55 percent, often due to the lack of skilled labor force and eligible construction firms able to qualify for these projects. Participants agreed that more policies aimed at building local institutional and human capacity are necessary to support massive investments in African infrastructure.

Urban and local infrastructure needs

Africa currently has an urbanization rate of 40 percent, so participants agreed that investing in urban infrastructure before cities become overpopulated is imperative.

Africa currently has an urbanization rate of 40 percent, so participants agreed that investing in urban infrastructure before cities become overpopulated is imperative. However, they deliberated whether financing urban or rural infrastructure needs poses a greater challenge, with several participants citing the enormous needs in Africa’s growing cities relative to its limited financing options at the local and municipal levels as the most significant challenge. Advancing devolution and fiscal decentralization agendas in some countries could help encourage urban infrastructure financing, although these measures may not be possible in all country contexts since implementing such agendas require massive indigenous and political knowledge.