It is nearly impossible to talk about closing the infrastructure gap in Africa without mentioning the importance of funding. For so long, financial constraints have been one of the major barriers to scaling infrastructure development in Africa. This is largely because many African countries fall within the developing economy bracket. Although the latest Macroeconomic Performance and Outlook (MEO) by the African Development Bank (AfDB) indicates that about 11 African countries are projected to experience strong economic performance, more than half of the continent is still classed as least developed countries (LDCs). Infrastructure projects are capital intensive undertakings thus, increasing the stock and value of infrastructure in Africa calls for mobilising funding and accelerating investment in infrastructure sectors and services.

The Major Players

Funding for infrastructure projects in Africa comes from a variety of sources. The United Nations Economic Commission for Africa (UNECA) as far back as 2004 identified 5 main sources of infrastructure finance in Africa. They are: (1) public budget of national governments; (2) official development assistance (ODA) from the Organisation for Economic Cooperation and Development (OECD); (3) loans and grants from international and regional institutions such as the World Bank and AfDB; (4) loans from non-OECD partners such as China and India; and (5) the private sector.

The main source of financing for infrastructure projects in Africa remains public sources which are a combination of national governments and multilateral institutions. Often, multilateral institutions and donor agencies such as the World Bank provide loans to complement domestic funding from governments. National governments through their annual budgets make provisions for infrastructure spending while the cost of operation and maintenance of the infrastructure services is borne directly or indirectly by the users. For instance, electricity tariffs paid by households or toll fares by transport users are examples of how members of the public are charged to maintain and operate infrastructure services.

Echoing the words of Prof. Afeikhena Jerome, a seasoned economist and policy expert, “Almost without exception, the provision of infrastructure in Africa is the exclusive responsibility of the government. Government own, operate and finance nearly all infrastructure. Thus, the record of success and failure in infrastructure is largely a story of government’s performance.” In reality, government budgets are inadequate to carry the full weight of funding the development and maintenance of infrastructure in Africa. The Infrastructure Consortium for Africa (ICA) surveyed national expenditure allocations to infrastructure for 50 African countries in 2019 and 49 countries in 2020. The ICA survey of 2019 revealed that commitments made by African governments totalled $34.9 billion to decline to $33.4 billion in 2020 despite the World Bank’s recommendation for African governments to commit at least $93 billion to infrastructure every year.

The sheer inability of African governments to keep up with the funding requirements has resulted in looking externally by depending on official development assistance, loans from China and in some instances, the private sector. Although Africa has traditionally depended on external funding sources to meet its infrastructure needs, it is not always the most reliable funding pathway and we saw this especially during the COVID-19 pandemic. The ICA noted that funding commitments made by its members in 2020 stood at $18.1 billion compared to $26.9 billion in 2019 as many member states focused their spending on other priorities especially healthcare and economic recovery from the pandemic. Similarly, global economic situations such as a drop in oil prices and crises in commodity markets can affect the extent of funding available and provided by these institutions to African governments. As a matter of fact, certain donor countries since the pandemic have experienced cost of living crisis and economic recession all of which impact the amount of investment or funding assistance they are able to provide to infrastructure development in Africa. For these reasons, Africa needs a robust strategy for infrastructure financing and investment without excessive reliance on these external actors.

Infrastructure Financial Deficit

The required amount to close the infrastructure gap in Africa has consistently increased over the years. In 2005, it was estimated that Africa would need at least $20 billion in infrastructure investments per annum until 2015. This figure was doubled to a sum of $40 billion in 2008 following the World Bank’s Africa Infrastructure Country Diagnostic (AICD) Study. The AICD concluded that the cost of addressing Africa’s infrastructure needs is an estimated $93 billion which is approximately 15% of the continent’s GDP. Currently, the AfDB estimates that between $130 and $170 billion is needed for infrastructure development every year. As earlier mentioned, African governments fall short in meeting the recommended amount. In 2016, infrastructure financing in Africa represented only 3.5% of GDP.

According to Chuks Ibechukwu, a seasoned project finance lawyer, infrastructure financing deficit is a term used in explaining the shortfall between the allocated budget spending of African governments on infrastructure and the amount that would actually be needed to close the infrastructure gap. This simply means there is a significant imbalance between how much is required to develop and maintain infrastructure and how much is available or spent in reality.

This leads to a fundamental question – who decides the benchmark, that is, how much should be spent and how is this figure calculated? There are a number of ways of arriving at a figure which are not isolated factors but interdependent on each other. First, a sectoral analysis of how much money is needed to develop and maintain infrastructure assets and services across each infrastructure sector. For example, what is the estimated cost of laying new railway lines to connect cities or the cost of electrifying rural communities? An in depth assessment is carried out and analysed across each sector to determine an overall estimated figure. Second, a comparative analysis of similar countries and regions can help in arriving at an estimated cost.

So where do we go from here?

Without overstating the obvious, the solution to the infrastructure financing deficit Africa currently experiences is to attract more investments and leverage various funding sources for viable projects. This means proposed projects must have tangible economic rationale and value. There is no innovating around the problem – the continent would need to mobilise resources but most importantly maintain fiscal discipline in the utilisation of scarce resources. Many African countries still grapple with corruption – diversion of public funds into private purses, kickbacks in awarding infrastructure contracts and poor prioritisation in resource allocation across different infrastructure needs. In addition, socio-political instability especially in fragile and risk prone African states affects the extent to which they are able to attract investment. Thus, to close the existing infrastructure financing gap would require a combination of interventions to make the continent investment worthy by stabilising the political and economic environments.

Feature Photo by Ibrahim Rifath on Unsplash