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Investment in Infrastructure Crucial to Africa's Economic Growth

World Bank encourages infrastructure investments in Africa; China a leading investor

Part 4 of a 5 Part Series: Investment in Africa

Some development analysts question whether Africa’s current rapid economic growth will fade like the surge in the 1970s. Others say today’s growth is different. The last such period was centered on Africa’s oil; today, they say, investors are interested in a number of sectors, including banking, tourism and agriculture.

And, economists say encouraging social and political trends and demographic changes - including young and middle-class consumers - will continue to drive Africa’s growth.
But development experts warn that long-term growth can only be sustained by improving productivity, which depends on improvements in hinge infrastructure.

Andrew Ali, the CEO of the Africa Finance Corporation based in Lagos, Nigeria, says that “anyone that has been on the continent of Africa..[knows] that there is a huge deficit in terms of infrastructure…”

A recent research paper by the African Development Bank, entitled “Infrastructure Investment in Africa,” says countries that have improved their infrastructure have seen increased development. According to the report, that’s because improved roads, bridges, dams and electricity tend to “enhance private sector activities by lowering the cost of production and opening new markets, presenting new production opportunities and trade.”

Ali says that his company is responding to the demand for public works projects. “The Africa Finance Corporation was started three years ago to boost the investment across the continent. AFC, which has over a billion dollars in local funds, encourages investors to look into the African infrastructure market because of the comparatively higher returns.

Africa’s infrastructure needs

A new report by the World Bank, “Building Bridges: China’s Growing Role as Infrastructure Financier for Sub-Saharan Africa,” says sub-Saharan Africa has a long way to go in catching up with other continents. It says only about 30 percent of Africans have access to adequate roads and energy.

The World Bank report says that because of poor infrastructure, an unreliable power supply leads to losses in industrial production.

The cost of transporting goods and products to markets are two to four times higher per kilometer than they are in the United States, “and travel times along key export corridors are two to three times as high as those in Asia.”

The study says there’s a renewed interest in infrastructure, thanks to strong economic growth in the region, an improved business-friendly climate and rising demand for petroleum and other commodities from China and India.

Alex Twinomugisha, an analyst based in East Africa, says “while the rest of the world is suffering from a housing [slump], Africa is enjoying a housing boom…wherever you go in Africa, it is becoming one big construction site.”
From his offices in Kenya’s capital Nairobi, Twinomugisha says that he can see buildings in different stages of construction. He credits the boom to the willingness of banks to lend money for mortgages.

Chinese investment

Beijing is emerging as a major financer of infrastructure projects in Africa. According to the report, “with only 30 percent of the African population having access to electricity, it makes sense that any investor would be interested in positioning themselves to benefit from a growing economy.”

China is a leading foreign investor in Africa in building the roads needed to move goods from rural to urban areas and also to ports for export. Beijing is doing just that in [the Democratic Republic of] Congo, where it has signed a multibillion billion dollar contract to build over 2,000 miles of road and railway, 32 hospitals, 145 health centers and two universities.

In Ethiopia alone, China has invested US $1.6 billion. The main focus has been on the ICT sector, including a project to create a fiber optic network to help expand cell phone access. Some economic observers say China got the better of the deal, but others say it’s also a win for Africa, especially if the investment spurs economic development.