Business Day

Africa’s hopes and prospects depend on infrastruc­ture investment

High rate of demographi­c growth and urbanisati­on on the continent will be a curse without funding

- Andile Skosana ● Skosana is a lecturer at Henley Business School Africa and CEO of CityConsol­idator Africa —a specialise­d project preparatio­n consultanc­y focused on African infrastruc­ture and cities.

The catastroph­ic floods in Nigeria that recently displaced millions and killed hundreds are the latest in a series of tragedies that underline Africa’s vulnerabil­ity to the twin threats of climate change and historic underinves­tment in infrastruc­ture. Rapid urbanisati­on combined with poor spatial planning and poor solid waste management have been pinpointed as causes of the flooding in Nigeria, along with the extreme weather we have come to expect from climate change.

Africa is often lauded for its demographi­c growth potential. The continent’s population is projected to double by 2050, with an expectant and restless youth segment making up the bulk of this. Two-thirds of these people will live in urban areas as 24-million people move into Africa’s towns and cities each year — the fastest rate of urbanisati­on in the world. We need this to translate into economic growth and prosperity. But if we do not meet the hopes and ambitions of incoming generation­s with proper, sustainabl­e infrastruc­ture that enables businesses to grow and that is adapted to climate instabilit­y, we will face lost opportunit­ies, unrest and decline.

The AU’s Agenda 2063 vision, which maps a growth path for the coming decades, identifies four areas most critical to growth-supporting infrastruc­ture: transport, energy, water and informatio­n & communicat­ion technology (ICT).

African government­s are working through the AU to create the conditions for continent-wide economic developmen­t and infrastruc­ture investment. The African Continenta­l Free Trade Area (AfCFTA) — the largest free-trade area in the world by the number of participat­ing countries — came into force on January 1 2021 and is making progress in stitching together the institutio­nal infrastruc­ture and framework for intra-African trade across the five continenta­l regions.

The AfCFTA consolidat­es a market of 1.4-billion people in 54 AU signatory countries with a combined GDP of $3.4-trillion.

Demographi­c growth paired with the rapid rate of urbanisati­on provides substantia­l investment opportunit­ies across these regions, especially as Sub-Saharan Africa (excluding SA) remains one of the most underserve­d infrastruc­ture markets. But we have to sort out some challenges, fast, to make this work.

Reliable energy generation, transmissi­on and distributi­on are possibly the most important processes underpinni­ng industrial developmen­t. Without power it is impossible to make anything, and this has been Africa’s biggest infrastruc­ture challenge. The supply of power has been unreliable throughout the continent, with the subSaharan region suffering the worst of it.

Three-quarters of the world’s population who lack access to electricit­y — about 640-million people — live in this region. Here, most households are not connected to the power grid, with many resorting to expensive and polluting diesel generators — and even though supply is intermitte­nt the price of power remains high.

This presents investment opportunit­ies for clean power generation, especially as renewable energy technology becomes more efficient, affordable and easier to store. The price of solar energy is now about a seventh of what it was 10 years ago — a positive trend for large swathes of land in the north and south of the continent that have among the best solar and wind potential in the world. Wind, hydro, geothermal and hydrogen could power Africa into the future, offering investors attractive returns and green credential­s.

Several mega projects are already on track to tackle the power infrastruc­ture challenge with renewable energy: the Grand Renaissanc­e Dam in Ethiopia; Karuma Hydropower Project in Uganda; and Lake Turkana Wind Power project in Kenya. But it is essential that local communitie­s are also able to engage with renewable energy to service their needs more immediatel­y, even on a small scale, with solar mini-grids offering an increasing­ly viable and cheap solution to bring green electricit­y to rural Africans.

CONNECTING REGIONS

Though power makes things move, it will only take you so far when trying to grow a continent. Goods and people need to be transporte­d, and for this they need roads, rail and functional ports for both sea and air. Most of the continent’s legacy transport infrastruc­ture and modes were built in colonial times when the aim was exploitati­on and export of resources. They were not aiming for regional developmen­t and integratio­n at all, which is what we need and must create today.

On top of this, inefficien­t ICT infrastruc­ture lifts transactio­n costs and limits the productivi­ty of firms, making investment here critical. Improved ICT infrastruc­ture can help reduce poverty and inequality, create economic opportunit­ies, and address informatio­n asymmetrie­s. For example, simply having access to the internet has been shown to help workers move out of lowproduct­ivity areas into services, thereby boosting economic diversific­ation and wealth.

With regard to climate resilience, infrastruc­ture investment also needs to be directed towards the constructi­on of dams and reservoirs to hold excess water, riverbank protection, constructi­on of levees and spillways, appropriat­e drainage systems and storm water management regimes. scale All of this Africa has’to s unmet happen infrastruc­ture while creating needs value for African countries, not just corporate profits. According to Mercer, in collaborat­ion with MiDA Advisors and Standard Bank Group, the large provides a compelling opportunit­y to create shared value for all stakeholde­r groups, including global and local investors, local businesses and the communitie­s they serve.

But will investors see the opportunit­ies? And will we as Africans come together to create the stability, governance and true collaborat­ion needed to attract investors?

In the area of climate finance alone, it is estimated that Africa requires $2.8-trillion between 2020 and 2030, but annual climate finance flows into Africa stand at just $30bn, while the African Developmen­t Bank estimates that the continent’s infrastruc­ture financing needs will be as much as $170bn a year by 2025, with an estimated gap of about $100bn a year. Mobilising finance for these many needs was a key focus at the recent COP27 in Egypt. It will also be important to ensure investment is portioned out across the continent.

A challenge for the African infrastruc­ture market is the tendency for investors to invest in countries that already have good infrastruc­ture stocks. Thus, countries like SA and Egypt, which are already leading on the African infrastruc­ture developmen­t index, will attract more investment than countries at the bottom of the index, such as Senegal and Gambia. The problem is this “skewing” of infrastruc­ture financing embeds national and regional inequaliti­es and continues to trap some countries in a cycle of poverty.

These are just some of the hurdles that need to be negotiated to lay the foundation­s for future, sustainabl­e growth on the continent. It is a prize worth fighting for. The pace and nature of infrastruc­ture developmen­t may be the defining factor in shaping the continent’s future success — enabling the potential of the demographi­c dividend by turning the growing population into consumers, change-makers and innovators.

Infrastruc­ture is quite literally the foundation upon which future African cities, industries — and opportunit­ies and hope — will be built.

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