Tonia Kandiero

English

Research Papers in Economics

A f r i c a n   D e v e l o p m e n t   B a n k
August  2009 Number 10
EDRE
Development Research
Department 
Office of the Chief Economist, ECON
FONDS AFRICAIN DE DEVELOPPEMENT
AFRICAN DEVELOPMENT FUND
BANQUE AFRICAINE DE DEVELOPPEMENT
AFRICAN DEVELOPMENT BANK AfDB
Infrastructure Investment in Africa 
Tonia Kandiero*
Development Research Brief 
T
he African Development Bank has
long recognized that infrastructure in-
vestment has a central role in the deve-
lopment agenda and is critical for sup-
porting  economic  growth,  poverty
reduction and the achievement of the
millennium development goals (MDGs).
Infrastructure affects growth through two
channels: directly through physical capi-
tal accumulation and indirectly through
improvement in productivity. The rela-
tionship between investment and infra-
structure is also bi-directional. Countries
with high growth rates invest more in in-
frastructure which subsequently feeds
back into the growth process.
At the micro-level, the importance of in-
frastructure  investment  is  that  it  en-
hances private sector activities by lowe-
ring the cost of production and opening
new markets, presenting new production
opportunities and trade. Investments in
roads reduce transport costs while ports
and other logistics infrastructure reduce
the cost associated with trade, all of
which improve the competitiveness of
firms. At the same time, a strong link
between infrastructure investment and
some of the key indicators of social well-
being, such as health care, water, sani-
tation, housing, human capital accumu-
lation and electrification, is also re-
cognized. 
Although the importance of infra-
structure investment at the micro-
and macro-level is clear, over the
last decade, infrastructure invest-
ment in developing countries, in-
cluding African countries, has fallen
significantly, driven by declining pu-
blic and private investment. In Africa
- where there are tremendous needs
- average public sector investment in
infrastructure is currently only ranging
between 2 to 3 percent of Gross Do-
mestic Product.
Some of the glaring facts about the si-
tuation of continent’s infrastructure in-
clude:
• 40 percent of the population lacks
access to safe water;
• 60 percent of the population lacks
basic sanitation; 
• Only 30 percent of the rural popula-
tion in Sub-Saharan Africa has ac-
cess to all-season roads; 
• Transport costs  is Africa are among
the highest in the world;
• Only 30 percent of African popula-
tion have access to electricity;
• Africa has the lowest telephone pe-
netration – 14 percent (the world ave-
rage is 52 percent).
• Africa has the lowest Internet pene-
tration – 3 percent (the world ave-
rage is 14 percent).
Supporting Infrastructure Investment 
in Africa A f r i c a n   D e v e l o p m e n t   B a n k
2
The infrastructure deficit is most evident
in  low-income  countries  and  fragile
states. Among the poor sectors, the po-
wer sector is lagging most in terms of ge-
neration capacity, electricity consump-
tion and security of supply. The deficit is
holding back per-capita growth by 2 per-
centage points each year.
As a consequence of this under-invest-
ment in infrastructure, most countries
now face the challenge of bridging huge
infrastructure gaps that threaten growth
and the achievement of social and other
broader  development  goals.  Studies
show that sub-Saharan Africa’s poor
growth performance is related to under-
investment in electricity and telecom in-
frastructure. It is estimated that if Africa
enjoyed South Korea’s quantity and qua-
lity of infrastructure, it would raise its an-
nual per-capita growth by 1 percentage
point. In Africa, closing the infrastructure
gap to sustain 7 percent growth rate by
2015 will require more than USD 80 billion
per year of investment by the public and
private sectors over the next decade, split
evenly between new investment and ope-
ration as well as maintenance. Half of this
need, about USD40 billion, is currently
being met – but USD 20 billion, about half
of the gap, could be found through im-
proved efficiency. This includes putting in
place good policy, legal and regulatory
frameworks, improving the performance
of  state-owned  enterprises,  and  the
maintenance of existing infrastructure.
The remaining financing gap is thus esti-
mated at USD 20 billion per year.
There are several plausible reasons why
infrastructure investments in Africa are
low. First, infrastructure investments have
the characteristics of public goods (non-
exhaustive  and  non-exclusive  in
consumption) which give the private sec-
tor very little incentive to invest.  Further,
private sector participation may be limi-
ted by the lack of stable long-term fi-
nance, high sector-specific risk as well as
high macro-risk arising from political in-
stability and poor governance. In addi-
tion, fiscal constraints may limit the abi-
lity  of  the  public  sector  to  provide
infrastructure investment.
The global financial crisis is already af-
fecting Africa and creating new chal-
lenges, as investments and new expen-
ditures are cut. The real task ahead is to
lay the groundwork for the continent to
benefit from the recovery, when this cri-
sis  ends.  One  way  is  ensuring  that
Africa’s infrastructure programs are kept
on track by scaling up financing for new
projects and projects under distress to
stimulate  growth  and  maintaining  a
strong pipeline of projects and preser-
ving existing assets during the down-
turn.
Over the years infrastructure has become
an important binding constraint on growth
in many African countries. This has reigni-
ted the attention by the international com-
munity on the importance of infrastruc-
ture  financing  and  its  impact  on
development. In 2008, infrastructure in-
vestments (grants and loans) accounted
for approximately 44.5 percent (UA 1.41
billion) of the African Development Bank’s
portfolio. Transport accounted for the lar-
gest portion (45.4 percent), followed by
power supply (37.8 percent) and other in-
frastructure (16.8 percent). Figure1 shows
Bank investments in the Southern African
Development Community (SADC) since
1967.  In SADC, investment in transport
has dominated, accounting for 42 per-
cent of total investment in infrastructure.
Investment in power is also relatively large
and is expected to grow due to growing
energy needs of the region in recent years.
Infrastructure Investment to SADC Countries, 1967-2008 (UA Million)
The African Development Bank has sho-
wed strong commitment to infrastruc-
ture support for regional integration, rea-
lizing that many of Africa’s challenges
have a regional dimension. About 40 per-
cent of the population is in landlocked
countries.  The  continent  faces  chal-
lenges associated with several missing
links in the infrastructure networks (that
is., transport and energy), poor state of
physical infrastructure as well as weak
market integration and intra-African trade
(less than 10 percent of total trade).
Transport costs constitute one of the key
constraints on intra-African trade. Trans-
port costs for trade within Africa are es-
timated at more than twice higher than
those in South and East Asia. Regional
infrastructure, notably power pools, road
corridors and communications networks,
is critical to supporting growth and com-
petitiveness by achieving economies of
scale and reducing the cost of doing bu-
siness. 
Scaling up regional infrastructure pro-
jects will help in facilitating trade and
transport across national boundaries,
creating integrated energy markets, par-
ticularly power pools, supporting regional
water resources management and de-
veloping the private sector. Infrastruc-
ture activities will also involve building
capacity in Regional Economic Commu-
nities for project development and im-
plementing reforms in cross-border and
inter-regional trade policies.
Support to the Regional Integration Agenda A f r i c a n   D e v e l o p m e n t   B a n k
3
The growing demand for infrastructure
has led to collective initiatives to support
the efforts. The Commission for Africa
and the Gleneagles summit underscored
the importance of investing in infrastruc-
ture in Sub-Saharan Africa and the ma-
jor agreement of the summit was to set
up an Infrastructure Consortium for Africa
(ICA). The African Development Bank,
the New Partnership for Africa's Deve-
lopment (NEPAD), the World Bank, the
European Commission and bi-lateral do-
nors contribute resources for coordina-
ted African-led infrastructure initiatives at
the country level and for cross-border
regional projects. 
The Consortium focuses on aid effecti-
veness  and  improving  coordination
among donors, creating advocacy and
awareness to scale up efforts, develop
better data and monitor resources on
the current state of service provision, and
improve the capacity of local govern-
ments and service providers to increase
the overall impact of the efforts. The In-
frastructure Consortium for Africa is a
strong signal that donors recognize that
going forward, maximizing aid effective-
ness will require increased donor har-
monization  and  co-financing  around
country infrastructure programs geared
towards clear outcomes.
Infrastructure and the Aid for Trade Initiative
The Aid-for-Trade initiative must also
complement and strengthen Africa’s re-
gional integration efforts, particularly in-
creasing the level of intra-African trade,
among others. This leaves a clear role for
Pan-African institutions such as the Afri-
can  Development  Bank,  the  African
Union Commission and the United Na-
tions Economic Commission for Africa
(UNECA) to ensure their prominence in
this process. In this regard, the Bank is
supporting trade-related infrastructure
(i.e., transport, energy, and logistics) and
other areas to reduce transaction costs.
Promoting improvements in infrastruc-
ture and improving the business envi-
ronment makes it possible to open up
opportunities for the foreign private sec-
tor, both in terms of trade and invest-
ment. After all, it is the private sector that
trades. 
In moving the Aid-for-Trade agenda for-
ward, the African Development Bank is
taking a leadership role to make pro-
gress on activities that were promised in
Tanzania in 2007 during the first Aid-for-
Trade Global Review. 
This work entails the following key pro-
cesses:
• identifying “Bankable” projects based
on well-designed work programs pre-
pared by regional economic commu-
nities;
• identifying projects that are already
in the Bank pipeline for funding;
• convening Regional Reviews in East
and Southern Africa, West Africa,
Central Africa and North Africa;
• supporting the monitoring agenda of
Aid for Trade activities; 
• setting up the African Aid-for-Trade
Working  Group,  which  also  com-
prises UNECA and the WTO. The
working group’s mandate is for the
three institutions to take up leader-
ship roles in the implementation of
the Aid-for-Trade roadmap; and;
• increasing participation in the Geneva
process  through  Advisory  Group
meetings, reports to the Committee
on Trade and Development and in-
teraction with representatives from
the donor community.
In terms of financial commitments, during
the  North-South  Corridor  High-Level
meeting on Aid-for-Trade in Zambia from
6-7 April 2009, the African Development
Bank made a commitment to support
this pilot Aid-for-Trade initiative. The Bank
has pledged USD 600 million for 4 years
to support transport infrastructure and
other related activities on the corridor
(i.e., Kazungula Bridge (Botswana), M1-
Blantyre (Malawi), Lusaka-Malawi Bor-
der (Zambia), Iringa-Dodoma (Tanzania)).
The Bank is hoping that this important
initiative will be replicated in other re-
gions in West, Central and North Africa.A f r i c a n   D e v e l o p m e n t   B a n k
Comments and suggestions can be sent to: 
Leonce Ndikumana
Abdul B. Kamara
Development Research Department
African Development Bank
BP 323, 1002 Tunis Belvedere, Tunisia – Tel.: +216 71 102 876 – Fax: +216 71 103 779 – E-mail: economic-research@afdb.org – Web: www.afdb.org
The views expressed in the Development Research Brief are those of the authors and do not necessarily represent the views
of the African Development Bank, the Board of Governors, the Board of Directors or the Governments they represent. 
*Tonia Kandiero is a Principal Research Economist in the Development Research Department of African Development Bank.
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Development Research Briefs - Infrastructure Investment in Africa

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Development Research Briefs - Infrastructure Investment in Africa

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