Infrastructure development and financing in sub-Saharan Africa: Toward a framework for capacity enhancement

Author: 
African Capacity Building Foundation
Publisher: 
African Capacity Building Foundation
Year of publication: 
2016

Of the world’s developing regions, Sub-Saharan Africa has the worst infrastructure deficit, with studies pointing to lost growth opportunities. This study presents in one document information previously dispersed on the region’s infrastructure stock and modes of financing. It assesses infrastructure’s role in the region’s economic growth. It identifies specific capacity constraints that have hindered the private sector’s participation in infrastructure financing. And it suggests a framework for advancing institutional and human resource capacities to boost infrastructure financing. The authors first reviewed documents addressing the region’s infrastructure. They then conducted case studies of private sector involvement in infrastructure financing in Kenya, Mauritius, and South Africa. And, using the generalized method of moments (GMM), estimated an infrastructure-augmented growth model.

Key findings From the document review, the study found the following:

  • Power is the most deficient infrastructure in the Sub-Saharan region, with spending needs estimated at $41 billion annually between 2005 and 2015 for operations and maintenance, generating new capacity and rehabilitation of existing transmission and generation.
  • The transport sector requires spending of approximately $18 billion a year, half for maintenance, to build sufficient regional, national, rural, and urban road connectivity, accompanied by adequate rail, port, and airport infrastructure. 
  • The estimated information and communications technology (ICT) sector annual investment need is $9 billion, including $2 billion for maintenance, to service existing demand.
  • The water sector’s annual funding gap is $11 billion: the region needs to spend about 0.9 percent of gross domestic product (GDP) a year on sanitation, of which 0.7 percent is for investment and 0.2 percent is for operation and maintenance to meet the Millennium Development Goal target.
  • Sub-Saharan Africa loses about $17 billion annually to various inefficiencies in infrastructure operations and spending. Opportunities for efficiency gains include improving budget execution rates; reallocating existing budgets to subsectors with the highest economic returns, such as power; raising user charges closer to costrecovery levels; and promoting service quality for all utilities.

From the case analyses of Kenya, Mauritius, and South Africa, the study makes the following general observations:

  • Institutional investors display sufficient appetite for public debt issues, which has not, however, been sufficiently matched by the supply of public debt. To avoid crowding out the private sector, states have tended to refrain from using domestic bond markets to finance their infrastructure development needs.
  • Governments have the capacity to run PPP projects and to provide guarantees to PPP financiers, but they have not adequately used that capacity because of, for example, poor project planning, cumbersome legislative frameworks, and unwieldy procurement procedures that encourage corrupt practices.
  • Governments can absorb large amounts of money for infrastructure projects, including debt and grants from international financial markets and sources.
  • Human resource capacity has serious shortfalls. Ministerial staff members cannot conduct bankable studies, and they cannot effectively simulate bids and develop reasonable estimates to guide bid solicitation processes.
  • Although most governments have, or are in the process of attaining, computerized project and financial management functions, putting those processes in place must be done expeditiously to allow greater efficiency in procuring financing, ensuring transparency in the PPPs’ bidding process, and setting up project controls.