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Infrastructure: missing foundation for development

INFRASTRUCTURE investment is a critical consideration for economic development. Today there is a compelling case for more expansive infrastructure programmes across the emerging world, nowhere more so than in Africa. But to achieve this, a flexible and innovative approach to the finance and provision of these vital assets is necessary.
These are the conclusions of Foundations for Growth: Infrastructure Investment in Emerging Markets, the recently published White Paper commissioned by Trafigura.
Against a background of rapid population growth, mass urbanisation, globalised trade and capital flows, the provision of adequate and efficiently-run infrastructure is a fundamental pre-requisite for growth and development. Without it, economies are likely to fall behind.
It is estimated that the global infrastructure shortfall amounts to some 3.5 percent of world gross domestic product (GDP) per year – US$57 trillion annually – until 2030. In other words, the world economy needs to spend this mammoth cheque in order to meet all of humanity’s growing demand for infrastructure and basic services.
The shortfall in developing regions of the world, however, is greater. There, a doubling of infrastructure outlays to between 6-8 percent of their GDPs each year is required. In Africa, where existing infrastructure is particularly underdeveloped, the deficit is larger, exceeding US$90 billion per year over the coming decade, or 15 percent of the region’s GDP per year. In some of the more fragile states, the gap is a significant 25 percent of the GDP per year.
What’s more, this prospective shortfall of infrastructure extends to all major categories: Energy, water and sanitation, telecommunications and transport – an important consideration when nearly 70 percent of people in developing countries have no access to electricity; road links are minimal, especially in rural areas; and nearly 800 million lack access to adequate water. The sanitation situation is even worse, with 2.5 billion people without adequate facilities.
According to the African Development Bank, low quality infrastructure constrains economic growth across the continent by around two percentage points every year, and reduces business productivity by up to 40 percent.
Although emerging economies can copy best international practices to implement growth-enhancing infrastructure, in practice the challenges in Africa are vast and complex. The continent has difficult topography, landlocked countries, low population density, small-scale and dispersed production, unevenly distributed natural resources, small economies, marginal competitiveness and numerous institutional shortcomings.
Many African countries have systematically under-invested in the repair and maintenance of infrastructure assets over decades and so much of the existing stock is old and inefficient.
Even in South Africa – a country that scores relatively well in international surveys of infrastructure, performance maintenance has been neglected – as the current power crisis demonstrates.
Meanwhile, public finances are frequently under duress, especially in economies dependent on energy commodities as finances are channelled into large-scale prestige projects, with the associated potential for corruption and delays.
Africa lags behind in electricity, transport, water and telecommunications. Only in mobile phone subscriptions has Africa performed well – with the industry growing six-fold since 2000, yet failing to impact on the broader ICT sector.
Power provision is Africa’s largest infrastructure challenge. Yet water access, although improved, is still needed to sustain economic growth. About 340 million people in Africa still have no access to a safe water source.
Africa’s transport network problems are multi-fold. Road density is sparse (only one-third of people in rural areas are within two kilometres of an all-season road); linkages between transport modes – so important for trade and logistics – are ineffective; ports are poorly equipped and overloaded; rail networks are ageing, disconnected and inefficient; and the general quality of transport is poor. More broadly, Africa needs to unlock its inland countries.
State involvement in the finance, development, ownership, and management of infrastructure provision has declined over the past 30 years. This reflects efforts to moderate the financial burden of capital investment and concerns about the historical inefficiency of public infrastructure provision.
Today it is widely held that a balance should be struck between public and private infrastructure provision. Only in this way can the efficient delivery, management, and maintenance of infrastructure assets be guaranteed and the benefits of such investment spread across entire populations.
That said, the active barriers on greater private sector involvement are not to be underestimated. Innovative strategies for funding and delivery need to be explored. If the developing world’s cavernous infrastructure gaps are to be ‘bridged’, then the public and private sectors and international institutions will have to pool their financial resources and on-the-ground expertise in a mutually reinforcing manner.
As part of this collegiate approach, it would seem wise to tap into the knowledge of a multinational corporate sector that has long demonstrated capability in resource development and exportation, and which over recent years has become increasingly aware of global citizenship responsibilities beyond those owed to its immediate shareholders.
Good infrastructure alone is no panacea for sustained economic development, but without it, development may prove impossible.
Thus, in these cash-strapped times, governments should be open to flexible financing and project delivery, working in concert with all potential stakeholders. There is something here for everyone. But the real benefits will be reaped by future generations.
The author of London-based Llewellyn Consulting is the co-author of Foundations for Growth: Infrastructure Investment in Emerging Markets, with Camille Viros. The findings were presented in South Africa in April.