ANDILE SKOSANA: Africa’s hopes and prospects depend on infrastructure investment

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 steady 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 in the world. But we have to sort out some challenges, fast, to make this work.

Getting things moving

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 and most persistent infrastructure challenge. The supply of power has been unreliable throughout the continent, with the sub-Saharan 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 — all could power Africa into the future, offering investors both 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 more immediately 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

Although 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 main 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 increases 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 low-productivity 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.

All this has to happen while creating value for African countries, not just corporate profits. According to Mercer, in collaboration with MiDA Advisors and Standard Bank Group, the large scale of Africa’s unmet infrastructure needs 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.

• Andile 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.