Africa Finance Corporation (AFC), the continent’s multilateral financial institution created by sovereign African states, has attributed the low level of infrastructure projects on the continent to high debt and low revenue mobilisation by African countries. In addition, the continental financial institution identified low public and private sector-led investments in infrastructure projects as other important factors.
AFC made these disclosures in its latest report titled “State of Africa Infrastructure Report” which was released recently.
“In line with our mandate to develop, de-risk and finance the infrastructure that will enable Africa’s industrialisation, the Africa Finance Corporation has initiated an annual study on the State of Africa’s Infrastructure. This deep-dive examination strengthens our appreciation of the continent’s infrastructure landscape, spotlighting critical gaps and offering new insights into the core sectors of power, transport, logistics, digital communications, and commodity-based value chains,” AFC stated, adding that its findings not only quantify the magnitude of Africa’s infrastructure opportunities but also serve as a strategic guide for prioritising investments.
The report states that investments in infrastructure projects are crucial for driving the structural transformation of the African economies that will benefit from sustainable growth, resulting in the empowerment of Africans, as all these will act as a nexus to put Africa on the path to overcome the boom-bust economies affected by volatility in global commodity prices.
The report identifies the absence of public and private partnership as one of the major causes affecting the development of adequate infrastructures, especially in projects in Africa.
“Unfortunately, while a country’s capital stock has been shown to contribute towards higher productivity growth and living standards, Africa’s total capital stock has experienced a near stagnation over the past three decades. Its annual growth rate averaged between 1-2% in the 1990s and 2-4% since the start of the millennium, compared with a constant 10% in China over the same periods,” AFC stated.
Comparing growth in Africa’s capital stock with that of China, the report states that over the same time horizon, Africa’s capital stock rose by just $10.5 billion as against $64 billion in China. In effect, China’s total capital stock which was 0.47 times below Africa’s in 1960, surpassed that of Africa between 1996 and 1997 and currently stands at 6.1 times the level of capital stock in Africa.
“This combination of rising debt levels and insufficient revenue mobilisation severely limits the fiscal space available to African governments for investment spending, particularly on critical infrastructure projects, thus impeding the continent’s economic growth and development prospects. This is why continental initiatives to support infrastructure development through the African Union and other multilaterals have become ever more critical,” the report stated.
The rising public debt across Africa has raised the debt-to-GDP ratio. According to the report, in Sub-Saharan Africa (SSA), the average debt-to-GDP ratio increased from 23.3 percent in 2008 to 57.1 percent in 2022. This is expected to remain at that level through 2029. The World Bank’s Debt Sustainability Analysis indicated that eight African countries are in debt distress, implying that they were unable to fulfil their repayment obligations in 2023.
What’s more, a further 15 other African countries were already at high risk of debt distress with another 14 countries at moderate risk. That puts the total number of African countries at different stages of debt distress at 37 out of 54 African countries, which is approximately 69 percent of African countries in debt distress.
According to the AFC report, Africa’s tax-to-GDP ratio has been on the decline. In 2010, it was 11.79 percent. That compared to 16.79 percent in the Asia-Pacific; 23.02 percent in Latin America, and 27.76 percent in advanced economies.
Fast forward to 2022, Africa’s tax-to-GDP ratio slightly reduced to 11.56 percent. In Asia-Pacific, it was 19.09 percent, 20.45 percent in Latin America, and 35.26 percent in advanced economies.
When rated by gross-savings-to-GDP ratio, in 2011, Africa had 21.54 percent. However, in 2021, the ratio fell to 16.48 percent. Latin America’s ratio also fell from 21.25 percent in 2011 to 19.66 percent in 2021. Advanced economies’ ratio rose from 15.63 percent to 22.98 percent. On the other hand, Asia-Pacific’s ratio declined from 42.82 percent in 2011 to 40.35 percent in 2021.
The report also identifies the increasing household consumption in the continent as an opportunity to expand the continent’s infrastructure stock. This is because in the last decade, private consumption expenditure in Africa has trended upwards, enhanced by population growth, the growing middle class.
“According to data from the African Development Bank, private consumption expenditure in Africa grew from $470 billion in 2010 to over $1.4 trillion in 2020, representing a substantial expansion. This surge in private consumption has created a growing demand for improved infrastructure, including transportation networks, energy systems, telecommunications, and water and sanitation facilities, “AFC stated.
The report states that Africa has done well in the area of port development, ranking first among the continents from 2010 to 2022. In terms of investments in ports development, African port development attracted $13.15 billion. This compares to $12.16 billion inflows into port development in Latin America and Caribbean. East Asia and Pacific attracted $5.06 billion; Europe and Central Asia, $5.47 billion; South Asia, $6.65 billion, and the Middle East, $1.19 billion.
By road density, Sub Saharan Africa lags behind other regions in Africa and the rest of the world. This metric measures just 2.3 kilometres per 100 square kilometres compared to 138 kilometres per 100 square kilometres in Asia, and 29.5 kilometres per 100 square kilometres among ASEAN countries.
The low road density affects transportation cost, which further affects the landing cost of goods and services. This is because high transport costs accounts for 40 percent of the final price of goods in Africa, indicating that to address historically high inflation rates on the African continent, requires addressing road infrastructure shortage, pointing to the need to adopt a new investment paradigm.
“To invoke this change, it is imperative that we adopt a new investment ethos—one that is smarter, more targeted, and impactful, using innovative financing mechanisms to attract investment. This involves adopting public-private partnerships and utilising developmental skills and experience to de-risk projects,” AFC stated.
