By Matthew Kofi Ocran: Professor of Economics, University of the Western Cape

Improving infrastructure is not only critical for economic growth in Africa but essential for ensuring the improved well being of its people.

This is backed by empirical research, which shows a strong link between infrastructure development and economic growth on the continent.

The African Development Bank reports that road access in Africa is only 34% as compared to the 50% in other developing regions.

Just about 5% of agriculture in the region is under irrigation. In Asia, however, 37% of the agricultural land area is under irrigation and the figure for Latin America is estimated at 14%.

And Africa’s average national electrification rate of 43% compares poorly with 81% in developing countries in Asia and 98% recorded in Latin America.

The amount of capital required to close the infrastructure gap in Africa is estimated to be in the region of US$93 billion annually until 2020.

With China stepping in and funding economic infrastructure, as well as the establishment of the BRICS Development Bank and the Asia Infrastructure Investment Bank, will the funding gap be filled? The answer is no. Africa needs to look to capital markets.

What we know

Sourcing funds for huge infrastructure development in Africa has always been fraught with difficulties.

One major challenge is that the multilateral development finance institutions, which are dominated by the rich western countries, often impose stringent policy conditions to loans.

It also appears that the funding required to close the infrastructure gaps is simply not available on the balance sheets of the World Bank and the African Development Bank.

Another issue is that the major lenders have historically been more active in financing social infrastructure such as health and education. Their approach to development in Africa has by and large been related to “poverty alleviation”.

The critical role of economic infrastructure in spurring economic growth has not been accorded serious attention.

While social infrastructure is important for economic development, economic infrastructure is more urgent. Wealth creation and capital accumulation are facilitated more by investments in economic infrastructure.

The truth is that the old approach of countries relying heavily on multilateral and regional development finance institutions to fund infrastructure is unworkable.

It is also incapable of closing the huge financing gap. In fact, neither the old nor the new institutions have the risk appetite for the kind of investments needed.

If countries continue to rely on these organisations and institutions the pace for closing the infrastructure gap will be very slow.

The way forward

The point is that traditional development finance institutions are hesitant to provide resources for the huge but critical infrastructure investment required in Africa.

The emergence of the new multilateral development institutions is a welcome development. But they are in no way a panacea to current infrastructure financing challenges.

The game-changing infrastructure projects that can make a dent in the infrastructure deficit and move economies to a higher growth path need to come from elsewhere.

Read more here. 

–The Conversation