Many railway lines are underutilised or abandoned, with over 30% of Africa’s rail infrastructure inoperable.
Across southern Africa, thousands of kilometres of Cape gauge railway lines run through bustling cities, between green valleys and alongside grassy savannas. A reminder of rail’s dominance a few decades ago, the picture is very different today.
Many of these railway lines are underutilised or abandoned, with over 30% of Africa’s rail infrastructure inoperable. With trade volumes projected to grow significantly, the urgency to revitalise rail infrastructure is clear.
Availability is another stumbling block for the continent’s rail sector. Most African countries average only 3km per 1 000 square kilometres, compared to high railway density countries such as those in Europe, with 400km per 1 000 square kilometres. This shortage of built railway lines further exacerbates the impact of inoperable lines.
Out of necessity, Africa’s rail network has been replaced as the preferred mode for freight transport. Due to the significant shift to road, various short- and long-term road infrastructure problems have developed. Traffic congestion has significantly increased across the continent, with three of the world’s cities with the worst traffic delays in Africa.
Simultaneously, road infrastructure has been damaged by the consistent use of heavy freight vehicles. The frequency of large weight loads exerting pressure on these public roads and highways has led to uneven tar surfaces, premature pavement failure and potholes.
From an economic perspective, the consequences have also been severe. Africa moves around 80% of goods via road networks and over 40% of the final purchasing price can be attributed to inflated transport costs.
For the Southern African Development Community region, the economic impact is even more significant, as 90% of freight is transported by road. Projections estimate that traffic volumes for landlocked SADC countries will grow by 8,2% annually until 2030 and that trade volumes will also expand over the next five years, further stressing the urgency to alleviate trade’s reliance on road.
In response, government organisations have developed long-term expansion plans, such as the AU’s Programme for Infrastructure Development to build an additional 30 200km of rail networks by 2040. If realised, this expansion would increase Africa’s rail network by four times its current size within the next five years. However, limited progress has been made, with only 4 000km of expanded line implemented to date.
One of the main barriers preventing railway infrastructure expansion from progressing is a lack of funding. In total, Africa needs an estimated $130 billion to $170 billion annually for infrastructure. African governments cannot close this funding gap alone and have only managed to cover about 40%.
Apart from this funding gap, the rail sector is also effectively competing against other infrastructure industries that offer private investors lower-risk environments and shorter return on investment terms. While significant funds are being invested into other infrastructure areas, such as renewable energy generation and ports, there has been a marked decline in rail network funding.
Many economists have pointed to public-private partnerships as a silver bullet solution to close this funding gap, including for the rail sector. While this has been a workable solution for other infrastructure sectors in Africa, rail expansion cannot be approached in the same, derivative way. The sector requires large sums of investment on dual platforms: railway lines and rolling stock. The one is dependent on the other to move freight volumes and passengers.
Despite this dependency, a different funding approach could be the solution to move Africa’s rail industry forward. The stark reality is that there is limited private sector investment appetite when it comes to railway line infrastructure. To date, a lack of bank feasibility, high capital requirements and long project tenures have given the private sector reason to pause.
This is where development finance institutions (DFIs) are uniquely positioned to get Africa’s rail sector back on track. DFIs can add tremendous value from both a funding and project feasibility perspective. When it comes to infrastructure plans, Africa has never fallen short — it is migrating from the planning phase into implementation, where the shortfall most often occurs.
DFIs with experience in funding and facilitating initiatives in Africa understand this. Consequently, these financial institutions are making money available for comprehensive feasibility studies. By starting future rail projects with funded and credible feasibility studies, actionable steps can be identified to turn rail infrastructure projects into bankable investments.
By removing this deterrent to private investors, DFIs can become the bridge between Africa’s railway infrastructure needs and public-private partnerships. From conceptualisation and feasibility to implementation, DFIs also have the expertise to enable disciplined project frameworks for capital allocation, strategic benchmarks, sustainable building practices and operational maintenance, further increasing rail projects’ bankability.
In turn, commercial banks are increasingly willing to finance rail projects, particularly when feasibility and risk mitigation are in place. The optimal path forward lies in a collaborative model where DFIs and banks work in tandem — DFIs supporting early-stage development and feasibility and banks providing long-term financing for implementation and rolling stock investment.
Progress in railway infrastructure expansion will stimulate rolling stock investment. Here, public-private partnerships can take the lead. Refurbishing heavy-haul locomotives and wagons has already proved to be a profitable investment in countries such as South Africa, Namibia and Kenya. Simultaneously, industries that form the backbone of economies and are heavily reliant on rail transport, such as mining and agriculture, should be incentivised by the government to invest in rolling stock.
Investment in the improvement of rail networks through sustainable financing and infrastructure development projects can unlock African countries’ economies, fostering economic growth, assisting the growth and development of markets that have global relevance, key tenants of the G20 forum Business 20 South Africa.
Even though sections of Africa’s rail network have been neglected, it certainly has not been forgotten. With the backing of DFIs, the collaboration of governments and investment from the private sector, the continent’s rail sector could be enabled to move forward on the same, economically viable and sustainable, track.
Mornè Visagie is head: Structured Assets Finance, Absa CIB.