Africa will need $93-billion a year for the next decade to meet its infrastructure needs, far outstripping current infrastructure spend on the continent.
This is according to a study released on Thursday that estimated that poor infrastructure strangled growth on the continent by an average of two percentage points a year, and it depressed business productivity by around 40%.
In almost every sector — power, transport, roads, railways, ports, air transport, water and irrigation, and sanitation — African countries lag behind their counterparts in the rest of the developing world.
Currently, spending on infrastructure sits at $45-billion, two-thirds of which, or $30-billion, is paid for by African taxpayers.
The research looked at 24 countries in sub-Saharan Africa. The Development Bank of Southern Africa, the Infrastructure Consortium of Africa, Nepad and the World Bank participated in the research.
The report found that power was Africa’s largest infrastructure challenge by far. The news was not all bad, however.
Growth in information and communication technologies (ICTs) has contributed significantly to the continent’s development. Almost half the growth across Africa in the past two decades can be attributed to the ICT revolution.
Mobile phone users grew from 10-million people in 2000 to 180-million in 2007. Between 1992 and 2005, private sector investment in ICT infrastructure rose to $20-billion.
The report found that pre-paid services were still prohibitively expensive — costing $12.58 a month in Africa, six times the cost in countries such as India and Bangladesh at $2.
In addition, crucial infrastructure services were ‘exceptionally high by global standardsâ€, the report stated. These included power, water, road freight, mobile telephones and internet services. Africa’s higher prices were sometimes because of genuinely higher costs but also derived from high profits, the report said.
In the road freight sector, ‘the costs for Africa’s trucking operators are not much higher than costs in other parts of the world, even when informal payments are counted.
But ‘profit margins, by contrast, are exceptionally high, particularly in Central and West Africa, where they reach 60% to 160%. The underlying cause is limited competition combined with a highly regulated market.â€
Internet services, meanwhile, were expensive because of both cost and profit factors. Countries without access to an undersea cable linking them to the internet had to use much more expensive satellite technology to get connected.
But even where they did have such access, countries ‘with a monopoly on this international gateway still have tariffs substantially higher than those withoutâ€.
The $93-billion needed annually to meet Africa’s infrastructure needs was substantial, but the research showed that if wastage were eliminated, an additional $17-billion would become available. But even with these savings, a funding gap of $31-billion still existed.
A major problem was also the poor maintenance of infrastructure, resulting in high rehabilitation costs, which could be avoided through regular maintenance.
The report said that power and water utilities ‘present very high inefficiency in distribution losses, under-collection of revenues and over-staffingâ€. ‘Utilities typically collect only 70% to 90% of billed revenues and distribution losses can easily be twice the technical best practice,†said the report.
Underpricing of services was a problem. ‘Even relatively high tariffs can fail to cover more than the operating costs,†it said.
In South Africa Eskom is a prime example, as tariffs have long remained artificially low to attract large industries, yet they do not reflect the cost of generating power. Addressing this ‘efficiency gap†is one of the 10 recommendations the report makes, on how to improve conditions.
One of the most ‘flagrant inefficiencies†was the failure to maintain infrastructure. Maintenance ‘needs to be understood as an investment in asset preservationâ€, it said. To do this, maintenance budgets needed to be better safeguarded.
Other recommendations included institutional reform to correct utilities’ operational inefficiencies. This should extend to the planning functions of line ministries within governments to address serious deficiencies in the budgeting process.
Regional integration was also very important in reducing infrastructure costs, by allowing countries to capture economies of scale. In the power sector, for instance, 21 countries have national power systems below the minimum efficient scale of a single plant.
‘By sharing large-scale, cost-effective energy resources across countries, regional trade can reduce electricity costs by $2-billion a year,†the report said. Ultimately, the funding shortfall of $31-billion needed to be closed.
‘Closing Africa’s infrastructure financing gap is critical to the region’s prosperity, and the global financial crisis has only made infrastructure more relevant,†it said.
