Infrastructure investment should benefit all in the drive for Africa’s transformation

europa.eu

Tigere Chagutah

Jun 23, 2016

It must be emphasised that if sustainable development and real transformation are to be achieved, infrastructure development and the approaches chosen to finance it must serve the people, bring education, health and clean energy to the poor and marginalised.

Agenda 2063, the African Union’s long-term vision and blueprint for transformation, identifies infrastructure development as one among a few key pillars for Africa’s economic prosperity and sustainable development.

Along with good governance, sustained peace and a people-driven and socially just dispensation, the African Union aims to have the necessary infrastructure to support accelerated regional integration and growth, technological transformation, intra-African trade, and expanded investment by 2063. Through infrastructure development, for instance, Agenda 2063 foresees intra-African trade growing from less than 12 percent in 2013 to approaching 50 percent by 2045 and the African share of global trade rising from two percent to 12 percent in that time.

However, despite recent economic gains, Africa still suffers from a crippling infrastructure gap particularly in sectors with a high social return. Analysis by the African Union Commission and the African Development Bank (AfDB) shows that whereas road access rates average 50 percent in other parts of the developing world, in Africa it is only 34 percent, and transport costs are twice as high. Only 30 percent of Africa’s population has access to electricity, compared to 70-90 percent in other parts of the developing world. Water resources are woefully underused with only five percent of agriculture under irrigation. In addition, the Internet penetration rate is a mere six percent compared to an average of 40 percent elsewhere in the developing world.[11] The AfDB has estimated that the poor state of infrastructure in Sub-Saharan Africa undercuts national economic growth by two percentage points annually.

In dollar terms, the World Bank estimated in 2010 that Africa’s infrastructure needs would cost a whopping $93 billion – some 15 percent of Africa’s GDP – annually for the period up to 2020.[2] Of this, roughly half is being provided by African governments, external sources and infrastructure users, leaving a financing gap of close to $50 billion per year. The bulk of this deficit is felt in power ($ 29.2 billion), and water and sanitation ($ 14.3 billion). [3]

It comes as no surprise therefore that through initiatives such as the Programme for Infrastructure Development in Africa (PIDA), and other sectoral mega initiatives, the African Union and its partners have embarked on an aggressive drive to bridge the massive infrastructure deficit on the continent. While these efforts are commendable, the existing and emerging approaches and trends to financing infrastructure are threatening to derail the goal of enabling true, people-centred, development and socio-economic transformation on the continent.

To start with, key economic and social development drivers and inequality busting investments in areas such as education and health, as well as essential physical infrastructure, have traditionally been funded by meagre domestic public budgets supplemented by foreign aid. African countries characteristically have low tax bases, limiting their ability to adequately fund provision of these basic services. In addition, countries already saddled with debt have begun to experience rising debt levels, [4] further eroding their ability to fund much needed social and basic services infrastructure. To add to Africa’s woes, against a rising global average, overseas development assistance (ODA) which still enables many African countries to meet their financing needs for health, education and civil service salaries, is in decline [5].

Against the background of constrained domestic and international public financing, funding for future essential services infrastructure is increasingly being earmarked for delivery via private sector models. Yet the track record of existing projects is mixed, with the worst performing often prioritising profit over delivering public goods to all, regardless of ability to pay. In many cases this has seen public funds blended with private-sector money to fund high-end hospitals and institutions for basic service delivery that charge user fees beyond the reach of many, thereby perpetuating a model that is extremely unlikely to deliver better health outcomes for poor people.^[6]This flies against other efforts to end poverty and rein in growing inequality on the continent.

Increasingly ODA is being used to ‘leverage’ private sector money as donors try to encourage more investment from business in infrastructure development. The private sector is one of the main beneficiaries of improved infrastructure, and it is only right that means be found to help increase private sector investment in infrastructure. This is especially so where such investment translates to more sustainable, well-paying and decent jobs for local communities. However, there is often a thin and muddied line between the choice to deploy public funds to support private-sector led models due to the latter’s efficiency and ability to serve all, and choosing such schemes solely based on their commercial potential, in other words profit. The greatest danger is that the predominant focus on achieving commercial returns on projects financed by the private sector will detract from the developmental imperatives of aid.

Thus leveraging will work at cross purposes with the aim for transformation if it only serves to divert international public funds away from development of social infrastructure and supporting governments to enhance state capacity to deliver quality public services towards greater investment in ‘profitable’ infrastructure projects. Besides, there is not much evidence showing that using aid to leverage private investment delivers significant pro-poor development outcomes.

Public Private Partnerships (PPPs) have increasingly become a key infrastructure financing model across all sectors from agriculture to health and beyond. Cases abound where – driven by the profit potential – PPPs have been implemented leading to some of the continent’s most vulnerable people being forced from their homes and losing their livelihoods to make way for large-scale agriculture, transport and water infrastructure projects. There is also the well-documented case of a health PPP project in Lesotho that has resulted in new health delivery infrastructure that is beyond the reach of many and is exacerbating inequality through user fees and diversion of government funds from investment in several rural primary health facilities to one urban hospital.[7] This case is by no means isolated as other research has shown.[8]

PPPs are also often characterised by inequitable risk sharing, putting a disproportionate financial burden from failed investments on governments rather than private sector partners, and often leaving the poorest communities – rather than the project partners – bearing the brunt of the social and environmental risks. Where aid has been used, recent changes in ODA rules by the OECD Development Assistance Committee will now allow donors to count public guarantees – the money public entities agree to pay private investors in the event of a failed investment – as ODA[9], thus putting aid at the mercy of risky private sector-led initiatives.

Recognising these risks, over 30 civil society groups meeting at the margins of the just ended 2016 Annual Meetings of the African Development Group called on the AfDB to ensure public funds should only be used to leverage non-exploitative private sector funds that have clear social returns and equitable risk sharing. In addition, the CSOs encouraged the Bank and governments to only harness global corporate players’ role in development where it maximises domestic benefits – creating local jobs, raising domestic tax revenues and contributing to the growth of domestic private sector – rather than based on enhancing global profits.[10]

Further, communities risk being by passed by the current infrastructure development drive if deliberate efforts are not made to ensure that they benefit from the various ongoing and future mega infrastructure development projects on the continent.

In the energy sector, for instance, while investment through PIDA and other programmes runs into billions of US dollars, projects being financed are primarily aimed at increased generation and grid expansion. However, for a continent that accounts for 16 percent of the world's population and yet has 53 percent of all the total population without electricity in the world,[11] investments will do more to address energy poverty through ambitious distribution of energy services to poor people than added generation. Expansion in centralised power generation serves industry, the services sector and already-connected households, before it serves the poor.[12] What Africans need most urgently is more investment in beyond-the-grid energy infrastructure as the majority of the energy poor who currently reside in rural areas will not benefit from on-grid increased capacity or extension interventions.

In addition the approach to infrastructure development which links major cities, mining towns and sea ports, for example, is likely to soak up vast amounts of financial resources, only to exacerbate long entrenched patterns of extraction and global inequality. It is important that such projects, for example in transport, directly benefit citizens within countries rather than simply focusing on the needs of corporations for large-scale movement of import and export commodities. There should be a strong bias towards supporting public means of transport and increasing access of communities to markets and trading centres particularly in rural communities.[13]

Thus, given Africa’s infrastructure deficit the efforts to bridge this gap that being driven by the African Union and its organs, African and international development financing institutions, and other development partners on the continent are laudable. However, it must be emphasised that if sustainable development and real transformation are to be achieved, infrastructure development and the approaches chosen to finance it must serve the people, bring education, health and clean energy to the poor and marginalised.

New transport infrastructure must enable farmers and small scale entrepreneurs to get their produce and wares to local markets as well as move daily commuters between their homes and workplaces at non-extortionate rates. Planning must ensure that communities are able to meaningfully participate in infrastructure decisions that affect their lives.

Adequate safeguards and mechanisms for transparency and accountability must be put in place to protect against human rights violations and environmental degradation. These, among other necessary conditions, will ensure that Africa’s emphasis on infrastructure development and investment will really benefit the people of Africa, particularly the poorest and marginalised among them, towards attainment of the vision set by Agenda 2063.

* Dr Tigere Chagutah is Policy and Influencing Manager for Oxfam in Southern Africa. The views and opinions expressed in this article are his own and do not necessarily reflect the views of Oxfam. He can be contacted on [email protected].

Endnotes

[1] http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/P...

[2] http://siteresources.worldbank.org/INTAFRICA/Resources/aicd_overview_eng...

[3] http://www.polity.org.za/article/african-infrastructure-financing-closin...

[4] http://www.thisisafricaonline.com/News/AfDB-president-warns-against-Afri...

[5] https://www.oxfam.org/en/pressroom/pressreleases/2014-04-08/record-aid-s...

[6] https://www.ciaonet.org/attachments/26382/uploads

[7] https://www.oxfam.org/en/research/dangerous-diversion

[8] https://www.oxfam.org/en/research/investing-few

[9] http://www.eurodad.org/OECD_DAC_HLM_ANALYSIS

[10] http://rightsindevelopment.org/wp-content/uploads/2016/05/Communique-CSO...

[11] http://www.afdb.org/en/news-and-events/article/remarks-delivered-by-akin...