High-quality infrastructure will be ‘magnet for investment in Africa’, says IMF chief

Managing director Christine Lagarde told the ‘Africa Rising’ conference in Mozambique that the organisation stands ready to support “high quality infrastructure as a magnet for foreign investment” on the continent.

The two-day conference is co-hosted by the IMF and the government of Mozambique to discuss ways of sustaining sub-Saharan Africa’s growth. Finance ministers and central bank governors from throughout the region have taken part.

Lagarde said: “Sub-Saharan Africa is clearly taking off, growing strongly and steadily for nearly two decades and showing a remarkable resilience in the face of the global financial crisis. Economic stability has paid off. More than two-thirds of the countries in the region have enjoyed 10 or more years of uninterrupted growth.”

Africa as a whole is now a “growing investment destination for both advanced and emerging economies”, with a record $80 billion inflow expected this year, Lagarde said.

However, Lagarde warned that while growth across the continent is expected to grow by 5.5% this year and “close to 7%” in 2015, she said Africa’s leaders must pay attention to the potential impact of external events. “Globally, even as the world turns the corner of the great recession, the recovery remains weak and uneven.”

Lagarde said that in the near term, Africa’s outlook “could be clouded by three main worries”. These are slower growth in advanced economies, and “in particular emerging market economies which are major trading partners for Africa”, lower prices for some commodities and “tightening external financial conditions and potentially increased market volatility as monetary policy is normalised”.

The IMF “stands ready to help with its policy advice, technical assistance and if needed financial support”, Lagarde said.

On infrastructure Lagarde said, over the past three decades, per capita output of electricity in sub-Saharan Africa remained virtually flat. “Only 16% of all roads are paved, compared with 58% in South Asia. These shortfalls represent huge costs to businesses and to people.”

According to Lagarde, “encouraging steps” are being taken to help close the “infrastructure gap” in sub-Saharan Africa. She highlighted Ethiopia and Mozambique as examples of where “investments in the energy sector are being scaled up, including through projects that promote cross-border trade in electricity”. Kenya and Cote d’Ivoire are also initiating regional infrastructure projects in electricity, and road and railroad networks, she said.

Lagarde said: “These investments are critical for growth to be sustained and broadened. High quality infrastructure... can accelerate diversification and employment creation, and support further regional integration. Yet the costs of closing this infrastructure gap can be daunting. The investment needs for the region are estimated at about $93bn annually. In most cases, the investments are large and upfront. They need to be carefully selected, managed and implemented within a medium- to long-term budget perspective.”

The IMF’s Regional Economic Outlook for Sub Saharan Africa (116-page / 2.53 MB PDF), published last month, said economic activity in the region continues to be underpinned by large investments in infrastructure, mining and maturing investments. The report said weaker commodity prices and slower growth in emerging markets may reduce net inflows of foreign direct investment, but overall growth across sub-Saharan Africa “should remain in the top 30% in the world”.