Out-Law News 2 min. read

‘Innovative finance key to closing Africa’s infrastructure gaps’, says report

Innovation will be key to closing Africa’s infrastructure gaps and unlocking “quality growth for the continent”, according to a new report from the Africa Progress Panel (APP).

The APP, chaired by former UN secretary-general Kofi Annan, said fixing the continent’s infrastructure gaps will cost Africa $48 billion per year for a decade, based on 2009 estimates.

According to the APP, economic growth and urbanisation since 2009 “mean this gap will almost certainly have widened”, meaning Africa needs to roughly “double infrastructure investment”.

The APP said: “Power outages and the lack of roads, railways, and ports have long been a frustrating feature of business in Africa, hindering home-grown entrepreneur and foreign investor alike.”

However, the APP said African governments can begin to boost available infrastructure funds both by reforming domestic tax systems and by making banking systems more competitive. “In East Asia’s high growth developing countries, higher savings helped finance investment. But with some of the highest spreads in the world, Africa’s interest rates deter both savings and investment,” the APP said.

The APP also called on the G20 group of nations and countries that belong to the Organisation for Economic Co-operation and Development to extend their tax reforms to African countries and “support a clampdown on tax avoidance and evasion, which costs Africa billions of dollars each year”.

Outside of Africa, “the world has been awash with liquidity since 2008, but in a globally competitive market, Africa must tackle the frequent perceptions that its infrastructure projects are high risk”, the APP said.

The development of insurance markets “could help in this respect through the accurate measurement of risk”, the APP said. “Meanwhile, the global community can help by scaling up operations of the Multilateral Investment Guarantee Agency, and by using the International Development Association to cover the costs of insurance premiums on infrastructure projects.”

The APP said “improved regional cooperation also offers solutions through economies of scale for infrastructure”.  Africa could also consider tapping into its combined foreign exchange reserves, which stood at around $450bn in 2012, to finance infrastructure bonds, the APP said.

In addition to overcoming a lack of funds for public investment, making the transition from “high growth to transformative growth” will require Africa to overcome other obstacles including a lack of access to “formal financial services”, the APP said. “Two thirds of adult Africans do not have a bank account, let alone access to savings, credit, or insurance.”

To tackle poor roads and a lack of electricity, sanitation and water, African nations must “close the region’s vast deficits” while governments “must mobilise the tax revenues and external finance needed to underpin public investment”, the APP said.

Sub-Saharan Africa is expected to see faster economic growth than any other region by 2040 and have the biggest labour force in the world, according to a report released earlier this year by professional services firm PwC.

The report, part of PwC's 'Global Economy Watch', said chief executive officers were increasingly recognising the “untapped potential” of SSA, as foreign investors would be attracted by the potential investment opportunities offered by the ‘next 10’ biggest cities in the region.

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