The two non-negotiable conditions to close Africa’s infrastructure funding gap

Known as Africa’s richest square mile, Sandton’s skyline is often portrayed with high-rising corporate office blocks, luxury modern apartments, and towering construction cranes. Home to financial institutions such as the Johannesburg Stock Exchange, iconic landmarks like Nelson Mandela Square, and some of South Africa’s leading companies forming the country’s economic epicentre, Sandton has always been a beacon of enterprise.

Yet, if you drive through the congested streets of South Africa’s business capital today, there is a noticeable difference in the city’s skyline. While the skyscrapers, shopping centres, and executive apartments remain, there are very few construction cranes in sight. 

Since hosting the 2010 FIFA World Cup over 15 years ago, South Africa has seen a level of stagnation in large-scale infrastructure development. The most notable infrastructure initiative has been the Renewable Energy Independent Power Producer Procurement Programme (REIPPP), attracting around R200 billion in investment and procuring 7.7GW in renewable electricity generation. Despite these significant sustainable infrastructure developments, the overall period of prolonged hiatus has unseated South Africa as the leader in infrastructure development on the continent, with other African countries surpassing this former front runner.

Driven by post-conflict reconstruction efforts and economic growth, Luanda, Angola has seen significant infrastructure development since 2010. These include initiatives such as the “New Centralities” urban development project, expanding power generation capacity, and undertaking a large-scale road rehabilitation programme. Similar construction scenes can be seen across African skylines in countries such as Kenya, Ethiopia, and Uganda.

While pockets of regional infrastructure development are on the rise, Africa still faces a circular dilemma. Economic growth is dependent on infrastructure development, and infrastructure development drives economic growth.

According to the African Development Bank, investment in infrastructure accounts for over 50% of the recent improvements in Africa’s economic growth.

Despite this clear link to the continent’s economic progress, Africa receives only 5% of the global infrastructure investment.

The lack of robust infrastructure investment has created a significant annual infrastructure gap of $100 billion for basic infrastructure needs. For Africa to meet the United Nations’ Sustainable Development Goals (SDGs), such as developing reliable and sustainable infrastructure networks, the funding gap rises to $181bn – $221bn.

Whether infrastructure investment and development can stimulate Africa’s economies is a moot point. What international forums, such as the G20 Presidency and B20 task forces, must focus on now is building from the ground up when it comes to infrastructure development. Before government-to-government infrastructure methodologies can be realised, actionable plans are first needed to stimulate more public-private infrastructure partnerships.

In countries such as South Africa, a combination of ineffective public sector spending, mass migration of employee skills, and a lack of financial and operational transparency have led to significant debt burdens and weak balance sheets for state-owned enterprises.

For the private sector to step into these funding gaps, critical learnings from successful public-private partnerships must be adapted and applied throughout other sectors. The renewable energy sector is a valid starting point.

When launching the REIPPP programme, the South African government made a critically important decision to appoint an independent IPP office. As an independently audited entity, the IPP office’s mandate is to enhance private sector participation that contribute to the broader national development plan and objectives. By balancing risk between the private sector and government, the IPP office has been integral to the current development of significant renewable energy generation.

As the strategic business engine of the G20 Presidency, the three inter-dependent recommendations of the B20 are to firstly to support the expansion of investable infrastructure projects, secondly to improve access to capital, and thirdly enhance the flow of funds between investors, infrastructure projects, and the wider economy.

B20 policy recommendations for infrastructure development must, therefore, centre on two themes: risk mitigation and operational and financial transparency. These foundational principles will not only enable investment for growing sectors, such as renewable energy, but critical infrastructure sectors, such as rail networks, port developments, water management and storage, and waste disposal and recycling.

Therefore, B20 policy recommendations that advocate for transparent, ring-fenced infrastructure development plans can duplicate these successes. Another benefit is reduced investment risk, as infrastructure projects following these methodologies have been achieved at remarkable price points. Setting this as a precedent for other infrastructure sectors will help resolve the circular dilemma where it is needed most.

Financial institutions, such as commercial and development banks, must enable these infrastructure investment opportunities by being catalysts between multilateral entities.

For example, Absa has worked with development banks such as the World Bank IFC, British International Investments, and the African Development Bank to unlock partnerships in sustainable financing.

Africa’s challenge – and opportunity – is to ensure early-stage infrastructure development projects start with a transparent tendering process and are overseen by an independent, credible tender officer. With this approach, risk mitigation and operational and financial transparency can be ensured throughout long-term infrastructure projects.

The continent has the capability to accelerate foreign investment into bankable infrastructure projects. What will be the difference between repeating past mistakes and setting a new precedent for infrastructure funding in Africa is making transparency and independency non-negotiable conditions.

Anand Naidoo, Managing Executive: Client Coverage, Absa CIB and B20 Finance & Infrastructure Task Force member.

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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