High-Level Policy Forum on Regional Infrastructure Constraints to Africa’s Growth

At the 2011 Annual Meetings of the African Development bank (AfDB) on June 7th, 2011, the African center for Economic Transformation (ACET) and the Growth Dialogue held a high-level policy forum that brought together about 120 policy makers and experts to discuss “Regional Infrastructure for Africa’s Transformation and Growth”.

Lack of infrastructure in sub-Saharan Africa has often been identified as a binding constraint to economic growth and transformation in Africa by many experts, notably the Growth Report, 2008 and the World Bank, 2010. As African populations rise the urgent need to find new ways to raise the finance for infrastructural development also rises.

The World Bank estimates that the continent will need about $90 billion per annum to close the infrastructure gap over a decade. Only half of this amount is being spent currently. The AfDB indicates that problems with Infrastructure have reduced the continent’s growth by about 40%. Consequently, everyday needs transportation, sanitation, water and electricity supplies are supply, electricity most economic activities are slower and cost more in Africa. These reports support the findings of the Commission on Growth and Development (The Growth Report, 2008) which singled out lack of infrastructure and its integration with effective growth strategies as a significant cause of Africa’s failure to reach its full growth potential in recent decades.

At the policy forum, a panel of experts chaired by Danny Leipziger of the Growth Dialogue, urged African policymakers to find bold and creative ways to fully exploit the possibilities offered by public private partnerships (PPPs) to help solve the continents infrastructure deficit. Asian companies in Africa have recently shown that new roads, ports and housing projects can be built at a relatively low cost paid with revenues from Africa’s rich resources.

Three distinguished speakers; Professor Antonio Estache of the Free University of Brussels, Professor Okyu Kwon of KAIST and former Deputy Prime Minister of the Republic of Korea; Professor Edurado Bitran of Universidad Adolfo Ibanez and former Minister of Public Works of Chile; defined Africa’s urgent need to deepen infrastructure investments, conveyed the lessons of experience, and spelled out some of the options for mobilizing additional resources.

Unanimously most participants agreed that regional infrastructure and PPPs, offered alternative mechanisms for governments to leverage financial resources they don’t have, to build infrastructure they could mutually benefit from. Power projects, ports, telecommunications and transportation projects, came top of the list of investments which the panel believed made sense for cross-border collaboration among governments, and which also offered enough incentive for private investors to risk participation in. Expert presentations on the experience with such investments in Latin America and Asia were brought to inform the thinking on Africa.

In a presentation on Korea’s infrastructure development experience, Professor Okyun Kwon of the Graduate School of Finance and Accounting at KAIST, said that PPPs were instrumental in helping the country to overcome inefficiencies of government monopoly of supply and capital inadequacies.

He urged that while the risk profile of African countries can sometimes appear to deter private participation in public projects, Korea’s experience shows that even low income countries could create the right incentives to attract private investors – once they minimize uncertainties by establishing credible robust project governance structures. He stressed that a key lesson from Korea is the fundamental role played by state planning institutions (the Korean Planning Board). He urged African governments to establish strong development planning entities with full power in economic policy coordination and strong hold on finance to facilitate the implementation of PPPs.

Professor Eduardo Bitran Colodro of University Adolfo Ibanez in Chile and former Minister of Public Works, shared the Chilean experience with PPPs. According to him private investment was crucial in helping Chile achieve its status today as the number one country in Latin America for quality infrastructure. He advised that for countries to derive value for money from PPPs it is important for governments and private partners to mutually work out clearly defined standards and agreements that avoid unexpected changes in the specifications of projects during implementation.

Professor Antonio Estache, Professor of Economics at the Universite Libre de Bruxelles however cautioned against taking PPPs as the magic bullet to closing the infrastructure deficit in Africa.  Prof. Estache argued that at best PPPs cannot contribute more than 20-25% to overall financing needs. And Prof. Eduardo, citing the Chilean experience cautioned strongly against considering PPPs for roads, for all the governance reasons. He suggested a hierarchy of investment choices for PPP, namely ports, large hydros and rail.

Dr. Yaw Ansu, Chief Economist at ACET stressed the need for African countries to develop and build their own capacity to implement infrastructure projects. To achieve this he suggested that countries should consider creating centres of excellence for engineering students. In addition to improving transparency in the procurement process this would provide an incentive for the private sector to get involved in infrastructure development.

On regional infrastructure investments, the panel debated the feasibility of such regional projects. There were two sides to the debate. Dr. Ed Brown, Director of Policy Advisory at ACET and other panelists were of the view that private sector uptake in regional infrastructure projects will always be low, because they are much more complicated and difficult to execute. Professor Estache argued that efforts should be focused at the individual country level, due to asymmetry in the power relationship between the big and small countries.

This concern was not widely shared. Dr. Yaw Ansu suggested that countries devise a special purpose vehicle to surmount the national and sovereign regulatory rigidities. Harry Broadman of PriceWaterhouseCoopers agreed with Dr. Ansu. He stressed that there is an intrinsic value in moving to the regional approach and urged for more creative pathways forward. Overall participants cautioned that a lot more needed to be done concerning innovations for project governance before the regional approach can become very feasible.

This seminar is part of ACET’s Transforming Africa Dialogue Series which convenes meetings and conferences on critical issues affecting Africa’s growth and transformation.

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