Sub-Saharan Africa faces $100 billion infrastructure-funding gap

18 December 2017 Authored by Consultancy.africa

Sub-Saharan Africa (SSA) has an infrastructure-funding gap of approximately $100 billion, the solution to which can be found in improved legal frameworks, more involvement from the private sector, and improvements in fiscal incentive structures, according to a report from The Boston Consulting Group in collaboration with the Africa Finance Corporation. 

As the economy across SSA works its way through a slowdown, strategy consultancy BCG reports that a good place to start would be in the infrastructural framework on the continent. The report, titled ‘Infrastructure Financing in Sub-Saharan Africa’ closely examines the economic infrastructure of the region, with a particular focus on the mining, information and communications technology (ICT), power, water, roads, and a number of other key areas.

The report illustrates an infrastructure-funding gap of around $100 billion across the region, which has a severely negative impact on the economic activity in the region. As per the report, “Private investors often must act as project developers, adding 10 percent to 15 percent to the project costs and lengthening the project life cycle,” sometimes taking “twice as long as in other regions.”

Private Investment Experience in Emerging Economies

As a result, private investment in infrastructure for the region has been abysmally low over the last two and a half decades. The SSA region has seen a cumulative investment amount of $77 billion since 1991, which is substantially lower than investment in other regions. The East Asia and Pacific region, for instance, has seen investment of nearly $300 billion over the period, while Southern and Central America saw combined investment of $658 billion.

The region’s investment was also substantially lower than individual country figures since 1991. For example, Brazil itself has seen private investment of $433 billion over the period, while India, China and Turkey have all drawn investments of $227 billion, $121 billion and $124 billion respectively.

In addition, the deficit seems to tilt disproportionally towards the transport sector. For example, private investment for projects in the ICT sector over the last 25 years stands at an impressive $112 billion. This investment can be attributed to the rapidly expanding digital market in the region. In the electricity and power sector, the cumulative investment stands at a relatively stable $32.5 billion.

Private Investment in Infrastructure in Sub-Saharan Africa, 1990-2015

On the other hand, private investment in the entire transport infrastructure sector stood at $51 billion over 25 years. Breaking this down, port infrastructure has drawn the most financing, at $10.4 billion. Railways saw investment of $4.6 billion. Meanwhile, roads drew investment of $2.7 billion from the private sector, while airports attracted a shockingly low $300 million investment.

As a result, more than 60% of the population in the region lack access to power, while road access stands at 34%. However, the report suggests that private investors must no longer be deterred in the region, as it represents a lucrative market for investment, and several positive indicators are emerging. As per the consulting firm, 42 of the 45 countries in the region have enacted laws to enable private infrastructure-funding.

A recent report from Deloitte found that confidence in Africa's private equity market is at a high.

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