Estimates by the World Bank show that sub-Saharan Africa requires about $100 billion annually to invest in infrastructure projects in order to accelerate economic growth by as much as 2.6 percentage points per year. However, the continent is only able to mobilize half of this financing through borrowing, bilateral agreements, domestic revenues, development financial institutions and public-private partnerships, leaving a massive deficit, the World Bank said.
Governments can close this gap by creating an environment that allows for private investors to pump resources into projects.
A new report by the World Bank says that only increased participation by private investors in these projects will help countries close the infrastructure financing deficit.
Currently, private participation in infrastructure projects in Africa is extremely low, largely due to limited public sector capability, insufficient political will, policy uncertainty and a weak regulatory environment.
Private investors have also shunned the continent due to financing complexities attributable to narrow financial markets, higher actual and provisional risks, longer project duration, significant cost overruns and currency mismatches.
While countries like Brazil and Turkey have managed to attract $433 billion and $124 billion in private capital respectively, sub-Saharan Africa has only managed to mobilise $77 billion over the past decade.
“Many transformational projects have enormous economic potential. With the right approach and mindset, private investment in African infrastructure can be highly remunerative and can play a significant role in transforming the continent for the better,” states the sub-Sahara Africa report which was jointly prepared by the US-based Boston Consulting Group and the Africa Finance Corporation.
The report comes at a time when governments in East Africa have accelerated their borrowing to finance projects in energy, railways, roads and ports, in the process pushing public debt through the roof.
Tragically, private investment in core power and transport infrastructure has been limited to only $51 billion over the past 25 years.
“Although there has undoubtedly been progress in recent years, private investment in infrastructure in Africa remains weak and underdeveloped,” states the report.