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Africa can boost the pace of its much-needed infrastructure drive by unlocking at least $4 trillion from a wide range of fragmented and under-utilized domestic sources, new research by one of the continent’s leading investors said.
The Africa Finance Corporation, a financier of the Lobito Corridor rail project that aims to link mining regions between Angola, Zambia, and DR Congo, estimates that Africa’s domestic capital base includes $2.5 trillion in commercial banking assets and about $1.5 trillion across the non-banking sector.
While foreign reserves make up the majority of the non-bank segment, about 28% is domiciled in pensions alone, the Lagos-based AFC said. Insurance firms, development banks, sovereign wealth funds, and remittances are also sources that could be tapped to finance Africa’s infrastructure, the bank said in its report.
“We think there’s no debate anymore as to whether Africa has a lot of savings — there’s a lot of money on the continent,” Rita Babihuga-Nsanze, chief economist and head of research at AFC told Semafor, adding that the $4 trillion estimate is “super conservative” due to data gaps in some countries. The question for Africa is how to deploy the money it has, she said.
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Some of Africa’s most crucial infrastructure needs are in the energy sector where 16 gigawatts need to be added annually by 2050, the AFC estimated. Nearly 2,000 kilometers of new rail lines were added across Africa in the last decade but 15% of the continent’s rail network is not operating, it said.
Meanwhile, African roads are broadly in a poor state, with only 818,000 km of them paved. And Africa’s road density is at a fraction of India’s despite having roughly the same population and a much larger landmass, the investor said.
Finding external funding for these needs is set to become more challenging as the global economy trends towards a climate of trade wars and protectionism. As part of its move to cut US foreign aid, the Trump administration recently said it will end commitment to one of the African Development Bank’s key funds, a crucial source of infrastructure financing for Africa. Combined with high levels of sovereign debt in many countries, a booming population, and rapid urbanization, this reality raises the urgency for African economies to raise the capacity of key institutions, especially capital markets and commercial banks, to stir and steer local capital productively, the AFC’s report said.
In the absence of this rise in capacity, “Africa’s savings will continue to accumulate in low-yield, low-impact instruments — failing to support the continent’s structural transformation,” it said.
There are signs that models for financing African infrastructure are looking more to local capital. The AFC cited tolling mechanisms in Côte d’Ivoire, Ethiopia, Mozambique, Zambia, and Zimbabwe as part of a new wave of increasing willingness to invite private sector investment in road construction.
“A lot of countries are finding themselves in a much more stressed fiscal situation, so they are having to come up with innovative models,” Babihuga-Nsanze said.
Notable
- The African Development Bank estimates that Africa needs between $130 billion and $170 billion every year to fund infrastructure development.