Impediment to Growth

• Author: Amadou Sy

Impediment to Growth Finance & Development, June 2016, Vol. 53, No. 2

Amadou Sy

Africa’s inadequate infrastructure limits the continent’s economic progress, but funding roads, ports, and power projects is difficult

Inadequate infrastructure—including unreliable energy, an ineffective urban-rural road network, and inefficient ports—is one of the largest impediments to economic growth in Africa. It limits the returns from human capital investment—such as education and health. Hospitals and schools cannot function properly without electricity.

A 2009 World Bank study estimated that sub-Saharan Africa’s infrastructure needs are about $93 billion a year (Foster and Briceño-Garmendia). Recently, the IMF estimated that budget spending on infrastructure by sub-Saharan African countries reached about $51.4 billion (IMF, 2014), meaning a financing gap of about $41.6 billion.

External commitments, both private and public, appear to fill a substantial share of this gap (see Chart 1). They rose to about $30 billion a year in 2012 from $5 billion in 2003 (Gutman, Sy, and Chattopadhyay, 2015). Official development financing has increased—especially from the World Bank and the African Development Bank. Private participation in infrastructure has surged and now accounts for more than half of external financing. China has become a major bilateral source of financing.

But the remaining gap of about $11.6 billion is probably too low an estimate that global assistance in any event will not fill under current circumstances. First, the 2009 World Bank calculation underestimates current needs, such as urban infrastructure. Second, the $30 billion in external commitments is not comparable to budget spending. These commitments materialize over time and do not arrive evenly. One large deal, such as a major energy investment in South Africa in 2012, can distort that year’s data. Third, overall numbers don’t tell the whole story. Of the $59.4 billion in budget spending on infrastructure by African governments, South Africa accounted for about $29 billion in 2012, with the number two country, Kenya, allocating about $3 billion. Countries also vary widely in their commitment to infrastructure spending. Angola, Cabo Verde, and Lesotho invest more than 8 percent of GDP, while oil-rich Nigeria and fragile South Sudan allocate less than 1 percent.

In addition, most external financing is concentrated in a few large countries and a few sectors. Five countries attracted more...