How to Step Up Financing for African Infrastructure

Weak infrastructure negatively impacts growth, quality of life

Private investment, foreign borrowing can spur infrastructure development

Countries must manage challenges of private investment, foreign borrowing

Weak infrastructure is an obstacle to raising growth and reducing poverty in many countries in Africa as well as in other regions.

In an interview with IMF Survey online, Andrew Berg of the IMF's Research Department cautions that tapping alternative sources of financing is not a cure-all for meeting Africa’s infrastructure needs.

IMF Survey online: What are the challenges facing infrastructure development in Africa?

Berg: If you go to the continent, you can see that there is a tremendous infrastructure deficit. It affects all levels of society and all aspects. It affects health, education and growth. The biggest gap is probably in energy. Thanks in large part to the work of Vivian Foster and her colleagues at the World Bank, we have a pretty sharp picture. Thirty or forty years ago, Africa’s electrical energy output per person was comparable or even more than in East Asia and South Asian countries like Bangladesh and other similar countries.

However, since then, the development of energy infrastructure has been relatively flat or stagnant in Africa, while those countries in East Asia and South Asia now produce roughly three times the energy per capita that Africa does.

There is a lot of talk about how bad corruption and red tape are; and about how they hold back businesses, growth, and prosperity. That is true. But, if you ask businesses to rank their problems, more often than not they would rank inadequate infrastructure and inadequate energy as being more important than corruption, red tape, and poor governance combined.

IMF Survey online: What is the impact of inadequate infrastructure?

Berg: You can see the costs of this in all sorts of ways: companies in Africa often have to have their own generators because they cannot get power. That power can easily cost four times what it would cost a company in most countries in the world to produce; so that puts the countries in Africa at a big disadvantage.

But it is not always about profits and growth. We observe in Malawi that one of the most important determinants of whether AIDS treatment programs worked well was whether people were close to a decent road. Not a great road, but a decent road in rural areas, so that they could get to the clinics or the drugs could be...