Infrastructure development in Africa
One of the factors that has been proven to enable high growth and development is the provision of high-quality infrastructure. The World Bank estimates that the cost of redressing the gap infrastructure development in Africa requires an annual expenditure of USD 93bn, or less than 5% of the total GDP of the continent.
The example of China, which has consistently spent about 8%-9% of GDP per year in the construction of infrastructure to fuel its impressive growth in the last decades, points Africa toward the need to develop its infrastructure to fuel its growth-miracle. In China, almost half of the infrastructure expenditure was funded through central government sources. RisCura examines the sources and extent of government funding per region below in order to evaluate governments’ abilities to raise capital to spend on the construction of infrastructure.
In recent years African governments have returned to international debt markets as global investors have searched for yield. While this availability of debt has been a positive source of funding for governments, it remains relatively small compared to other funding sources. South Africa, the Maghreb, East Africa and Francophone West Africa have relatively large tax bases averaging 20% of GDP. This is a stable source of income that is crucial for accurate and reliable planning and is an enabler of long-term projects requiring multi-year commitments from governments. In contrast, in Nigeria, the tax base is very small, at only 3% of GDP, with government reliant on oil royalties for revenue.
In Nigeria and some other countries, some of the funding in the “other” category includes royalty payments for the extractive industries, which has proven to be very volatile as these payments are linked to prices. In countries and regions with low tax bases this results in a low level of consistent income, which can be used to raise bonds for infrastructure projects as well as support the high levels of repairs and maintenance needed once infrastructure has been constructed or upgraded. The low level of government revenue thus represents a serious barrier to infrastructure development and has increased the focus on partnerships between public and private entities to develop infrastructure.
