One of the major setbacks that affects development in Africa has to do with the lack of a strong infrastructure base.
This is because the absence of quality, widespread infrastructure, along with low access to information and knowledge on a mass scale make it difficult to achieve export diversification and attract higher foreign direct investment (FDI).
Infrastructural projects have been slow largely due to a private sector investment deficit. At about 15% of GDP, private sector investment in Africa is estimated at about half the level in Asia. It is also important to note that Africa‘s centres of economic activity have shifted markedly from the agrarian countryside to urban areas. In addition, urban areas account for the bulk of domestic economic activity and more than a third of the population live in cities or towns.
On a positive note, the Board of Directors of the African Development Bank (AfDB) Group recently approved the Bank’s Urban Development Strategy. The strategy is titled, “Transforming Africa’s Cities and Towns into Engines of Economic Growth and Social Development”.
The main focus areas of the strategy will be on infrastructure delivery, governance and private sector development. The AfDB has since the 1960s allocated about 15% – 20% of its total cumulative operations financing directly or indirectly to urban development.
Under the strategy, the AfDB will assist regional member countries and urban communities’ efforts to improve water supply, sanitation, drainage and solid waste management services; improve urban mobility through the development of mass transit systems; support energy projects, harness ICT to broaden socio-economic activity and support the development of urban social infrastructure, particularly in the health and education sectors.
In governance, the bank‘s strategy will aim to strengthen corporate governance and managerial capacity of municipal authorities to promote a culture of transparency; strengthen anti-corruption safeguards and build the capacity for urban planning. It will also support reforms such as fiscal decentralisation by helping municipalities to improve financial and administrative management systems.
In the area of private sector development, the bank will strive to support private enterprises across the business spectrum from small enterprises to mega entities. Assistance will also be focused on creating conducive environments for private sector investment, including promoting and strengthening local financial markets.
Modern infrastructure, in our view is the spine on which economic development depends. In this regard, we see as a strategic logic for most governments to promote Public-Private sector Partnerships (PPPs) in the area of infrastructure development.
In addition, strategic development partners such as China, for example can also play an important role in closing the infrastructure gap in Africa. Overall, policymakers in Africa should prioritise infrastructure development projects given that investors are generally attracted to destinations with efficient transport linkage (internal and external) and reliable industrial energy supplies.
Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.