The infrastructure shortage in most of sub-Saharan Africa needs a major financing solution but given fiscal constraints and other financial limitations it isn’t likely to come from African governments anytime soon.
The size of the infrastructure gap would require $93 billion a year till 2030 to get the region to where it needs to be, the World Bank estimates. McKinsey thinks it will take around $1 trillion. The African Export-Import Bank says power shortages alone subtract 2 percent to 4 percent year from GDP in African countries every year.
The growing demand for infrastructure in already under-resourced African countries comes as these countries face rising urbanization rates while the success of democracy puts governments under political pressure to deliver on promises (or at least appear to be trying to deliver). It’s a dynamic that has evolved rapidly in development finance since 2008’s financial crisis.
This inability of African governments to fully own their infrastructure ambitions has led to the rise in importance of Development Finance Institutions (DFIs), export credit authorities and even commercial banks, says a survey of development finance executives and sponsors, by global law firm Baker Mckenzie. It found nearly 40 percent of respondents expect more demand for infrastructure by African governments. Up to 34 percent also think the continued perception of Africa as risky by private investors has this same impact.
The executives also think DFIs will benefit from a “strategic importance of the region to policy lenders”. This is an obscure way of saying China and the US are battling for ascendancy in sub-Saharan Africa albeit with their very different approaches. China’s banks loaned $19 billion to energy and infrastructure projects in the region from 2014 to 2017 while China Exim Bank has been “the largest policy lender by far in the region” from 2008 to 2017. China Development Bank was the second largest bilateral DFI during this period, closing in on multilateral lender IFC.
In fact, the rise of China’s “win-win” financing and US decision to double its development finance budget to $60 billion means bilateral finance, which already leads multilateral finance, will become even more dominant globally, at least for the foreseeable term. The “big issues of our time” like climate change and the impact of major shifts in political agenda, which are probably dealt best with a multilateral approach, will probably see that balance shift again.
Credits | Quartz Africa