Africa: The infrastructure is the key to development
Africa must build and maintain its infrastructure
Introduction
A recent report stated that seven African countries were projected to be among the top ten fastest growing economies in the world in 2013. This is an impressive record that the continent should be proud of but it fails to highlight some important issues. Firstly, African countries have exhibited the highest variation in economic growth rates, so while 2013 may be a good year, some of those countries may well record minimal or even negative growth rates in 2014. Secondly, these growth rates are fuelled by the demand for raw materials, as China and some other fast growing economies pick up from the recession. African countries continue to remain at the lowest level in the food chain where variability is high and their take of finished products is miniscule. Africa has lost market share in world trade, from 6% of world trade in 1980 to its current share of only 3%. In order for these countries to minimize variability, move up the food chain, improve their market share and bargaining positions in trade and ensure that economic growth filters through the various parts of their communities, the continent needs to build and expand its infrastructure. This should include the physical, educational, governance and regional infrastructure. The continent possesses considerable natural resources that can be used in its infrastructure, the measures required are not insurmountable and indeed some are quite basic. Africa’s trading partners, aid donors and non-government organisations must play a role in this process. African leaders must realise that improving the infrastructure will attract investment, generate economic growth and political stability and secure their positions.
An anecdote highlights the importance of the infrastructure. In response to recent accusations of military aggression in the Democratic Republic of Congo, the Rwandan government stated that the problem in Congo was the lack of basic infrastructure which caused its people to revolt against its leaders. It is bizarre that Rwanda, a country that has only 1% of the area and 15% of the population of Congo should be an aggressor. Congo with an abundance of minerals and huge agricultural potential is in such a sorry state that it can be threatened by its much smaller neighbour. A tiny country with minimal natural resources which has made great strides in developing its infrastructure is being accused of aggression by a huge country teeming with natural resources because the bigger country’s infrastructure is largely non-existent.
Physical Infrastructure
The only way that the continent can attract and maintain investment is by building and maintaining its physical infrastructure, namely, ports, rail and road networks, airports, power supplies and telecommunication. An analysis of the situation reveals the challenges facing the continent.
A review of ports, the gateways where the bulk of imports and exports pass into and out of the continent shows that much work needs to be done. The dwell times, that is average waiting times for ships is four days for European ports and berth productivity is 25 moves per hour compared to four days and 40 moves for African ports. High dwell times result in high congestion levels and make African ports less competitive. Customs delays for the continent are three and a half times what they are in Europe. The time spent in ports as a percentage of total transport time in Africa is four times that of East Asian ports. African ports have failed to invest in new equipment, notably, on equipment to handle large ships and in container facilities, consequently only small ships can call in many ports and many cannot handle containerized cargos, a fast growing mode of transportation. The continent also has some of the highest insurance charges. These conditions make African ports significantly more expensive for shippers, discourage ships from using them and for many ports because only small vessels can be handled they miss out on the efficiencies that large ships can bring, ultimately, incurring higher shipping costs.
Roads and railways are the arteries in the economy. Farm to market roads are crucial in agricultural development. National road and railway networks are essential in moving goods and people within countries, between and outside the region. Roads which carry between 80-90% of freight and passengers within Africa are in a poor state and inadequate for the needs of the continent making transportation less efficient compared to other regions. A recent World Bank study revealed that rural Sub-Saharan Africa has only 34% of access (lands covered by roads) as compared to 90% in the rest of the world. The study found out that the average paved road density for countries in Sub-Saharan Africa was only a third that of the average for low-middle income countries as a whole. The poor state of roads, particularly secondary ones and the numerous check points on all roads increase the time it takes to travel and transport goods significantly. This is a major impediment to trade and development, with wastage of farm produce on the continent accounting for up to fifty percent of output.
The density of rail networks in Africa per land is lower than in other low income countries. A high proportion of them are very old, up to a hundred years, with low maintenance, in some cases tracks have deteriorated to a point of no return and some have gone out of service. The lack of repair and upgrade means they cannot compete against modern road networks. Railroads according to a recent report tend to have “low axle loads, low speeds, small scale, undercapitalized, and ill-suited to modern requirements”. Most of them are single tracks and are not electrified, with South Africa alone accounting for virtually all the electrified rail network. Africa has largely ignored this mode of transport that could play an important role in its transport network by giving businesses and passengers choice, removing transport bottlenecks and being an alternative cost effective transport mode if properly maintained and upgraded.
In comparison with countries of similar per capita income African countries are underendowed with airports, runways and passenger and freight terminals. The number of paved runways longer than 1,500 meters is 20% less (as a share of land area) than other low income countries. Many of the runways are unpaved. A study by Bofinger in 2009 found that twenty five percent of airports are in poor condition. Airport efficiencies, in terms of processing passengers and cargo are low and many airlines servicing those airports have poor safety records. The state of the aviation industry on the continent is a severe impediment in attracting business travelers, tourists and the development of air cargo.
With 3.1% of world power generation, Africa has the lowest electrification in the world. The Economic Commission for Africa reported that only 23% of the continent’s population has access to electricity, with unreliable supply, power rationing and unscheduled cuts. Installed capacity is equal to what China installs every two years. Installed capacity at 153 kilowatt-hour (kWh) per capita, excluding North Africa and South Africa, was only 6% of the global average in 2009. If we include North Africa and South Africa, per capita electricity consumption increases to only 23% of the global average. The average effective electricity tariff in Africa is US $0.14 per kWh, three and a half times the tariff in South Asia and double that for East Asia. Tariff rates would be even higher without subsidies by African countries of US $0.04 per kWh. The situation is really bizarre with some countries endowed with vast power resources having very low installed capacity and consumption per capita. The power generation industry in Africa is dominated by costly small-scale power systems. Subsidies for electricity have discouraged investments needed to expand capacity. The deficiencies in power supply are a major impediment in attracting investment into the continent. In a World Bank survey of 55 countries, 67 percent of firms cited electricity as a business constraint.
Telecommunications and ICT are important for competitiveness and productivity. While there have been significant improvements on the continent in mobile phone usage, the region lags behind other regions in terms of the number of fixed lines, internet usage and broad band installation. (Reference: http://www.itu.int/en/ITU- /Statistics/Pages/stat/default.aspx/Key ICT indicators for developed and developing countries and the world)
The area where African countries have lagged behind very significantly is in fixed lines and fixed lines with broadband. Fixed lines are still the dominant and cheapest telephone system for businesses and the lack of this infrastructure is a serious impediment to business. African countries are not yet making full use of e-commerce systems. The limited use of information technology is due to inadequate, inefficient and very expensive telecommunications services; the inadequate development of fixed lines which is required by businesses providing such services is a major factor.
The educational and governance infrastructure
A major constraint to economic development on the continent is the poor state of the educational infrastructure. While great strides have been made in basic primary education, the continent is failing to set up and maintain educational systems that are conducive to economic growth, notably, in training a pool of workers proficient in maths, science and technical skills. The lack of trained technical staff and the high cost of services discourage investors who often have to bring in low level staff for many technical jobs. This is happening despite a mushrooming of universities in many countries.
The governance infrastructure is a major deterrent to investment. A clearly defined, consistent and transparent policy and legal framework and efficient civil service with minimal corruption are essential requirements for nurturing and attracting investment. Investors require clear and consistent regulations on property rights, taxation, labour and technical standards. While a lot of progress has been made since the 1990s in the democratic process, with many countries holding elections and attempts made to improve legal systems and reduce bloated civil service and corruption, usually under pressure from aid donors, it is still work in progress. High and in some cases endemic corruption, opaque and burdensome bureaucratic processes, unresponsive and inefficient bureaucracies and lack of clearly defined policies are still a major deterrent to investment in many countries.
It must be noted though that governance is not identical to democracy and many countries have attracted investments without going through the full democratic process. Some leaders who have presided over major developments in the infrastructure of their countries but would hardly be described as blue blooded democrats include Houphat Boigny in the Ivory Coast, William Tubman in Liberia, Jerry Rawlins in Ghana, Jomo Kenyata in Kenya and Paul Kagame in Rwanda. Indeed “democracy” as practiced in some cases has hindered investment in the infrastructure, in particular, it has increased the cost of governance to prohibitively high levels with little funds left for investment in the physical infrastructure. Kenyan parliamentarians have recently decided to get rid of the independent organisation that reduced their extremely generous salaries and perks and, have vowed to reinstate those extremely generous salaries and perks, which will mean fewer funds for investment in the physical infrastructure.
Ironically the two leaders who introduced fundamental improvements in governance infrastructure, Rawlins and Kagame, came to power by military force. Whereas the emphasis and legacies of other leaders noted above were primarily the physical infrastructure, these two leaders focussed on repairing and developing the broken governance infrastructure they inherited. Both made bold and successful efforts at rooting out corruption, ensuring that services were delivered, that ministers and civil servants were responsive to the needs of the public and businesses and taxes paid. Rawlings, who took over in a coup laid the foundations of the multi-party democracy that Ghana is benefiting from and remarkably for an African leader, accepted the results when his party was voted out of government. Kagame’s effort has resulted in Rwanda’s relatively high ranking in its competitive position; on individual scores such as ease of starting a business and getting electricity, it ranks eighth and second in the world. He has made significant progress in improving his country’s educational infrastructure by emphasising science and technical proficiency in schools and higher education. While Kagame has yet to go as far as Rawlings in the democratic process two issues must be taken into account. Kagame came to power through military force after his minority ethnic group had been massacred by the politicians of the majority ethnic group and he and members of his group will always be wary of democracy that could result in a similar disaster. Secondly, he is delivering, with vastly improved infrastructure and economic growth, surely this is what the citizens want. The challenge for Rwanda is how to build democratic system that will give strong guarantees to minority groups so that democracy will not turn into genocide and mob rule by the majority. We should not forget that Robert Mugabe initially won election largely through the support of his Shona majority and subsequently subjected the Ndebele minority to some of the most horrific treatment. Hitler won an election and perpetrated the most heinous crimes against minorities.
An International Finance Corporation (IFC) report showing the ease of doing business in a country paints a grim picture, with most African countries languishing at the bottom of rankings. The indicators used include: starting business; dealing with construction permits; getting electricity; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts and resolving insolvency. Only three countries, Mauritius, South Africa and Tunisia are in the top fifty ranking. In the World Economic Forum’s global competitive index, Africa comes out worse compared to the IFC ranking, with no country in the top fifty. South Africa leads the field among African countries at 52nd, Mauritius 54th and Rwanda at 63rd. In both measures African countries dominate the bottom levels of the indices.
Regional Infrastructure
The development of regional organisations and investment projects on the continent will improve the physical and market infrastructure significantly. It allows countries to pool resources to invest in infrastructure projects, create larger markets by giving preferential access, standardizes rules and disseminates market intelligence. This attracts foreign investors to countries involved that would otherwise not be keen to enter relatively small markets and allows for efficiencies and reduced unit cost for electricity, transportation, port charges, telecommunication services, water and goods produced. The problem is that regional groupings have often been political in origin not based on economic prospects but rather the “bandwagon effect”. Many countries are members of several groupings with conflicting policies in treatment of third countries and sometimes different regulations and technical standards governing the import of the same commodity from different sources. Overlapping memberships in the different regional groupings – and hence overlapping commitments – have resulted in duplication of effort and occasionally inconsistent aims. The result is that they have not created the necessary market or physical infrastructure
Policy Implications for Stakeholders
The infrastructure is the linchpin for development and Africa has huge untapped potential for its physical infrastructure. There is much room for improvements in its educational and governance infrastructure. There are huge benefits to be gained from regional cooperation. All stakeholders must make a concerted effort, including national governments, regional groups, donor countries, multilateral and aid organisations. Measures required are not unduly expensive and with modest investments there can be very high returns. The continent has vast quantities of oil and gas deposits and immense hydro and solar potential. It has been reported that the the hydro potential of the Democratic Republic of Congo alone is sufficient to provide three times as much power as Africa presently consumes. A recent study revealed that upgrading the road network would expand overland trade across the continent by about $250 billion over 15 years, requiring an investment of $20 billion for initial upgrading and $1 billion annually for maintenance. Indeed the situation is rather perverse; some countries with huge potentials making little use of what they have. Congo and Nigeria with substantial natural power resources have some of the lowest electricity generation. Gabon a major oil producer has one of the highest electricity tariffs. Nigeria in particular, is a sad case, largely the result of its political elite. This is the continent’s natural giant, with huge oil production that it has been pumping for over sixty years and huge hydro electric potential yet it still has one of the lowest per capita electricity consumption in the world at 121 kWh and availability of less than 5 hours per day.
African governments need to ensure that they implement appropriate policies and create and maintain the relevant governance infrastructure. This means having qualified policy making teams to devise appropriate policies and prepare and implement action plans and monitoring systems. Ministers and civil servants need to do the jobs and give the time that they are paid for. Monitoring systems should include mystery shopping in which teams are sent out to actually find out the ease and difficulties ordinary people and businesses face.
The aim should be to deliver credible and efficient services and minimize corruption. Targets must be set for the delivery of services, for example applications for visas, passports, construction permits, licenses and other documentations must have time limits within which they must be processed. Airports and harbours must have time limits when people and goods must be processed. Bottlenecks and issues must be addressed promptly. Governments must continue privatization programmes and where appropriate consider joint venture projects in roads, airports, telecommunications, harbours, water supply and other infrastructure projects. In such ventures or if such projects are fully privatized, the user pay principle will encourage investment and ensure proper maintenance. Governments must phase out subsidies to encourage investment, this is particularly the case with electricity where subsidies have not only deterred investments but tend to disproportionately accrue to sections of society that can and should pay for such services. Measures to ameliorate conditions for the poor must be carefully targeted to ensure that they really go to specific and/or poor households. In cases where infrastructure projects are privatized, measures must be in place to penalize companies if they do not perform according to the specified terms of reference.
In building the human infrastructure, with very scarce resources, governments need to priorities their education budgets. This means a shift away from the arts to maths, science and technical subjects at all levels but particularly at post primary school level. This does not mean that these arts subjects cannot be studied but students pursuing them must score very high grades to obtain state funding or pay for the privilege. Foreign investors and aid organisations must also assist in developing the human infrastructure. They should be given reasonable tax incentives to train staff and after a certain period punitive tax and other measures must be implemented if they have not trained and/or engaged local staff.
African governments need to do a lot more to implement regional infrastructure projects and develop and expand regional markets. The benefits are substantial if these regional cooperation projects focus on real economic issues and standards and rules are consistent. A recent report reveals that cross-regional collaboration could reduce electricity costs in Africa by US $2 billion per year.
Foreign donors, multilateral organisations and NGOs have a part to play in building the continent’s infrastructure. They should give high priority to infrastructure projects, either on a government-to-government basis or encourage private companies to invest on the continent through taxation and/or subsidies. They should make use of nationals (including the diaspora), African companies and NGOs in projects. The current debate over President Obama’s proposal that half of US food aid should be sourced from suppliers within or around countries where it is used demonstrates the difficulties that these partners face. Aid is often seen as an opportunity for producers and companies in the donor country whereas the long term goal must be for aid to improve markets and the infrastructure of recipient countries which in the long run will minimise the need for such aid.
The challenges facing the continent are not insurmountable but they require vision, leadership, planning and tenacity. Leaders must earn the right to govern which means developing and maintaining the infrastructure that will grow their economies and improve the lives of citizens. In a democratic setting they need to deliver to win the votes and admiration of their people. African leaders could take a leaf from Singapore and Malaysia, countries where the same parties have ruled for decades largely because they have built first class infrastructure that have resulted in very strong economic growth rates.
J Boima Rogers is Principal Consultant at Media and Event Management Oxford (MEMO)