Bricks and Mortar (2)

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Bricks, Mortar, Policy and Development:

Aid and Building African Infrastructure

Greg Mills1

Executive Summary

Donors and Africans now attached a greater priority to infrastructurespending. This is partly due to the realisation that the inflows of private capitalfor infrastructure development anticipated in the 1980s and 1990s have notbeen forthcoming.

However, while there are many infrastructure projects in the (largely donor)pipeline, there are a number of past problems which need to be examined,including: the lack of commercial underpinning and distortion of the commercialfocus; a confusion of donors; weak national and regional capacity; an indistinctmodel for private investors; and the variance in the governance performance ofAfrican states.

Two sets of key challenges exist in spending aid on infrastructure: First, totailor spending to specific countries based both on their record and demand.Today there is much focus on the relative amounts of foreign aid, rather thantheir quality and targeting. Second, to ensure donor co-ordination and, wherepossible, place infrastructure expenditure onto a commercial footing.

1 DR GREG MILLS heads the Brenthurst Foundation, dedicated to strengthening African economicperformance.www.thebrenthurstfoundation.org. This paper is based partly on research conducted

by the Foundation in conjunction with Dr Jeffrey Herbst, and on a series of interviews conductedacross the continent between August 2004 and January 2006.
http://www.thebrenthurstfoundation.org/http://www.thebrenthurstfoundation.org/http://www.thebrenthurstfoundation.org/


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Introduction

Two sets of supply-side constraints exist to Africas development: One, policy-related constraints which have mitigated against the development of export

industries; and, Two, structural constraints, which include the economicdependence on a limited range of exports, a low technological base, poorlegal and regulatory institutions and capacity; limited access to credit; andinadequate infrastructure.

Unsurprisingly, thus, a number of recent initiatives have focused attention on what to do about the state of African infrastructure. For example, theAfrican Commission established by British Prime Minister Tony Blair arguesfor additional aid expenditure on infrastructure of US$10 billion annually to2010, increasing possibly to US$20 billion per annum for the next five yearsto 2015. The main investment sectors are those with pro-poor and pro-

growth benefits, notably power, roads, irrigation, ports, energy andtelecoms. This push for more aid for infrastructure is designed, in part,according to the Commission to make up for the failure of the policies of the1990s which anticipated an increase in private sector investment ininfrastructure.

The European Unions Africa policy, EU and Africa: Towards a StrategicPartnership, agreed to in December 2005, commits to Facilitate a better-connected Africa, to itself and the rest of the world; including by establishing anEU-Africa Infrastructure Partnership, which will be complementary to the newInfrastructure Consortium for Africa and include existing initiatives on transportand to facilitate peoples access to water and sanitation, energy and informationtechnology.. The document also committed the Union to Increase our aid, bydelivering on our collective commitment to give as official developmentassistance 0.56% of EU gross national income by 2010, with half of theadditional 20 billion going to Africa, and 0.7% of GNI by 2015 in the case of 15member-states, whilst other member-states will strive to increase their ODA to0.33% by 2015.2 In February 2006, the MOU creating a Trust Fund in support ofinfrastructure in Africa was agreed and signed. The Trust Fund is a financialinstrument of the EU-Africa Partnership on Infrastructure. In the start-up phase(2006-2007) the Commission intends to mobilise up to 60 million in grants andthe European Investment Bank (EIB) up to 260 million in loans for theoperation of the Fund.

The largest provider of development assistance in Africa, the World Bank, whichshifted expenditure away from infrastructure in the 1980s (partly due to pressurefrom NGOs), plans today to increase its funding for infrastructure projects inAfrica by 30% over the next few years in a bid to accelerate development andpoverty alleviation on the world's poorest continent. The Banks Africa ActionPlan, unveiled in September 2005, aims to Strengthen drivers of growththrough some 25 initiatives and 133 suggested actions, focusing on three broadareas: Building capable states and improving government; Creating a vibrantprivate sector, expanded exports, infrastructure investment, increasedagricultural productivity, as well as investments in education, health, and access

to economic opportunity for the poor; and Increasing the impact of partnerships2 At http://europa-eu-un.org/articles/en/article_5499_en.htm .

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among governments, donor countries, and development agencies.3 The ActionPlan makes specific commitments, such as increased financial support for freeprimary education in 15 countries and more funding for roads, power, and otherinfrastructure. In 2000 we were lending about US$600 million to the Africancontinent for infrastructure and this year we are going to lend $1.8 billion, said

Michel Wormser, the World Bank's director for infrastructure in Africa, in June2005. We are foreseeing a further 30% increase, so by the end of the nextcouple of years, we will probably be at US$2.4 billion to US$2.6 billion a year.Infrastructure is absolutely critical for growth and there has to be about US$20billion which would have to be spent in Africa to reach the [UN] millenniumdevelopment goals, argued Wormser. Today we are at US$10 billion, so muchmore than US$3 billion a year that donors are today providing has to be put intoAfrica if we want results. he said. He argued that private funding for Africaninfrastructure projects also needed to increase.4 (In 2004, InternationalDevelopment Association (IDA), the World Bank's arm that gives grants andinterest free-loans to the poorest countries, funded 334 projects in

infrastructure, agriculture, regional trade integration, health, nutrition,education, community-driven development and capital flows, totaling US$16.6billion.)

Such views correspond with that of the New Partnership for Africas Development(NEPAD) essentially the development wing of the African Union (AU) whichrecognises the key role to be played by infrastructure in Africas development, asthe vehicle, too, for regional integration. The NEPAD Infrastructure Action Plan isunderpinned by the belief that ending Africas international economicmarginalisation is dependent on development which hinges, in turn, onincreasing trade. Virtually every regional economic community (and there are 14of them on the continent), the African Development Bank (ADB) and continentalbusiness-body is in on the infrastructure-promotion act, as are bilateral andmultilateral donors. But there has for a long time been a long list of regional andcontinental infrastructure projects, but far fewer have seen the light of day.Indeed, the record on donor spending on Africa is a testament to the difficulty inmanaging infrastructure projects, at least in a manner that offers sustainabledevelopment.

With this in mind, this paper focuses on three inter-linked issues: First, it provides a current lie of the land in both infrastructure capacity and

spending in Africa. Second, it defines a number of problems with the current approach to African

infrastructure development. Third, it offers, in conclusion, some alternative thinking on infrastructure

development.

A Picture of African Infrastructure Capacity and Needs

Why is infrastructure important?

3 At

http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:20687937~menuPK:2

58649~pagePK:146736~piPK:226340~theSitePK:258644,00.html.4 Cited in theFinancial Express, 7 June 2005 at http://www.financialexpress.com/fe_full_story.php?content_id=93048.

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Studies show that governments which spend money on essential public servicesrealize very high rates of return. One shows, for example, that for every onepercent of GDP invested in transport and communications, growth increased by0.6%. The rate of return on basic infrastructure including drainage and irrigation,

telecoms, airports, highways, seaports, railways, electricity, water supply andsanitation, and sewerage averages 16-18% per annum; and on maintenancespending to existing infrastructure as high as 70%.5

Infrastructure is key to accessing markets and enables the development of othersectors and industries, notably agriculture. It puts communities, especially thosepoverty-stricken in the rural areas, in closer touch with the market-place local,regional and international. It is also a facilitator of human development.Electricity improves literacy, and health-care, delivering lighting, water pumps,and refrigeration among other essential services. It lowers transaction costs andthe costs both of inputs and exports.

In summary, infrastructure is a necessary interface of the conduit betweengood development intentions and the delivery of productive capacity. Themeasure of African infrastructure can partly be assessed from the delivery ofbasic services:

Energy: With 13% of the worlds population, the continent consumes just 3%of global commercial energy. Less than one-quarter of households areconnected to electricity networks, the lowest connectivity world-wide.

Connectivity: Sub-Saharan Africa has 15 telephone mainlines per 1,000people (the average for low and middle income countries is 270/1,000), whilethe cost of a local call (US$0.09 per 3 minutes) and international call(US$3.55) is the highest for any region world-wide (the world averages areUS$0.06 and US$2.09 respectively). It has 16 internet users per 1,000 peoplecompared to the global average of 131 and the East Asian figure of 44.

Transport: It is the continent with the greatest number of landlockedcountries, but poor transport networks and very high transport transactioncosts. Measured as a share of the value of exports, transport and insurancepayments are very high: 55.5% in Malawi, 51.8% in Chad, 48.4% in Rwanda,35.6% in Mali, 35.5% in Uganda, and 32.8% in the Central African Republic.The world average is under 5.4%; and in developing countries 8.2%.6 For themajority of countries in sub-Saharan Africa, transport cost incidence forexports (the share of international shipping costs in the value of trade) is fivetimes higher than tariff cost.7 Africa has the lowest density of roads for anyregion 0.86km/1,000 people versus South Asias 1.8km or the worldaverage for middle-income countries of 8.5km. Port facilities, apart fromthose found in parts of Southern Africa and in Egypt are considered deficient;while notable airport activity is restricted to a few hubs includingJohannesburg, Dakar, Cairo and Nairobi.8

5 Cited in William Easterly, The Elusive Quest for Growth: Economists Misadventures in the Tropics.Boston: MIT, 2002, p.234.6 At http://www.eclac.cl/Transporte/noticias/bolfall/2/11072/FAL191e.htm.7 Hildegunn Kyvik Nords and Roberta Piermartini, Infrastructure and Trade. WTO Staff Discussion

Paper, August 2004, at http://www.wto.org/English/res_e/reser_e/ersd200404_e.doc.8 NEPADs Comprehensive Africa Agriculture Development Programme, November 2002, athttp://www.fao.org/documents/show_cdr.asp?url_file=/docrep/005/y6831e/y6831e-07.htm.

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Water and Sanitation: While access to clean water in sub-Saharan Africaincreased from 49% of the population in 1990 to 58% in 2002, this is still wellshort of the MDG target of 75%. Moreover, less than 20% of the continentsirrigation potential has been utilized effectively.9

However, the picture across Africa with regard to infrastructure provision isextraordinarily differentiated as the Table (below) suggests. This reflects acutedifferences in governance, private sector involvement, level of economic activity,conditions of peace and stability, and demand factors which are more-often-than-not inter-related. Inasmuch as this is an indicator, across the sevencategories of infrastructure, only one country (South Africa) is in the top ten forall seven; two others (Mauritius and Tunisia) in six of seven; three (Algeria,Morocco and Swaziland) in five of seven; two in four sectors; three in three; fourin two sectors; fifteen in just one sector; and nineteen were not in the top ten forany of the seven sectors. This would seem to suggest that, while in the top fewcategories governance is important, in most of the cases, infrastructure

penetration reflects a variety of other factors including colonial legacy. Of course,this Table does not provide an indication as to the use and functioning of thetransport network. (In the Table, the top ten performers in each category arehighlighted in bold.)

Country ElecityConsmtn

perCapita(KW-hours)

AircraftDepsper

10,000citizens

Density ofRoad

Network(km of

road/km2

of territory)

Density ofRail Network

(Km ofrail/km2 ofterritory)

% Populationwith Accessto ImprovedSanitationFacilities

% Populationwith Accessto Improved

Water

TeleDensityMnlines

per1,000

Aid perCapita US$,

2002

Algeria 866 13.2 -- 1.7 92 89 61 12

Angola 125 3.6 0.06 2.2 44 38 6 32Benin 75 2.4 0.06 4.1 23 63 9 34

Botswana 1,001 40 0.18 1.5 66 95 87 22Burkina Faso 24 3.0 0.05 2.3 29 42 5 40

Burundi 73 2.1 -- -- 88 78 3 24Cameroon 226 3.7 0.07 2.1 79 58 7 40CAR 29 4.0 -- -- 25 70 2 16Chad 12 1.9 0.03 -- 29 27 2 28

Congo 137 18.3 0.04 2.6 -- -- 7 115Cte d'Ivoire 233 2.4 0.17 2.0 52 81 20 65

DRC 93 1.5 0.07 1.6 21 45 0 16Egypt 1,129 7.4 0.07 5.1 98 97 110 19Eq Guinea 49 -- -- -- -- -- --Eritrea 61 9.4 0.03 2.5 13 46 9 54

Ethiopia 30 4.1 0.03 0.6 12 24 5 19Gabon 1,214 58.8 0.03 2.7 53 86 25 55

Gambia 95 14.7 0.25 37 62 28 44Ghana 404 2.5 0.16 4.0 72 73 13 32

Guinea 97 5.9 0.13 58 48 3 32Guinea-Biss 43 9.7 0.13 56 56 9 41

Kenya 140 9.7 0.11 4.5 87 57 10 13Lesotho 21 -- 0.1 49 78 13 43Liberia 174 1.3 0.10 4.4 -- -- 2 16Libya 4,021 11.8 -- 97 -- 118 2

Madagascar 51 14.3 0.09 1.5 42 47 4 23Malawi 76 4.7 -- 6.8 76 57 7 35

Mali 34 1.4 0.02 0.6 69 65 5 42Mauritania 61 14.4 0.01 -- 33 37 12 128

Mauritius 1,592 102.8 1.02 -- 99 100 270 20Morocco 569 15.5 0.08 4.3 68 80 38 21

Mozambique 70 3.8 0.04 3.9 43 57 5 112

Namibia 308 27.5 0.08 2.9 41 77 65 68

9Ibid.

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Niger 41 1.4 0.01 -- 20 59 2 26Nigeria 154 1.0 0.21 3.9 54 62 6 2

Rwanda 23 4.1 -- -- 8 41 3 44Senegal 151 1.0 0.07 4.6 70 78 22 46

Sierra Leone 55 0.4 0.16 -- 66 57 5 68

Somalia 31 0.03 -- -- -- 10 21

South Africa 4,313 25.1 0.30 18.6 87 86 107 14

Sudan 81 2.5 0.01 1.8 62 75 21 11Swaziland 822 24.9 0.22 17.7 -- -- 34 23Tanzania 85 1.8 0.09 3.1 90 68 5 35Togo 125 3.3 0.13 -- 34 54 10 11Tunisia 1,106 20.8 0.11 13.1 84 80 117 49

Uganda 66 0.1 -- 1.1 79 52 2 26Zambia 598 6.2 -- 1.7 78 64 8 63Zimbabwe 950 10.9 0.05 7.9 62 83 25 15

If infrastructure is so important to African development, why has it not beenbuilt?

The Lie of the Funding Land

While it is very difficult to disaggregate funding expenditure, as best as can beascertained the following allocations are made to African infrastructureexpenditure from both public ad private sources:

NEPAD: There are essentially three different types of NEPAD infrastructureprojects: First, those attractive at face value to investors, mainly in the energyfield; Second, those that require seed money, such as railroads; Third, thosethat have no commercial value and will rely on grants for roll-out, notably from

the World Bank, such as roads and bridges. The total cost of projects identified inNEPADs Short-Term Action Plan (STAP) is about US$8.1 billion. Half of the STAPis to be financed by the private sector. The African Development Bank (ADB) iscurrently financing a total of US$372.5 million for NEPAD STAP projects with atotal requirement of US$1.96 billion, and the World Bank had committed toUS$300 million by 2005. The ADB had, by 2005, another US$600 million inpotential projects lined-up and the World Bank a further US$210 million.

SADC: Although often portrayed as the most important and successful regionaleconomic institution in Africa, the Southern African Development Community(SADC) has been mired in a continuous process of reorganisation and

redefinition, this tautology reflecting an absence of political will andorganisational capacity as well as the difficulties of forging a coherent, unifiedagenda among 13 diverse and geographically disparate countries. SADC isapparently well aware of the mounting infrastructure problems hinderingintegration, trade and development. At the Heads of State annual summit in2003, a Regional Indicative Strategic Development Plan (RISDP) was adopted, aten-year programme designed to connect the region. The RISDP proposes 100% connectivity to the regional power grid for all members by 2012;liberalise[d] regional transport markets by 2008; and harmonised water-sectorpolicies and legislation by 2006. In spite of such planning, SADC has beenunable to prioritise regional infrastructure projects. As a result, the 400 priority

projects remain largely unfounded and well short of the US$6 billion targeted.Currently US$10 million of the SADC Secretariats US$16 million annual budget is

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funded by member-states, the remainder by donors. Donors were, by 2005,supplying another US$30 million to SADC projects, though this amount has beensteadily falling over the past few years mainly on account, from donor feedback,of SADCs failure to prioritise and expedite projects.

COMESA: The Common Market for Eastern and Southern Africa (COMESA)commenced in December 1994 when it was formed to replace the formerPreferential Trade Area (PTA), which had existed since 1981. With its 20 memberstates, a population of over 385 million and annual import bill of about US$32billion, COMESA forms a major market place for both internal and externaltrading. COMESA is currently funded by contributions from member-states(calculated on a formula of GDP/trade/population, with no state to contributemore than 17% of the total US$6 million (which Zimbabwe, Kenya and Egypt do)and no less than 1% (which Seychelles does). The remainder of the annualbudget of US$30 million is made up of donor contributions from mainly the WorldBank, African Development Bank, USAID, and bilateral donors such as France.

Like other African RECs, COMESA has a number of infrastructure developmentprogrammes, most of which are still in the discussion or feasibility stages.Indeed, COMESAs own staff admit that the infrastructure schemes have notreally taken off. Nonetheless, COMESA has prioritised four groups ofinfrastructure projects: transport and trade facilitation; air transport; laketransport; and telecommunications.

ECOWAS: The Economic Community of West African States (ECOWAS) hasidentified regional infrastructure as key to real economic integration. Leadersof the region have therefore agreed to accelerate priority infrastructureprojects in areas of transport, communications and energy, including a WestAfrican Gas Pipeline (WAGP) Project, a West African Power Pool (WAPP),various telecommunications initiatives and the development of trans-highwaycorridors. The ECOWAS Fund is the initial driver and supporter of the variousinfrastructure projects ranging from trans-highway networks, to oil and gaspipelines all of which contribute to the economic development of theregion. Besides the political and economic progress that has been achieved inthe West African region in recent years which will help to facilitate jointinfrastructure initiatives and better integration ECOWAS has receivedsubstantial support from a broad range of international organisations,notably the World Bank, which has reportedly pledged US$2.3 billion toinfrastructure projects in the ECOWAS region.

EAC: Institutional development in the East African Community (EAC) hasfocused on rail and, to a lesser extent, road transport in an effort to improvetrade facilitation. In line with the NEPAD STAP, priority projects for the EACinclude: concessioning of the railways in Kenya and Uganda (which occurred inOctober 2005 when a 25-year concession was sold to Rift Valley Railways whichplans to spend US$25 million in Kenya and US$15 million in Uganda in the nextfive years), Tanzania and TAZARA; rehabilitation of selected railways forconcessioning; and the East African Road Network. IN the latter regard, in 2003,the World Bank confirmed the availability of US$400-500 million for the EACstates national road sector programmes for the next three years and the EU haspledged an additional 375 million over a five-year period. ADB has also pledged

continued support for the regional projects.

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UMA: In the 1990s, the Arab Maghreb Union undertook a number ofprogrammes to improve basic infrastructure in the region, particularly in thetransport and communication sectors. However, while the potential in various railand telecommunication projects does exist, the lack of political commitment from

the members of UMA continues to hinder any serious progress to region-wideinfrastructure initiatives.

ECCAS/CEEAC: Plagued by conflict, instability, poverty and underdevelopment,the Central African ECCAS region has been slow to implement any infrastructureinitiatives of relevance. But rich mineral deposits and the recent discovery ofexploitable oil reserves have prioritised infrastructure programmes in the region.The stakeholders involved include the private sector, international organisations(notably the World Bank), donor organisations and the respective governmentsof ECCAS. The ECCAS region is reported to have close to 100 infrastructureprojects under discussion, most of which are still in the talk-shop phase or have

achieved little or no progress since the STAP was detailed. A study on electricalnetworks funded by the ADB was launched in January 2004. In September 2003US$3.44 million was secured from the African Development Fund (ADF). Theassessment will cost approximately US$3.7 million with the ADF Grantaccounting for 93%, the remainder being met directly by ECCAS. The Chad-Cameroon Pipeline Project is the most significant development in the region.Launched in 2000, the project is expected to stretch over a 25-30 year period,involving the development of 300 oil wells in southern Chad with a 1,070 kmpipeline to storage facilities off the Cameroon coast. With an estimated cost ofUS$3.7 billion, the project is the largest private infrastructure investment in sub-Saharan Africa. The project is funded 19%:81% by the World Bank, and aninternational consortium consisting of Exxon Mobil and Chevron Texaco bothfrom the US, and Malaysias Petronas.

AFRICAN DEVELOPMENT BANK: The ADB Group consists of three separatelending institutions: The African Development Bank, which had a subscribedcapital at end of 2003 of US$32 billion, though only 13 regional member statesare presently eligible for ADB loans and investments; The African DevelopmentFund, offering development finance on concessional terms to low-income regionalmember states that are unable to borrow from the Bank on non-concessionalterms, and whose subscribed capital at end of 2003 was US$18.7 billion; andThe Nigeria Trust Fund, established by the government of Nigeria to providefinancing for projects of national or regional importance in the poorest regionalmember states of the ADB. Its subscribed capital at end of 2003 was US$559million.

The ADBs functions are constrained by long-term risks such as the high-indebtedness of 32 regional member states and persistent conflict in several. TheADB, consequently, puts emphasis on both the African Peer Review Mechanismand the African Unions nascent Peace and Security Council to strengthengovernance and encourage stability. The ADB group has already approvedUS$372.5 million for NEPAD infrastructure projects, and has committed toproviding an additional US$580 million to project preparation (feasibility studies,for example). Total group lending in 2003 amounted to US$2.62 billion. In

addition to allocating its own funds, the Bank Group has also mobilised US$67.8billion in co-financing with external partners benefiting 802 projects.

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DEVELOPMENT BANK OF SOUTHERN AFRICA: The DBSA, like the ADB,represents an important resource in identifying potential and bankable projectsas well as initiating partnerships among public and private-sector entities. Amongdevelopment finance institutions based in South Africa, the DBSA carries the

mandate for infrastructure projects, which in this context refers to energy,transport, ICT, water and sanitation and tourism. The South African governmentis the only shareholder and the minister of finance, currently Trevor Manuel, actsas governor. The DBSA has an independent board of directors and has twooperational clusters: The Africa Partnership Unit, which supports NEPADinfrastructure projects; and the International Finance Unit, which finances SADCinitiatives. Support comes in the form of investment (grants, loans, concessionsand equity investment), technical advice and public-private-partnerships (PPPs).It tends to prefer public initiatives and works closely with the South Africannational treasury to involve black economic empowerment entities in PPPs. DBSAdisbursements are disproportionately tilted toward projects within South Africa.

Of a total R2.73 billion allocated in 2003/4, R2.32 billion went to projects andproposals within South Africa, and the remaining R414 million was dividedamong initiatives in the other SADC countries. Within South Africa, the DBSAskey concern is supporting initiatives to promote both job creation and labour-force diversification. An ongoing concern remains rand/dollar volatility; randstrength in the past year resulted in an 11% decrease in overall new financingapprovals, most of which affected the SADC countries. In sectoral terms, theDBSA funding portfolio in both South Africa and SADC was dominated by waterinfrastructure (38% of new approvals) and commercial infrastructure (31%).Other sectors included energy (13%), communications infrastructure (5%), andsocial, sanitation and roads infrastructure (3% each). As with the ADB, projectsand initiatives related to poverty reduction remain a high priority.

UK DEPARTMENT FOR INTERNATIONAL DEVELOPMENT: Britain remains akey donor for Africa infrastructure: DFID gives more than 1 billion to Africa,plus contributes about 20% of the EU and World Banks Africa funds. With regardto DFID there are three key trends with aid funding towards Africaninfrastructure: First, not to fund new capital projects but rather to create anenabling environment for the management and maintenance of existing projects.The public-private partnership schemes identified above are a key element inDFIDs strategy towards attempting to encourage private sector investment andmanagement in African infrastructure. Second, to establish funds (through petroltaxation) for long-term maintenance and rehabilitation. Third, to fund budgetarysupport (about 70% of aid expenditure in the case of DFID for example) ratherthan direct aid.

US AGENCY FOR INTERNATIONAL DEVELOPMENT: USAID seldom lendsfinancial assistance to African infrastructure projects beyond technical assistance(i.e. advice) with public-private partnerships and with privatisation programmes.In the case of extreme humanitarian situations as with Liberia, money has goneto infrastructure construction.

JAPAN: Most Japanese aid to Africa has comprised technical assistance (i.e.spending on Japanese themselves), small-scale African projects, and soft loans.

A prominent feature of Japanese bilateral aid is the significant proportion ofloans, representing 55% of total bilateral ODA in 2002. This is easily the most

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Total Private Participation in

African Infrastructure

17%

0%

67%

12%4%

Electricity

Natural Gas

Telecommunicati

ons

Transport

Water and

Sewage

extensive use of loans of any DAC country. In 2001, Japan spent US$7.45 billionon bilateral ODA worldwide, with US$1.09 billion (14.6%) going to Africa, thelatter made up of technical co-operation (25.3%, US$276 million), and grant aid(61.9%, or US$675 million). Technical assistance involves the dispatching ofexperts, invitation of trainees to Japan, loans of equipment, and volunteer

activities. This is managed by the Japan International Co-operation Agency(JICA). Grant aids are generally made through the local embassies, providing nomore than Yen10 million per project.

FRANCE: France contributes around 25% of the European Development Fund.Bilateral aid in 2001 amounted to 2.65 billion (61% of it for Africa, incl. NorthAfrica) as against 4.2 billion in 1995. Topping the list of partner countries isEgypt (243 million), followed by Morocco (181 million), Cte dIvoire, Senegaland Tunisia.

CHINA: Chinese aid to Africa is heavily tied and completely opaque. It might be

expected that infrastructure spending will increase to key countries, especiallythose in the oil and gas sectors. Importantly, there is considerable evidence ofthe participation of private Chinese rail and road construction companies inbuilding African infrastructure, and it is suspected that much of this is a loss-leader for the Chinese government.

NORWAY: The total Norwegian aid (including humanitarian, etc) for Africa wasNOK 3.6 billion in 2002, 4.1 billion in 2003 and 4.2 billion in 2004. Support forinfrastructure (Transport and Storage, Communications, Energy, and WaterSupply and Sanitation) was around NOK 350 million annually in 2003 and 2004.More than 50% of this is energy-related.

TAIWAN: Taiwans annual aid budget to Africa totals an estimated US$100million, excluding the cost of regular African delegations to Taiwan.Approximately US$30 million was, for example, committed annually to formalaid projects in Senegal alone, Taiwans key African diplomatic partner until itsdecision in late-2005 to shift recognition to mainland China, focusing onroad, clinic, dam and training-centre construction. Much of the total is todayspent on handouts/budgetary support for those six countries (Burkina Faso,Chad, The Gambia, Malawi, Sao Tom and Principe, and Swaziland) whichcontinue to recognise Taiwan as the Republic of China.

PRIVATE SECTOR SPENDING: Private investment in infrastructure took off inthe 1990s as governments around the world sought to improve the efficiency ofthe basic systems undergirding their economies while seeking the revenue gainsfrom privatisation. Between 1990 and 2001, US$755 billion was invested in

approximately 2,500projects worldwide.However, annualinvestment has dropped byhalf since the peak periodof 1997, not least due tothe Asian financial crisis.

The World Bank estimatesthat investors spent

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US$23.4 billion on African infrastructure projects between 1990 and 2001. Thiswas about 3% of the worldwide private investment in infrastructure. SouthAfrica, with its advanced economy, relatively prosperous private sector, and goodlevels of governance (by African standards) has been the site of most theprojects as measured by dollars invested. Indeed, private investment in Telkom

SA, Vodacom and Mobile Telecommunications Network accounted forapproximately 43% of all private investment in African infrastructure over adecade. South Africa was also home to the only large-scale investments intransport infrastructure on the continent: the N3 and N4 toll roads.Telecommunications, given the relative ease of revenue collection and worldwidepressure to privatise, has been a favoured sector for investment. Two othertelecommunications projects (Cte dIvoire Telecom and Econet Wireless Nigeria)were among the ten largest investment in African infrastructure.

The sectoral distribution of investment in African infrastructure reflects, almostexactly, the global experience. Across the world, about 95% of foreign

investment, by dollar value, has been devoted to telecommunications orelectricity. The preponderance of investment in these areas reflects the capital-intensive nature of the sectors; the relative attractiveness of companies in theseareas; and the relative ease of creating models for revenue creation.

Destination of Private Investment in Infrastructure

55%

6%

5%

4%

3%

27% South Africa

Cte d'IvoireNigeria

Tanzania

Zimbabwe

Rest of Africa

Over more than a decade, the only large-scale investments in infrastructure thatwere not in South Africa or in the telecommunications sector were the

Groupement SHECelectricity project in Mali, the Socit dEnergie et dEau duGabon water and sewage project, and the African Power investment inZimbabwe. Private involvement in infrastructure in Africa is still a relatively rareoccurrence. In a total of 43 countries reviewed in 2004 across eight sectors inAfrica, in only 25% of the cases (86 distinct sectors) wass there any kind ofprivate involvement in infrastructure.

Towards a New Model?

There is no shortage of opportunities for expenditure in infrastructure in Africa,

and no shortage of requirements. Yet a number of problems exist with regard to

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expenditure in African infrastructure investment projects which until now havemade this untenable and thus unlikely:

Commercial underpinning: NEPAD is unlikely to succeed as aninfrastructure-led development programme, not because it does not intend

the right things for Africans, but fundamentally, but so long as it puts the cartbefore the horse placing infrastructure generation as a stimulus forincreasing productive economic capacity rather than vice versa. This explainswhy most of the NEPAD infrastructure schemes, while all on paper nice-to-haves, are essentially dusted-off versions of extant donor-targeted projectshitherto unfunded because of their lack of a sound commercial rationale. Asecondary problem is that the projects identified by NEPAD must beimplemented by the regional economic communities, which, as cited above,are hobbled by their own constraints. The key stumbling blocks have long-since been identified: inefficient regulatory environments, bloatedbureaucracies at the national and regional level, lack of liberalisation and a

general failure to identify markets sector by sector. These constraintsnotwithstanding, NEPAD may offer advantages in terms of providing a stampof approval for investors or to pressure countries on governance issues. Thisechoes the sentiments expressed among current and potential actors.Technical experts at the European Union, for example, confirmed the viewthat NEPAD had simply dusted off extant projects that lacked a commercial oreven donor-funding rationale. An aid based strategy for infrastructuredevelopment has not yet offered a commercially-sustainable basis fordevelopment in Africa; while the long list of projects detailed by both theRECs and NEPAD amounts, in this light, to little more than a note to SantaClaus.

Confusion of donors: The lack of uniformity between donors does not help.Each and every donor has their own strategy, reporting structure and,understandably perhaps, national objectives. This is a failing that is, ofcourse, not unique to infrastructure spending.

National capacity: Every region and sub-region in Africa has blamed poorinfrastructure for inadequate growth, development and integration on thecontinent. Despite this, little progress has been achieved in launching region-wide initiatives and delivering on them. Faltering national commitment andthe absence of comprehensive plans for implementation remain recurringproblems throughout Africas regions.

Regional weakness: In its 2003 review, the ADB, as the lead institution onNEPAD infrastructure development, identified a number of key obstacles,including: Lack of clarity as to what NEPAD really is; Lack of clarity as to whatis expected of the RECs and countries; Lack of definition regarding linkagesbetween countries and RECs; Lack of financial and technical capacity in theRECs; and a Lack of alignment of REC programmes and NEPAD programmes.NEPAD has asserted that its programmes are different in two respects fromprevious African infrastructure schemes: First, in terms of engaging the RECsto kick-start projects which have been there for a long time but have beenblocked. Regional infrastructure is prioritised in line with the recognition thatindividual national economies are alone too small to compete in internationalmarkets; and, Second, to restore a focus of development activity andspending on both infrastructure and agriculture. Yet, to take SADC as an

example, member-states continue to pick and choose areas and issues ofcommitment. For example, the ratification of the 21 SADC protocols has been

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a long, drawn-out process. And under the terms of the SADC free tradeprotocol members are expected to have liberalised 85% of trade by 2008; yetwhat countries say and what they do in this regard, are two different things.Despite the development of the SADC RISDP, these failings have beenexacerbated by the advent of NEPAD and the creation of the African Union,

and failure to co-ordinate activities between them. There is also the fearsensed by SADC (and other regional bodies) that NEPAD will shift focus awayfrom regions, and dilute their ability to raise funds for infrastructure projects even though it is NEPADs stated function to shift projects and focus to theRECs.

Lack of Indians and too many Chiefs: The Secretarial ability of bothNEPAD and the RECs and their political authority to motivate and expediteprojects is limited, reflecting both a lack of regional and continentalconsensus and a general unwillingness to cede sovereign authority, in spite ofthe rhetoric to the contrary, to supra-national control.

An indistinct revenue model for private investors: Private investment in

African infrastructure projects is inherently risky. There are the normaldangers of investing in Africa: political instability, weak human resourcebases, underdeveloped financial systems, poverty, and crime. In addition,infrastructure investments, if they go beyond no-cash management contracts,require an excellent ongoing relationship with government as the privateinvestor will be required to put up a large amount of capital to build andrehabilitate basic infrastructure systems but will only reap returns years later.In addition, government must not interfere with the infrastructure project sothat the private investor can operate the enterprises on a commercial basisand therefore make a profit. This has proven to be a problem in the past inAfrica as governments have come under political pressure to lower tariffsbeing charged on basic services such as water and therefore violated basicoperating assumptions. Similarly, the tariffs on most road projects have beenrenegotiated, sometimes several times, over the course of the project toreflect evolving economic circumstances. Finally, governments must continueto promote pro-development policies generally over a long period of time sothat economies can prosper and infrastructure investments can thereforegarner the rewards of high demands. If the political elite is not fully behindprivate participation in infrastructure, there is no chance of the project beinga success. For these reasons, most private investment in Africaninfrastructure have been low- or no-cost management contracts that exposeinvestors to minimal risk while they operate infrastructure systems for limitedperiods of time. Also relatively popular have been concessions which requireinvestment of only limited amounts of money and that give private investorsrights to operate for defined periods of time. Demonopolisation ofinfrastructure sectors to allow new entry has been less popular and outrightprivatisation of infrastructure investments relatively rare.

Distortion of the commercial focus: Aid expenditure has not only failed tooffer a sustainable means of developing infrastructure, but has underminedthe attempts to generate the domestic financial mechanisms and, mostimportantly, the mindset to fund development from within. Governmentsapproach the private sector on infrastructure projects much in the same waythat they approach donors where they see this, at least in part, as aphilanthropic gesture rather than a way to make money.

Government involvement in infrastructure: This, as in other areas of theworld, tends to crowd out private investors, and corrupt the tender and

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priority-setting process. Paradoxically, the unlikelihood in most Africancountries of private investors being able to garner significant domesticpartners means that foreign investors in African infrastructure will largely bealone and will have to work hard to develop a constructive relationship withindividual African governments. They will also have to place a premium on

regulatory quality and lack of corruption when selecting destination countriesbecause, as foreigners investing significant sums up-front, they will beespecially vulnerable to the pathologies that mar so many Africangovernments.

Good governance and demand: There exist only a small number ofcountries across the continent where good governance and demand forinfrastructure services correlates. Profitable investment in infrastructure mayof course eventually occur in many African countries if the right conditionsdevelop and if there is enough government commitment. However, inidentifying likely target countries now, a premium has to be put on overallgovernment regulatory competence, the relative amount of corruption, and

the level of development. Regulatory competence is critical because the profitmodels of private investors will be affected by government decisions for manyyears after the initial investment. In general, regulatory quality is low inAfrica: procedures like gaining import-export permits and clearing goods fromcustoms are far more difficult, on average, in the region than elsewhere in theworld. However, there are important variations that should be noted in anycontinental analysis. For instance, the World Bank estimates that to enforce acontract in Botswana, a country with relatively high regulatory quality, ittakes 22 procedures and 56 days. In Angola, an extremely poorly governedcountry, it takes 47 different procedures and 941 days. Understanding thevariance between countries is critical because so much money is lost to poorgovernance in the developing world. According to the World Bank, thenumber of potential infrastructure projects is a multiple of those successfullyimplemented. The Bank notes that, Nightmare stories abound of investorsexperiencing lengthy delays or project cancellations because of political,administrative, and legal impediments. Across the developing world,underestimating corruption, bureaucratic delays, organised crime and othernon-conventional risks on averaged erode expected returns by 8-10%. Some84% of projects initiated in emerging markets in the late 1990s did not meetfinancial targets and 26% failed. It is undoubtedly the case that the record inAfrica, on all accounts, is much worse. Governments that have a relativelylow level of corruption are also more likely to abide by long-term contractsand allow private investors the years necessary to recoup investments.Finally, as market demand is a critical determinant of the viability ofinfrastructure development, investors are more likely to find success incountries that have relatively high per capita incomes. It is also a simplereality that it is much easier to operate infrastructure projects in those Africancountries that are at least approaching middle-income status and thereforehave relatively robust financial and labour markets.10

Infrastructure is not enough: Finally, as with aid projects generally,money is seldom the problem, but rather finding effective and efficient meansto expend it is. Aid on infrastructure can only work if the right policies toencourage investors, both foreign and local, in productive sectors, is devised

and implemented. Put differently, Africa has to make things to sell and have10 I am grateful to my colleague Jeffrey Herbst for this insight.

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the appropriate infrastructure to assist in this process. Also, the provision ofbasic infrastructure has to go hand-in-hand with institutional capacity-buildingfor the public sector agencies managing these facilities. And there are thingsthat can be done apart from infrastructure that will make a difference indeed, an overwhelming focus on infrastructure will reinforce notions of a

silver-bullet approach to African development. Using existing infrastructurebetter would be a good place to start, including removing unnecessarybureaucratic and policy obstacles, which often go hand-in-hand with vestedpolitical interests. As the World Bank has noted, Currently, entrepreneursface more business obstacles in sub-Saharan Africa than in any other region.The combination of high regulatory costs, unsecured land property rights,inadequate and high-cost infrastructure, unfair competition from well-connected companies, ineffective judiciary systems, policy uncertainty, andcorruption makes the cost of doing business in Africa 20-40 percent abovethat of other developing regions. Firms in the region, particularly small andmedium-sized companies, also complain of high financing costs, or little or no

access to credit.

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Conclusion: Some New Thinking Necessary?

Aid flows to Africa appear deliberately opaque: the point is apparently to be seento be giving rather than to chart the flows and their efficiency. Exact figures onaid infrastructure flows are impossible to determine both given the percentagetowards budgetary support (which is then potentially spent on infrastructureunder recipient national government programmes), as well as the degree ofoverlap between regional and national projects, and regional, national and

continental projects such as NEPAD.

More than half of aid given is tied to the donor through debt relief, technicalassistance, emergency relief and interest charges. Until now, together the EUand World Bank contribute 60% of concessional aid spending in Africa. Britainalso remains key: DFID gives more than 1 billion to Africa, plus contributesabout 20% of the EU and World Banks Africa funds. Until Gleneagles, there werefive trends with aid funding towards African infrastructure: First, not to fund newcapital projects but rather to create an enabling environment for themanagement and maintenance of existing projects. Second, to focus on long-term maintenance and rehabilitation rather than construction. Third, to fund

budgetary support (about 70% of aid expenditure in the case of DFID, forexample) rather than direct aid. Fourth, that there is negligible spending bydonors on infrastructure; this is confined to poorer countries elsewhere such as,in SADC, Zambia, Mozambique and Malawi. Fifth, donors have been largely of theopinion that projects such as toll-roads and other self-funding initiatives are anon-starter outside South Africa, given low levels of population income.

The infrastructure schemes of regional bodies are wide-ranging and ambitious inscope, but until now historically of very limited value in terms of delivery. Thereis much process, but little delivery, and an increasingly negative aid environmenttowards these bodies. NEPAD essentially replicates many extant regional11

Athttp://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:20639324%7EmenuPK:258649%7EpagePK:146736%7EpiPK:226340%7EtheSitePK:258644,00.html.

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integration schemes, previously dismissed and disregarded on the basis of theircommercial viability and fundability. Regardless of the status of NEPAD projects,it is the design of NEPAD to transfer all implementation responsibilities to theRECs, the RECs thus being the level at which most donors would need to engage.

In trying to improve the impact and extend the legacy of aid, much recentattention has been on improving skills. As Eritreas president Issaias Afewerkifamously put it in 1998, If you teach someone to fish, instead of giving him fish,then he has a sustainable future. in the long term, success can only come frominside us. Eritrea is not a good example given its subsequent lurch towards warwith its neighbour Ethiopia and Issaias internal security crackdown, destroyingany governance value. And although training efforts should not be abandoned,their impact cannot be isolated from the need for general improvements ingovernance and the related need for a meritocracy in which they can beemployed. They are at best an over-the-horizon solution, taking much longerthan the tenure of current political leadership.

Hence the debate around aid has to shift, fundamentally, to find ways in whichsuch transfers can be used as a seed a catalyst for higher rates of growth inthe short-term, even though some African states will still require aid as a form ofcharity for humanitarian relief.

No one doubts the value of improved infrastructure to development. The mainchallenge is thus for Africa to devise a new formula for using aid in a mannerthat is both commercially sustainable and provides those services which willencourage wider private sector investment in the economy.

A fresh focus on private-public-partnerships in infrastructure could assist. Thisrequires, however, first the identification of those sectors in which the return ofcapital whether public or private is greatest from a perspective whichemphasises long-term returns in terms of human welfare, productivity andeconomic growth. Understanding the drivers the likely sectors of economicgrowth country-by-country and prioritizing them is a necessary first step in thisregard. A second is the attraction of private funds on a matching basis forinfrastructure projects, inherently serving to reduce risk and encourage a long-term investment view. Third, the identification and establishment of a suitablemanagement structure for these funds on a commercial basis by the public-private consortiums involved.

From a business perspective, this would apply a commercial logic to project roll-out; from a partner-governmental perspective it would offer both the necessaryexpertise and the efficient use of funding resulting in a positive donor-government-business delivery cycle. This type of management structurenecessarily privileges and prioritises those African states that have ademonstrable capacity to deliver this management and related policy reliability,thus differentiating and favouring those with good governance records.

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