Achieving Progress in Infrastructure and Property Development in Africa

Last Updated 4 months ago by Kenya Engineer

The story of Africa’s development continues and five of the world’s fastest growing economies are in Africa! (www.businessinsider.com). That having being said, Africa still remains as the most socially unequal society, where social inequality is the existence of unequal opportunities and rewards for different social positions or statuses within a group or society.

Antonio Estache and GrégoireGarsous, both experts in infrastructure investment in  Africa, state in their literal notes on “The impact of infrastructure on growth in developing countries” that there is, indeed, a plethora of anecdotal and more technical evidence that better quantity and quality of infrastructure can directly raise the productivity of human and physical capital and hence growth. The  lack of infrastructure results in Africa having only 38% of the African population having access to electricity, the penetration rate for internet being less than 10% while only a quarter of Africa’s road network is paved. Studies have shown that poor infrastructure, road, rail and port facilities add 30% to 40% to the costs of goods traded among African countries thus emphasizing the importance of infrastructure development to any economy (www.un.org).

According to the World Bank (2013) ‘electricity matters for business; and unreliable electricity supply, lack of distribution network in rural areas and high connection costs hinder all business activities and where the quality and accessibility of infrastructure services are good, they encourage investment, productivity and growth’.Africa’s infrastructure services are twice as expensive as anywhere else in the world, reflecting diseconomies of scale in production and high profit margins caused by lack of competition (The Oxford Handbook of Africa and Economics: Policies and practices).

Property development is one of the very important factors for a country’s economy. It is an interesting field which is closely connected with financial sector of economic development (Wang, 2003). In developed countries, real estate is used for investment portfolio diversification, with closer connection with the stock market, and investment portfolio information. According to Glascocla, et al. (2002) and Hilbers et al. (2001) macro factors that influence infrastructure and property development include: economic growth, population growth, income level and interest rate.

However, some countries have managed to navigate the murky waters of infrastructure development with South Africa leading the lines, while countries like, Ivory Coast, Zambia are experiencing a boom in their infrastructure development programmes.

Problems Affecting Africa in Infrastructure and Property Development
Poor Leadership,inadequate Governance Structuresand Corruption
Due to corruption and poor governance, many of our African leaders have totally driven themselves further away from achieving the aspirations and needs of their people. They have created a situation where they treat their offices as a form of personal property and a source of private gain.A 2002 African Union study estimated that corruption cost the continent roughly $150 billion a year. A massive sum of money used for the benefit of a few private individuals and their families. If this amount were to be reinvested in the African economy, used to rebuild factories, schools and hospitals, I am sure it would result in economic growth. Thus, if we are serious about our development, we must fight corruption without failure.

Corruption has emerged as a major player for investors evaluating potential investments; seemingly the scale continues to balloon with a blind eye turned to it. The situation is further fueled by the size and complexity of projects executed, extensive approval processes due to poor leadership as well as multiple layers of contractors which afford the greatest opportunities for corruption. Furthermore the poor public is endangered by use of facilities that have been corruptly constructed.

Low Level of Private Sector and Community Involvement

The private sector and grassroots communities are not sufficiently involved in the building and maintenance of infrastructure in Africa. Governments are ultimately responsible for ensuring access to infrastructure for their citizens. However, least developed-country governments especially have been unable to address the infrastructure backlogs. The private sector has a crucial role to play in their ability to provide innovation in financing and technical solutions for infrastructure. Urban developments, such as toll roads and urban rail with relatively high user tariffs can be lucrative for private actors in the long term.

Lack of Technical Skills
A common problem among all African countries is the reduced technical and institutional capacities needed to deliver and maintain the appropriate infrastructure for Africa’sdevelopment. Most African countries are given to outsourcing for development services for the multi-million dollar projects.In South Africa, 2013,Grant Thornton reported, “a staggering 83% of local businesses reported a lack of technical skills when it came to recruitment. There is a high instance of poverty among South African youth, leaving millions unable to pursue secondary and tertiary education or training, which presents a challenge in terms of their skills development and employment prospects.

Risk
Our policies and modus operandi in Africa results in failure to attract a fair share of global investment and because of these policies Africa becomes the riskiest place to invest. The high risks of doing business driven by not only the high incidence of conflicts and political instability, and the good governance deficit, but also from high business costs associated with the inadequacy of services that support economies.

Lack of funding

In Africa, for example, there are growing concerns that mega-projects from the World Bank and other international financial institutions (IFIs) are mainly profit-oriented, prioritizing the interests of extractive industries over the needs of the people. Building pipelines and dams rather than schools, roads, and hospitals seems to be the underlying logic of these enterprises.

Concerns are, however, that foreign companies will gain vast economic benefits from this mega-project, taking attention away from the development needs of Africa’s poor majority, especially food security, right to water, health, and education. According to the Africa Infrastructure Country Diagnostic, the continent’s infrastructure spending needs stand at about $93 billion per year, and about 40 percent of total spending needs are associated with power. Using their meager fiscal resources, African governments spend about $45 billion—about one-third of which is contributed by donors and the private sector—per year in infrastructure.  Two-thirds of the public sector money is used to operate and maintain existing infrastructure and one-third is to finance new projects. This leaves a financing gap of $48 billion and begs the question of how to finance it.

Unity of Africa as a Continent

Unity at an infrastructural development perspective is a lacking ingredient, in the success recipe of Africa.Despite the current challenges associated with globalization and the changing world economic and political environments. Africa does not have any formidable track record in regional integration to promote infrastructure development.

Such unity can be evidenced by the formation of the Southern African Power Pool (SAPP) in 1995 which is a cooperation of the national electricity companies in Southern Africa under the auspices of the Southern African Development Community (SADC). The members of SAPP have created a common power grid between their countries and a common market for electricity in the SADC region. TheSouthern African Power Pool was created with the primary aim to provide reliable and economical electricity supply to the consumers of each of the SAPP members, consistent with the reasonable utilisation of natural resources and the effect on the environment.

Examples of electricity generation projects include the Proposed Batoka Gorge Hydroelectric Power Station is a 1,600MW hydroelectric power station, planned to be on the Zambezi River across the International border between Zambia and Zimbabwe.The proposed power station will be located on the Zambezi River, approximately 54 kilometres (34 mi), downstream of Victoria Falls.

The Grand Inga which is the world’s largest hydropower scheme, is proposed for the Congo River in the Democratic Republic of Congo (DRC). The massive dam is part of a greater vision by the international economic community to develop a power grid across Africa that will spur the continent’s industrial economic development but with a price tag of US$80 billion, there are concerns that foreign companies will gain vast economic benefits from this mega-project, taking attention away from the development needs of Africa’s poor majority.

Grand Inga could produce up to 40,000 MW of electricity, over twice the power generation of Three Gorges Dam in China, and more than a third of the total electricity currently produced in Africa. The project is already being touted as a way to “light Africa” by companies that stand to benefit from it and governments that hope to receive power from it. Grand Inga is listed as a priority project of the Southern Africa Development Community (SADC), the New Partnership for African Development (NEPAD), South African Power Pool (SAPP) and the World Energy Council.

However, the Grand Ethiopian Renaissance Dam (GERD), formerly known as the Millennium Dam and sometimes referred to as Hidase Dam, which is a gravity dam on the Blue Nile River in Ethiopia currently under constructionhas struck major regional conflicts. At 6,450 MW, the dam will be the largest hydroelectric power plant in Africa when completed, as well as the 7th largest in the world.
The potential impacts of the dam have been the source of severe regional controversy. The Government of Egypt, a country which relies heavily on the waters of the Nile, has demanded that Ethiopia cease construction on the dam as a preconditions to negotiations, sought regional support for its position, and some political leaders have discussed methods to sabotage it. Egypt has planned a diplomatic initiative to undermine support for the dam in the region as well as in other countries supporting the project such as China and Italy. However, other nations in the Nile Basin Initiative have expressed support for the dam, including Sudan, the only other nation downstream of the Blue Nile, which has accused Egypt of inflaming the situation. Ethiopia denies that the dam will have a negative impact on downstream water flows and contends that the dam will in fact increase water flows to Egypt by reducing evaporation on Lake Nasser. It has accused Egypt of being unreasonable; Egypt is demanding to increase its share of the Nile’s water flow from 66% to 90%.

Such disagreements impede the speed at which African infrastructure development projects are implemented.

Rapid Urbanisation

Rapidly expanding populations in most African cities accompanied by slow economic growth rates are straining urban infrastructure. With Africa accounting for about half of the 900 million urban dwellers around the world, ‎weak government policies have resulted in a continued rural-urban population drift. (www.citiscope.org)

African cities are forecast to urbanize at a rate of 3.65% annually, adding nearly 350 million new city-dwellers by 2030. A billion more people are expected to be living in African cities by 2063 (www.qz.com). This leads to three major problems which directly affect infrastructure. First, the cities are crowded, then there’s the fragmented, disconnected nature of these cities. Residents are unable to easily move from one part of the city to the other due to unreliable and inefficient transport networks.Finally, it’s expensive to live, invest, or run a business in an African city. The World Bank says African cities are 29% more expensive than cities in countries at similar income levels. Families in African cities have to spend 55% more on housing than other regions. The high transport, housing, and food costs make labor more expensive.

Lack of Flexibility in Project Delivery

The traditional delivery model has some clear benefits.  It is very prescriptive in terms of what the contractor builds – owners maintain control over the project and know exactly what they are getting. However, the traditional delivery model has some inherent weaknesses.  Because the design and construction responsibilities are not typically contained in the same contract, when issues arise during construction that cannot clearly be identified as being the responsibility of the builder or the designer, the government can end up bearing the cost of addressing the issues.When issues arise during the construction period, the contractor does not have the same strong financial incentive to resolve the issue and complete the project.

How to Negotiate Around Existing Challenges

Considering the effects of widespread corruption, especially on public services, African countries’ development agendas must emphasize good governance without compromising accountability and transparency. The adherence to these principles will enable the design of prudent plans matched with strategies for the mobilization of resources, focused on clear and tractable indicators of progress, and with the government committed to tackle and eliminate corruption. The new framework must also include the strengthening of the decentralization systems as well as enhancing the participation of citizens and media in monitoring governance and service delivery in order to help curb corruption, channel resources to development priorities, and speed up socio-economic transformation.

Over the past 20 years the Public-Private Partnership (PPP) model has gained traction around the world as an alternative to the traditional delivery model for large public infrastructure projects. PPP’s can address a number of the issues associated with traditional delivery noted above.  In simple terms, under a classic PPP arrangement, the government enters into a single contract with a group of private sector companies – a consortium – to undertake all of the key elements of a project.  Often the group of companies is responsible for designing, building, financing, and in some cases maintaining the new asset.  The consortium may only be fully paid out at the time of substantial completion – in these cases the private sector consortium is responsible for designing and building the asset but not for ongoing maintenance, and the use of private financing is purely to drive performance during the construction period.  When the consortium is responsible for maintaining the asset, the government begins to make monthly payments designed to cover both the up-front capital cost of construction that were not paid at or prior to substantial completion, and the ongoing maintenance costs of the asset once the project.

Many students currently enrolled in Africa’s tertiary institutions are studying subjects that do not support the need in business for science, technology, engineering and math (STEM) as well as future-oriented skills. Many organizations face the challenge of finding appropriately trained graduates with complex problem-solving skills, critical thinking, good judgment and decision-making, as well as cognitive flexibility.

Skills development has been recognized as a key component of Africa’s transformation and economic growth. Organizations are encouraged to spend a portion of their payroll on training their workforce, depending on the industry. There are good private-sector initiatives underway to ensure the spend is used effectively, but to achieve the scale and sustainability required to address the Africa-wide skills shortage, a more collaborative and concerted effort is required. Partnering with organizations such as the World Economic Forum will help us steer spending in the right direction.

Regional integration is also one key way to solve our challenges as Africa. Integration would allow Africa to increase trade and participation in the world economy, which in turn would benefit property development. Integration would require building political consensuses, establishing effective regional institutions, setting priorities for regional investments, developing regional regulatory frameworks and facilitating project preparation and cross border finance.This has been identified as a key driver of trade and a catalyst for socio-economic development, which are the main pillars supporting regional integration.

Two successful examples from Zimbabwe include Group 5 (South Africa) – Zinara (Zimbabwe), who partnered to revamp the country’s major highway, which also happens to be the most convenient route for transit motorists travelling between Machipanda Border Post Mozambique and Plumtree Border Post Botswana.

The Kariba Dam is another good example of what unity can achieve. The dam was an initiative of the Federation existing at the time between British ruled Northern and Southern Rhodesia (now Zambia and Zimbabwe) and Nyasaland (Malawi). Had the approach been a bit more individualistic, we might have not had Kariba today.