As the middle stretch of the arterial road from Nairobi to Mombasa in Kenya transverses through the Tsavo National Park, picturesque sightings of hornbilled birds and falcons nestling among the baobab trees that line the road is often reported by drivers. Yet while this scenic road between Kenya’s two largest cities is a well-travelled route, it is also one that is laden with danger.
Although the Mombasa road has played a central role in facilitating trade throughout the wider east African region – indeed landlocked countries such as Rwanda, Uganda and South Sudan primarily rely on the dual-lane carriageway to import heavy goods shipments from Mombasa’s deep-sea ports to their respective locations – decades of overuse and limited lane expansion has also made the highway notorious as one of Kenya’s most dangerous roads.
However, recent efforts by the region’s governments to tackle this infrastructural bottleneck look set to change this parlous situation. The move in late November 2013 to begin constructing what will be east Africa’s largest railway, which will connect Mombasa to Nairobi, Kigali in Rwanda, Kampala in Uganda and Addis Ababa in Ethiopia, will upon completion facilitate quicker and safer goods transport across these countries through railway lines, while also decongesting road usage along Kenya’s highways.
Developed as an intergovernmental agreement among the Kenyan, Ugandan, Rwandan and Ethiopian governments, the first phase, which is expected to cost $4bn, will renovate and extend the existing railway between Mombasa and Nairobi. Financed jointly by the Kenyan government and China’s Export-Import Bank, the new railway has been part of wider efforts by African governments to address infrastructural challenges, which remain one of the largest constraints to doing business in Africa.
Although Africa accounts for 12% of the world’s population according to financial services firm Deloitte, the continent's fragmented infrastructure means it contributes just 1% of global GDP and 2% of world trade. The Infrastructure Consortium of Africa estimates that poor road, rail and harbour infrastructure adds 40% to the costs of goods traded among African countries, while the World Bank reports that the poor state of electricity, water and ICT infrastructure reduces national economic growth across Africa by two percentage points every year.
Nigeria's privatisation drive
While most aspects of infrastructure were traditionally managed by Africa’s governments, a host of governments have begun plugging their infrastructural gaps through privatising selected sectors in order to encourage efficient project management by specialist private sector companies.
Pointing to the Nigerian government’s decision in November last year to extensively restructure its power infrastructure through selling selected power assets to private owners, Andrew Alli, the CEO of the Africa Finance Corporation (AFC), maintains that the electricity sector has become a key focus of activity for private investors in Nigeria. Named the Nigeria Integrated Power Project, the government has selected seven power stations to be sold off to the private sector in order to increase Nigeria’s power generation capacity.
“The restructuring of Nigeria’s power sector is seminal and it will be a real game-changer for the region,” says Mr Alli. “The government is in the process of reforming Nigeria’s entire power sector. This is the most ambitious power sector reform since Argentina reformed its power sector in the 1990s. In Nigeria, a lack of sufficient power capacity means there is a lot of self generation. In other words, the number of people who generate their own electricity using their privately owned generators is approximately equal to Nigeria’s grid power output. So far the reform has been going very well.”
Plugging the gap
Private sector corporations such as the AFC have been a key force in driving the development of Africa’s infrastructure. Having the capital and experience in managing complex infrastructural projects, governments have increasingly looked to local and foreign firms to plug infrastructural gaps in an efficient and commercially viable manner.
“Although several African governments have in the past expressed a willingness to reform their infrastructure sectors, one of the main challenges that they faced was they lacked the experience of developing infrastructural projects to the point where they are bankable,” says Mr Alli. “Project development is an issue and private players such as the AFC have been important in this process as we have solved some of these bottlenecks involved in closing these complex infrastructure projects.”
Indeed, countries that are rich in natural resources have been some of the largest beneficiaries of private sector engagement in infrastructure. While recent oil and gas discoveries hold large developmental potential for countries such as Ghana, Kenya, Tanzania and Uganda, a key issue is that most countries lack the deep pockets to invest in support structures which bring the resources to a point of extraction. Hence private sector financing of extractive industry infrastructure has become another trend in infrastructure development across Africa. Pointing to Ghana’s Jubilee Oil Field, which set the country on track to become an oil producer, Mr Alli says: “We were one of the initial financiers of the Jubilee Oil Field – the whole project cost more than $1bn.”
Yet despite their reluctance to privatise select, nationally strategic sectors, African governments have overcome financing challenges through pooling their resources and financing large projects through regional intergovernmental bodies. To this end, the treaty to construct the new Abidjan-Lagos Corridor in west Africa, which was signed in April 2014 by the Economic Community of West African States (Ecowas), illustrates how governments have worked to foster closer regional trade while also addressing key infrastructural bottlenecks through the close coordination of their efforts.
The corridor, which will be a 1025-kilometre road linking west Africa’s major commercial cities and ports, including Porto-Novo in Benin, Abidjan in Côte d’Ivoire, Accra in Ghana, Lagos in Nigeria and Lome in Togo, is expected to cost $50m, and it will also be key to fostering Ecowas’s key objective of encouraging the free movement of people, goods and capitals across west Africa through a harmonised road developments. This move was modelled on the Southern African Development Community's (SADC's) decision to develop the Southern Africa Power Pool (SAPP), which addressed southern Africa’s electricity deficit through constructing a common power grid between SADC members, including Botswana, Namibia, Mozambique, South Africa and Angola.
“Regional integration is extremely important in Africa, because it is a very fragmented continent of 54 countries, many of which are small and landlocked,” says Mr Alli.
“Thus, the joint development of regional infrastructure projects are extremely important and there’s been some good progress on that. The SAPP in southern Africa has been important in reversing certain country-specific challenges. For example, when you examine the case of Mozambique, it is ironic that the country has two separate power grids that are unconnected. There is a northern grid and a southern grid, both of which are connected in South Africa but not to each other. The SAPP has gone some way in correcting this.”
For all its achievements, regional politics has posed one of the greatest constraints to the completion of such large-scale projects. While a concurrent aspect of infrastructural development through regional bodies such as Ecowas and SADC entails national governments opening their regional markets to free trade and capital as part of the process, coordinating governments’ national agendas when initiating such developments remains a major obstacle as governments are sometimes reluctant to engage in joint projects that could erode their national competitiveness.
Additionally, Mr Alli maintains that while investor interest in infrastructure projects remains high, there is a dearth of bankable projects that offer the requisite long-term returns on invested capital. “One of the problems investors face is that only a small subset of available infrastructure projects have the commercial viability needed for private sector investment,” says Mr Alli.
“Although the need for well-built rural roads exists, and their developmental impact is significant as smallholder farmers can then bring their perishable goods to market in a shorter timeframe, it is hard from a private sector perspective to see how such a road can be completed on a commercially viable basis, as the developer cannot feasibly toll such roads to earn a return over the long term. Yet despite these issues, I am confident that investor interest in potentially bankable projects remains avid. Many of these infrastructure developments are extremely ambitious and they have been progressing really well. Places such as the seaboard of east Africa will be interesting to watch because the infrastructure investments in their energy resources have a huge potential to spin off various projects in other sectors. This will be very interesting for private investors.”