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The African Infrastructure Paradox: High Debt and High Needs

In Africa, there has been a significant lag in infrastructural development over the years, particularly in energy, road, rail transportation, and water infrastructure. In sub-Saharan Africa, over 600 million people lack access to electricity, and those connected to the grid receive less than 12 hours of power daily due to the low power generation. Most communities except the political and elite class depend on generator-based power, which is six times more expensive than grid power in the rest of the world. Additionally, rail development, road infrastructure, and water are also underdeveloped in the region.
 

What are the major causes of the African infrastructural gap?
 

The African continent has been plagued by a significant infrastructural gap, with low levels of development in key sectors such as energy, road, rail transportation, and water. While international investors have shown interest in funding these projects, African governments have struggled to close this gap. One major challenge they face is the rise in debt-to-GDP ratios, which exceed 50 percent in the Sub-Saharan region, up from 31 percent in 2012. This high level of debt can make it difficult for governments to finance infrastructural development, as it leaves little room for borrowing.
 

Another issue is that African countries have a low track record of moving projects to a financial close. In fact, only 20% of infrastructural development plans go beyond the business planning stage, as most governments and developers lack the capabilities and resources needed to assess the technical and financial risks associated with large-scale infrastructure projects. This leads to a delay in obtaining licenses and permits by foreign investors, which further hinders progress. Additionally, limited banking access for commodity buyers and weak country balance sheets can impede megaprojects from obtaining the necessary licenses. As a result, African governments need to collaborate with development banks and multilateral financial institutions to increase the flow of private sector financing into commercially viable infrastructure projects and ensure that sufficient funds are available to finance these developments.
 

How can African governments overcome these challenges?
 

To overcome Africa's infrastructure challenges, governments can take several actions. Firstly, they can collaborate with development banks to facilitate private-sector financing for commercially viable infrastructure projects such as energy, roads, and water. The government can mitigate currency and regulatory risks to attract investors and increase the flow of bankable projects. Strengthening collaboration between national and multilateral financial institutions can also provide the government with essential skills in areas like risk allocation, support, and planning.
 

Another solution is reallocating government financing from more commercially viable asset classes to sectors that provide lower returns. This will ensure that public funding is directed towards less commercially viable projects such as water, sanitation, and transport. For example, Kenya has prioritized the construction of 500,000 affordable housing units in five years. The government invests in critical infrastructure and hands over the management of these regions to private investors. By investing in these crucial infrastructures, governments can work towards solving Africa's infrastructure challenges.

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