Engineers prepare a turbine foundation at the 310MW Lake Turkana Wind Power project in Laisamis, Marsabit County, northern Kenya. PHOTO | FILE
What you need to know:
In East Africa, governments are on a borrowing spree to finance key infrastructure projects in transport, energy, water and sanitation.
But states can only raise half of it from domestic revenues, loans and PPPs.
Currently, private participation in infrastructure projects in Africa is extremely low, largely due to limited public sector capability, insufficient political will, policy uncertainty and a weak regulatory environment.
Public debt in most sub-Sahara Africa will continue to balloon as governments borrow to finance infrastructure projects unless private sector investments increase, experts have warned.
In East Africa, governments are on a borrowing spree to finance key infrastructure projects in transport, energy, water and sanitation.
But a new report by the World Bank says that only increased participation by private investors in these projects will help countries close the infrastructure financing deficit.
Estimates by the World Bank show that sub-Sahara Africa requires about $100 billion annually to invest in infrastructure projects in order to accelerate economic growth by as much as 2.6 percentage points per year.
But the continent is only able to mobilise half of this financing through borrowing, bilateral agreements, domestic revenues, development financial institutions and public-private partnerships, leaving a massive deficit.
However, governments can close this gap by creating an environment that allows for private investors to pump resources into projects.
Financing complexities
Currently, private participation in infrastructure projects in Africa is extremely low, largely due to limited public sector capability, insufficient political will, policy uncertainty and a weak regulatory environment.
Private investors have also shunned the continent due to financing complexities attributable to narrow financial markets, higher actual and provisional risks, longer project durations, significant cost overruns and currency mismatches.
While countries like Brazil and Turkey have managed to attract $433 billion and $124 billion in private capital respectively, sub-Sahara has only managed to mobilise $77 billion over the past decade.
“Many transformational projects have enormous economic potential. With the right approach and mindset, private investment in African infrastructure can be highly remunerative and can play a significant role in transforming the continent for the better,” states the sub-Sahara Africa report.
The report was jointly prepared by the US-based Boston Consulting Group and the Africa Finance Corporation.
Borrowing spree
The report comes out at a time when governments in East Africa have accelerated their borrowing to finance projects in energy, railways, roads and ports, in the process pushing public debt through the roof.
Tragically, private investment in core power and transport infrastructure has been limited to only $51 billion over the past 25 years.
“Although there has undoubtedly been progress in recent years, private investment in infrastructure in Africa remains weak and underdeveloped,” states the report.
In Kenya, the Lake Turkana Wind Power (LTWP) project represents the face of private investments in infrastructure projects but the problems the investors have encountered have been a deterrent to other investors.
LTWP, the largest-ever private investment in Kenya and largest wind farm project in Africa being implemented at a cost of $690 million and expected to commence generation in June, has encountered numerous challenges including disagreements with the government.
It is worth noting that majority of the private infrastructure investments are in the power sector at 40 per cent followed by water supply, sanitation and transport.
Another private power project in Kenya, the $2 billion coal power plant in Lamu, is hanging in the balance owing to growing opposition from environmentalists and conservationists.
