Infrastructure is key for economic growth, impacting productivity and integration in global markets. These are both crucial to industrial advancement and connectivity in Africa.
This article by The African Catalyst reviews some institutional reports and publications on industrializing Africa and the transformative potential of infrastructure in achieving this.
Infrastructure in Industralising Africa
According to the UN, Infrastructure has been responsible for more than half of Africa’s recent improved growth performance and has the potential to contribute even more in the future. Africa’s infrastructure networks increasingly lag behind those of other developing countries and are characterized by missing regional links and stagnant household access.
Good infrastructure contributes to economic growth by reducing costs and facilitating more efficient use of productive inputs. As such, rarely embark on economic development without first improving their infrastructure as it is also crucial to expanding market opportunities.
Also, research has shown that most African countries have substantial gaps in infrastructural endowments. A recent report claims that almost two thirds of the global population without access to electricity is in Africa.
Accordingly, the African Development Bank (AfDB) estimates that US$ 130-170 billion are needed annually to bridge infrastructure deficits in transport, water, and electricity. A large share of Africa’s infrastructure is domestically financed, with the central government budget being the main driver of infrastructure investment. This can however not be enough to meet the infrastructure financial need.
Nevertheless, IGC asserts that the demand for infrastructure is no longer to the availability of traditional “hardware”, such as transport, electricity, and other utilities, but also to the provision of both new “hardware” and “software” to access the digital economy through a reduction in the costs of internet provision.
The Transformative Role of Infrastructure
How can infrastructure support private sector development in Africa? Which types of infrastructure matter the most? What does the evidence say?
According to IGC, most existing evidence is focused on how transport infrastructure fosters economic development. For instance, improvements in road endowment have been found to be crucial for large countries like India. Major investments in both local (rural) roads and highways contributed to the shift of agricultural workers towards modern activities, and—more broadly—to welfare gains because of improved resources allocation across firms.
A similar pattern can be also found in Africa, where improvements in existing road networks across the continent were found to support the growth of African cities. Country-specific studies further illustrate the types of transformation brought in by transportation improvements. In , improved market access generated by the RSDP shaped the structural transformation process. Better connected areas within the country experienced a shift of workers from agriculture to the services sector, indicating that transport infrastructure alone is not sufficient in promoting the diffusion of industrialisation at scale.
It can, however, do so through an infrastructure bundle that includes electrification. The latter is in fact key to the productivity of modern industries, especially within manufacturing.
The transformative role of infrastructure is not necessarily confined to improving transport and providing electricity. More recent evidence is emphasising the potential impact of . Locations in Africa that were first connected to submarine cables experienced increases in employment – especially in high-skilled sectors – showing evidence of private sector development, including in industries with more intensive ICT use. Consistent evidence from areas with higher mobile internet (broadband) connection shows that it contributes to attracting quality foreign direct investments, while promoting skilled work and structural transformation, as shown in the cases of Tanzania and Rwanda.
How does Infrastructure Affect Private Sector Development?
Firms improve their performance and tend to enter more and to grow larger if they are located in areas that are better served by different types of infrastructure.
Improving infrastructure has potential effects on the productivity of firms as better transport allows local firms to access more and better-quality inputs. Recent research in Ethiopia showed that improving roads facilitates gains for firms from better access to intermediate inputs that come with trade liberalisation.
Only firms in locations with better access to the transport network are found to register efficiency gains due to the introduction of (new and better quality) imported inputs. Similarly, for firms in African countries located in areas where fast internet arrived first, an increase in productivity is found to be related to improvements in the composition of the workforce, thanks to higher training.
Infrastructures can also affect private sector development by pushing consumers’ demand. Lowering transport costs allow firms to explore new markets both within the country and overseas.
Similarly, improving connectivity to the internet (through cables or mobile internet) allows firms to gain new consumers, including through exports and access to e-commerce, this may also benefit consumers.
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