Poor infrastructure may seem to be Africa’s underbelly, but if the U.S. private sector wants to step up its game in Africa, investment needs to go beyond infrastructure. There needs to be a shift in thinking not just out of the box but simply without a box.
It’s time to turn the “but they need better roads, better power networks, better whatever” into “we can provide profitable development solutions for off-grid energy, interurban and rural transport, affordable small-scale irrigation, better logistics and market access, small-scale food processing and packaging” and the many other things Africans need to balance complexity and opportunity.
Africa is living a hyper infrastructure moment
The new mantra regarding development in Africa is that, with its fast-growing population and consumer markets, greater investment is needed to close gaps in infrastructure and power industrialization to generate employment for the 12 million young people who join its labor force every year and meet unfulfilled demand for goods and services. The corollary to the infrastructure gap is that there is a funding deficit for sustainable, productive investments.
A lack of viable infrastructure, we are constantly told, is a clear barrier to the long-term development of African economies. It’s also a big opportunity for investors and entrepreneurs with the imagination to help solve Africa’s infrastructure challenges. But what exactly are we talking about?
In the current debate about how to build sustainable and inclusive development in Africa, it’s welcome news that infrastructure and industrial development are gaining attention and traction. It reflects a consensus among the business and finance community that investment in infrastructure is an effective way to promote profitable economic activity.
The bad news is that the infrastructure hype is sidelining the many other profitable and effective opportunities for investment that can have a more immediate, direct, positive, sustainable impact on the socioeconomic development that Africans need and are asking for.
What comes first, infrastructure or investment?
The Corporate Council on Africa has been promoting U.S. – Africa trade and investment for 20 years. But it was not until the 2014 U.S.-Africa Leaders Summit, hosted by former President Obama, that optimistic interest in Africa’s economic potential and its ability to capitalize on the progress achieved since the 2007 global financial meltdown actually took off in the U.S.
Recent years have seen numerous meetings, round tables, conferences, and summits on the issue of Business and Investment in Africa. The three immediate take-aways are: a fast-growing, young and urbanizing population, the explosive potential of the continent’s increasing digital and mobile access and the need for more infrastructure as well as more cross-border collaboration (without barriers).
Economic acceleration and improving business environment are unlocking transformative growth in industry, unleashing agriculture and resource wealth and fostering an innovation revolution. But
defining Africa’s core needs for foreign business and investment to develop is one thing; to make foreign business and investment happen in benefit of Africans is another.
In its 2018 Economic Outlook report, the African Development Bank estimated that the continent’s infrastructure needs amount to $130–$170 billion a year, with a financing gap in the range of $68–$108 billion. But what comes first, infrastructure or investment?
In a recent article in the UBS Management Review, entitled “Will infrastructure unlock the investment potential of Africa?”, the author, Linda Velenkosini Buthelezi, investigates the relationship between infrastructure development and foreign direct investment (FDI) in Africa between 2003 and 2016. She identifies a new trend, whereby governments are seeking investment in private infrastructure projects from multilateral institutions. FDI apparently is inhibited by unreliable energy provision, high cost of transport and non-functional utilities, such as water and sanitation and ICT.
The article, according to Michael Sudarkasa, CEO of Africa Business Group, a consulting firm that specializes in economic and business development by expanding private sector participation in Africa’s development agenda, suggests that investment in infrastructure is a catalyst for more opportunities to invest on the continent. It all, he argues, comes down to scale: the current population of 1.3 billion is projected to double by 2050 and 4.1 billion by 2100, or 1/3 of the world’s population. Sub-Saharan Africa (47 of Africa’s 54 countries) alone has the lion’s share of the population: 1 billion today, half of whom have no access to electricity and 40% of whom are without access to safe drinking water and sanitation.
Yes, Africa is underpowered, underirrigated, and underconnected at regional, national, rural and urban levels. Yes, access to energy, transport, water and sanitation and telecommunications is essential for economic growth. But Africa also needs non-infrastructure investments, those that don’t result in construction of roads, dams and irrigation perimeters that more often than not confiscate land, displace populations, and threaten ecosystems.
There is a big need for road safety audit systems, improvements in the collection and analysis of data, waste water treatment works and pumping stations, off-grid mini solutions, education and outreach efforts, health and wellness initiatives linked to nutrition and exercise, safe routes for cattle, urban wellbeing and ecology and repurposing existing assets to improve cities and communities, community leisure and play spaces, more affordable better-quality housing, vertical farming and hydroponic solutions for food production, more ambulances, old-fashioned mobile libraries, targeted law enforcement activities, funds for setting up new manufacturing/industrial units or expansion of existing ones, better transport of passengers and goods, more value-added processing of agricultural goods so they don’t rot because they can’t get to market, better data and analytics, more ecofriendly packaging and recycling, better spatial distribution and protection of the biodiversity of the ecosystems damaged by big infrastructure projects….and so many other things that provide business opportunities based on the power of conditional thinking.
Asymmetrical investment focused on infrastructure above all is a risk for both Africa and those who invest in Africa, because the territories that are most in need of development are generally those that are in the direst of circumstances and so the least attractive to investors. Big infrastructure investments - such as highways, dams, big irrigation installations, or traditional power grids - have a tendency to leave marginalized communities out of the loop as projects in remote areas are not viable.
Traditional investment in big infrastructure is also gender blind. How they are designed, built and run disproportionately affects women negatively. Poor urban transport design prevents women from accessing jobs, schools and health care, and it exacerbates the risks to their personal safety. Gender-insensitive infrastructure can hinder women’s access to markets and reconfigure spatial distribution of market stalls in detriment of women. Modern four-lane highways with American-style open ditches and drains kills livestock and people, negatively affecting household assets and income.
Investment needs differ, depending on the eye of the beholder
Ask any African or American politician about infrastructure, and they'll tell you they're all for it. It’s a means to provide economic stimulus and generate public and private income. Ask the average citizen, and they’ll tell you infrastructure investments are poorly prioritized and needlessly costly. Ask businesses, and they’ll say investment in "soft" infrastructure - such as market infrastructure, financial institutions, governmental systems, law enforcement, and education systems - is lacking. Ask investment suppliers, and they’ll say that non-infrastructure bankable projects are missing.
The question is whether multi-million dollar investments lead to infrastructure development, or whether it’s infrastructure development that makes investment in non-infrastructure areas attractive. Which comes first? Neither.
A balance between infrastructure and non-infrastructure investment must be struck. Africa needs some sort of public-private partnership approach, unique to its 1.3 billion inhabitants. Geography, users’ needs, and cultural diversity must be taken into account, in addition to many other factors.
Rule number one when planning investments for Africa is that the continent cannot be viewed as a single entity but several. Each country has its individual and specific characteristics. Private investors should view African markets as emerging ones and with good business opportunities, while showing respect for African history, culture and practices and a collaborative spirit towards Africans.
Contrary to a generalized focus on what Africa is lacking, Africans are hard workers and do not suffer from a shortage of good and innovative ideas, entrepreneurship or entrepreneurial drive. Nor does the continent lack first movers, start-ups, micro-scale companies and SMEs. Neither is investing in Africa as risky as it is made out to be by those for whom investing beyond infrastructure is just not attractive enough because they seek to gain large profits quickly. American businesses need to take a more active, hands-on approach through context-specific business and delivery models that can translate Africa’s long-term growth trends into profitable, sustainable business with a positive impact on the local economy.
It’s time to think without a box
So, yes, Africa needs investment in “hard” infrastructure, such as roads, power grids, telecommunications networks, and dams, and "soft infrastructure, such as institutional frameworks, functioning health care systems, education, and law enforcement. But given the continent’s complexities and diversity, successful investment in Africa needs to go beyond a pure infrastructure geographic footprint.
Business and investment in Africa need to address unmet needs, develop solutions that build resilience, nurture local talent and skills, and nurse entrepreneurship and business cooperation. Collaboration between actors and regions and an inclusive stakeholder approach to investments should be strengthened to identify and exploit comparative advantages and implement an organized approach that pursues common interests while respecting differing ones.
Betting long on Africa requires a simple shift in thinking to open awareness and generate new possibilities. If more companies making traditional infrastructure investments factor in investment in local entrepreneurship, innovation and talent development, Africa could be home to many more successful enterprises that earn healthy returns and make a difference in millions of people’s lives.
Spotlighting infrastructure gaps in light of rapid urbanization and a booming population growth limits the investment focus on what Africans are lacking, instead of expanding the focus on what Africa does have and others don’t. It’s time to rethink business and investment opportunities in Africa based on in-depth, contextualized, on-the-ground knowledge about where the best opportunities lie, not on where U.S. companies think they lie or think are “safer” markets.
If U.S. investors and businesses wait until infrastructure deficits are resolved, they will miss out on all those opportunities that can have the greatest most immediate profitable impact. Thinking needs to expand to focus on how Africa’s assets and competitive advantages can be used more productively and in different ways.