Infrastructure is the backbone of a successful economy, but it doesn’t come cheap. To meet African Development Bank (AfDB) targets, Africa needs between US$130 billion and US$170 billion in infrastructure financing annually, the financial institution said in a recent report (pdf). With all these transportation, public works, and energy projects to be rolled out across Africa, Africa’s private and public sectors are increasingly looking to Egyptian companies to design, build, and even manage many of these projects.
Despite abundant ambition, the continent faces a $96 billion funding gap, which the report attributes to a shift in fiscal priorities away from long-term development spending triggered by COVID-19. The AfDB even believes that around 40% of productivity declines in African countries can be “directly attributable to poor infrastructure”, reducing average annual GDP growth by as much as 2 percentage points.
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But the AfDB believes the tide may be turning as African countries prioritize infrastructure “not just as a development tool, but also as a lever of economic competitiveness and a geopolitical tool for resilience and restructuring.” Alongside progress in reducing tariffs among African countries led by the African Continental Free Trade Area, infrastructure is also a very important non-tariff barrier that the continent seeks to address. “Efficient and interconnected infrastructure, such as cross-border energy networks, railways, ports and trade corridors, are essential to open intra-African trade, reduce logistics costs and enable Africa’s structural transformation,” the report said.
Poor infrastructure is a major cause of high prices and correspondingly low levels of intra-African trade. According to the AfDB, a major reason why products from other African countries are under-stocked or prohibitively expensive is that road transport costs account for 29% of the cost of goods traded between African countries.
Currently, only 16 of Africa’s 52 countries source more than 0.5% of their intermediate goods from within Africa. Despite all being on the same continent, imports from outside Africa are often cheaper, and the African Union, AfDB and many other organizations are trying to change this fact.
It’s not just bad roads that make African products more expensive. Poor energy infrastructure is also a problem, with more than half of Africa lacking access to reliable electricity. When energy is unstable or insufficient, manufacturing becomes significantly less attractive, especially to foreign investors. Agriculture is also particularly affected by energy supply shortages, which the central bank says is a major reason why only 10% of Africa’s arable land is cultivated and 6% is irrigated.
Expanding water access and sanitation constitutes a large part of the projected financial needs, with US$56 billion to US$66 billion per year needed for the continent to reach the goal of complete water access in both urban and rural areas.
Both state-owned and private companies are active in this sector on the continent, including major projects such as the $257 billion construction of Algeria’s Hamma desalination plant by Orascom Construction and its Besics arm, a public-private partnership. State-owned Arab Contractors is the most prominent Egyptian company working on water-related projects in Africa, having signed contracts for six wastewater treatment plants in Ivory Coast and completed a drinking water purification station in Equatorial Guinea.
Energy infrastructure needs are expected to be quite expensive, with the bank expected to reach between US$25 billion and US$50 billion annually to achieve full urban electrification and 95% rural penetration.
Once again, domestic private and public sector actors play a key role in both large and small projects. On the big side, there is the US$2.9 billion Julius Nyerere hydropower plant and dam in Tanzania. It was designed and built in a joint venture between Arab contractors and private sector company Elsewedy Electric, with the help of 1,000 Egyptian workers. Elsewedy Electric has a presence in Algeria, Ethiopia, Nigeria, Zambia, Morocco, Burkina Faso, Uganda, Kenya, Libya, Ivory Coast and Madagascar, with a variety of power and transmission projects. Besix, a subsidiary of Orascom Construction, will launch a hydropower project on the Sanaga River in Cameroon in 2023, which will meet about 30% of the country’s energy needs.
Other African countries are specifically looking to Egypt for support for solar power projects, with more than US$5 billion of projects potentially in the pipeline for Egyptian companies on the continent over the next five years, sources previously told EnterpriseAM.
Planes, trains, vehicles, and everything else needed to move goods and people are expensive, at a low estimate of US$35 billion and a high estimate of US$47 billion.
Again, Arab Contractors has a large presence in logistics infrastructure, with several projects by state-owned companies spread across the continent. The company has a number of completed and ongoing road projects in several African countries, including a 1.7,000 km road linking Egypt, Libya and Chad.
Egypt is also establishing a logistics zone in Rwanda with the aim of facilitating Egyptian companies’ access to the Rwandan market. A logistics corridor connecting Tanzania and Rwanda will serve this market, with the aim of facilitating the flow of Egyptian exports to Africa. Egypt and Sudan also signed a deal last month to establish a logistics zone at a border crossing between the two countries, and there have been talks of a similar project with Libya. Local actors are also working on several port development projects, including a €60 million Comoros port project with an Arab contractor.
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