Infrastructure Development and the African Future

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GUEST COLUMNIST by Sam Amadi

Three issues will define Africa’s future in the 2020s. The first is political stability. African countries, especially those in the Sahel and Sub-Sahara, must reestablish state capacity and legitimacy amid the chaos of 21st Century jihadist attacks and communal conflicts. These countries are terribly weak and incoherent. Strength and coherence are required for effective modern state. The market with weak state capacity will not deliver prosperity and order to Africa. Strong and legitimate states effectively creating and managing markets is what Africa needs.

The second challenge Africa must address is political justice. The legacy of the Berlin Conference is unraveling. Everywhere in Africa, suppressed or oppressed ethnic groups and communities are resurrecting grievances and playing the politics of difference. Africa’s multiethnic and multireligious states are wobbling under the gale of identity politics and struggle for access to resources. The weakness of the political bargains that ushered the post-colonial state in Africa is showing too glaring.

And the problem is that there is no presence of mind and even epistemic resources to deal with the crisis of the political state in the context of the overwhelming predicament of the economic state in Africa. The politic of identity is blowing harshly across Africa. State fragility amid extreme poverty is a difficult proposition to deal with. Africa social scientists and jurists must innovate new structures of social justice to deal with the challenge.

The third challenge for Africa in the next decade will be how to trigger and sustain transformative economic growth. Sustained and inclusive economic growth in Africa will enhance the capacity to solve the two other challenges. Africa is the only other continent, besides the Middle East, that has not recorded real sustained economic growth. Africa’s development deficit is caused largely by lack of good infrastructure. Electricity supply in African countries (except for South Africa and one or two other countries) is totally comatose.

For example, Nigeria, the largest economy in Africa has average available capacity of about 6,000 megawatts of grid electricity. It distributes to homes and businesses on the average less than 4,000mws daily. Apart from the North Africa, the rest of Africa has an average of 50% access to electricity. Of course, South Africa is an outlier in these indicators. Acute power shortage undermines industrial development and makes African enterprises uncompetitive. Transportation infrastructure is similarly very bad.

Bad road and rail networks have weakened market transactions in urban and rural areas, hindered intra-African trade and undermined the growth of African economies. The lack of growth in physical and social infrastructure is both the main cause and outcome of economic underdevelopment in Africa. It has resulted in shared poverty, communal violence and political instability in African countries, more lamentable in a country like Nigeria that has tremendous potential for development and transformation.

The African continent is not poor, but poorly governed. One indicator of poor governance is the failure to build and sustain critical infrastructure. The good news is that African leaders have realized this failure and are making serious efforts to build the missing critical infrastructure. The major policy thrust of the Nigerian government’s economic policy is infrastructural development. It budgets to spend about three trillion naira on infrastructure. The Nigerian budget as an example contains many road and power projects that the government hopes will re-inflate the economy and create more wealth and jobs.

Liberalisation has become a major feature of the emerging economic landscape in Nigeria as well as in other African countries. Since 1999, with the return to civilian democratic government, the Nigerian government has focused on liberalising the economy and allowing the private sector to play more role in provision of economic goods and services. This policy has culminated in the privatization of major state-owned enterprises.

The most recent and ambitious is the divestment of government shares in electricity generation and distribution companies in 2013. This process transferred 17 electricity companies to private enterprises and brought the government owned transmission company into private sector management. The power sector privatization rode at the back of privatization of government owned tourism and telecommunication companies. The privatisation of the refineries is touted as next on the card. Interestingly, Africa’s largest grid, South Africa and Egypt and Morocco are still publicly owned.

Many African governments have decided on liberalisation and commercialisation as the model of economic growth. Liberalisation and commercialisation came at the behest of neoliberalism that swept Africa and other developing economies as a result of balance of trade deficit and debt overhang. Although the assumptions of neoliberalism are being questioned in the mainstream Washington institutions that promoted the ideology and the ideology is now in retreat in the advanced economies, Many African countries are inevitably on the neo-liberal agenda and will continue to rely on private funds to finance infrastructure. This will be the case because these countries are witnessing dramatic fall in commodity prices and huge infrastructure deficit is overwhelming dwindling public finance.

A fundamental challenge of establishing and managing infrastructure in Africa would be how to raise the required finance for massive infrastructural development. African governments will resort to the private sector to finance new infrastructure and manage old ones under different forms of private public partnership. The African private sector is underdeveloped. This means that there will be increasing resort to foreign direct and portfolio investments. These come with anxieties about costs, pricing and policy and political stability.

How can the continent attract enough private capital to finance infrastructural leap-forward required to restart economic prosperity in Africa? Private enterprises will be reluctant to finance infrastructure projects unless there is a regulatory regime that inspires confidence and assures predictable returns on investment. Furthermore, private investment in infrastructure would mean cost-recovery pricing of infrastructural services, which in some sense are public goods. This has socio-political difficulties that require a matured and effective regulatory framework. So, the most pressing challenge for these government would be to develop capacity for effective infrastructure regulation.

The regulatory challenge for infrastructural development is threefold. First, we must get the economics right. Economics is not everything. But economics matters. The regulatory framework should give assurance of cost recovery and reasonable profit in social context that maximises access to quality services. It is easy to talk of a pricing framework that recovers costs in a fair and sustainable manner. But it is difficult to establish and manage such a framework. The risks profiles are high in the continent and no amount of contract will be complete in the sense of anticipating contingencies and covering them. Incomplete contracting means that certainty and fairness in regulatory governance will be key.

Pricing will be a major concern. Obviously, Infrastructure markets will need a guarantee of cost-reflective pricing. But market fundamentalism gets it wrong. Proper pricing is not only a science; it’s a science as well as an art. It should skillfully adapt universal principles of infrastructural pricing to unique local contexts. The emphasis is more on ‘unique’ rather than ‘local’,

A sustainable public policy framework for infrastructure development must be built within an accountable and inclusive politics for sustainability. This will be difficulty when the macro politics in African countries are patently illiberal and unaccountable. Public participation and support are critical to a sustained delivery of infrastructure reform policy. Building such public support will determine success. This is one area World Bank type reformers will need a better script in implementing reform. Good politics will determine failure or success. And good politics, as the late political economist, Claude Ake, counselled should not approximate the coordinates of a free market, but rather rooted in community engagement and accountability.

Technology is a driver of infrastructure innovation. A desirable regulatory framework will continuously adapt to technological changes and incentivise both investment and deployment of new and smarter technologies. It has been generally believed in the past based on the Austrian School of economic orthodoxy, arising largely from the writings of Frederick Hayek and Joseph Schumpeter, that public enterprises should be privatized because they are not inclined to innovation associated with entrepreneurial leadership. But modern insight in corporate governance has debunked this claim. Mariana Mazzucato has argued persuasively in her book: The Entrepreneurial State: Debunking Public Vs. Private Sector Myths (2015) that the state has the capacity to shape innovative activities of the private sector. So, even with a large private sector, African governments can leverage on ICT and technology diffusion in the continent to stimulate innovation for infrastructure development.

But getting the economic-politics-technology regulatory matrix right requires deep contextual thinking embedded in multidisciplinary scholarship. The political economy of infrastructure regulation in Nigeria and other African countries is different from Europe and America because those countries are concerned mostly with efficiency while African countries are more concerned with capacity increase. The economics of infrastructure regulation must not just improve efficiency but should quickly lead to capacity expansion.

We must get our socio-economic theories right to succeed in growing capacity within the right efficiency framework. We cannot stick to the neoliberal insights about government failures otherwise we run the danger of privatising and liberalizing without expanding infrastructure network. Market efficiency narrowly defined will not serve Africa’s broader strategic interests.

African consumers are poor. Access to infrastructure services take a huge chunk of their income. The cost of infrastructure service is high because of institutionalised efficiency. Private operators will ask for cost-recovery prices. The implication is high tariff.

We have seen this double whammy in electricity prices after privatisation in Nigeria. With unstable supply and high costs, consumer complaint and civil society restiveness will grow. This will unsettle regulatory stability and politicise decision-making. Infrastructure development in Africa will be hindered unless the economics-politics-technology regulatory matrix can guarantee civic consensus in the long-term and assure quick wins for all the stakeholders, particularly, the consumers. The regulatory policy for infrastructure must address the challenge of sustainable supply within the context of accessibility and acceptability. This means that effective policy communication and political engagement are critical to a sustainable infrastructure management strategy in Africa.

Technology, especially digital technology, is changing industrial production and the business model for delivery of public and private goods. Digital technology will help diffuse best practices and narrow the infrastructure divide. Smart apps and software will change grid functionality and remodel the entire business landscape of infrastructure. Clean energy, interconnectivity and efficient transportation networks will depend on whether we can easily plug and play with the rest of the world. Smart policies will enable the design, development, deployment and management of new technologies for clean energies and efficient transportation. But technological innovation needs good policy backup. As usual, Africa is seduced by the ‘smartness’ of the so-called ‘digital revolution’ and has embraced clean energy start-ups as evidence of energy security. But it has not built the technology policy backbone for infrastructure development. Such policy backbone requires a meshing of academia and the public sector in the pursuit of best policy.

Nigeria and South Africa are the leading economies in Sub-Saharan Africa. South Africa is ahead in terms of physical infrastructure. But it still struggles because of a lack of dynamic eco-system for infrastructure innovation. Apart from a few African countries, the rest of continent is left behind and ravaged by economic stagnation and social atrophy. Violent conflicts destroy leftovers of rudimentary infrastructure and further deplete social and leadership capitals that should be directed towards infrastructural development. The conflict trap leads to the poverty trap which further reinforces underdevelopment.

Good infrastructure- social and physical- will play a critical role in the rebuilding of African society in the decade of the 2020s. Financing and sustaining infrastructure development will be major challenges for African economies. African economies will continue to resort to private (especially foreign) investible capital.

The problem is that funds will not be available in the proportion and tenor needed. African economies cannot raise the required financing for infrastructure through taxation and other internal mobilization because of the obvious absence of capacity. The challenge is not helped by lack of capacity in economic policymaking, political leadership and technological innovation.

These endogenous factors are compounded by the threat of jihadist war and violent communal conflicts that weaken the legitimacy and effectiveness of African countries. Overcoming these challenges will require at the minimum production of socially relevant knowledge for effective policymaking. The collapse of African universities and the ‘illiteracy’ of political leadership in Africa damage the prospects of intelligent policy management.

The major focus as Africans enter the 2020s will be the development of epistemic institutions that can synergize knowledge production, policymaking and project delivery at a scale that can transform African economies and reverse the curse of pervasive state failure. That should be the major challenge of the next decade.

Dr. Amadi, former Chairman of NERC, coordinates Programme on Infrastructure Regulation in Africa (PIRA) in Abujae