Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey : New Financing for Africa’s Roads, Rail Without High Debt
March 20, 2014
- Lack of infrastructure a major obstacle to faster growth in Central Africa
- Costly upgrades to transportation, utilities place premium on financing
- Increasing investment without taking on excessive debt a crucial priority
As Central African countries seek new sources of financing for infrastructure, policymakers will have to avoid high indebtedness, a conference in Cameroon was told.
Freight convoy in Bangui, Central African Republic: infrastructure investment critical to regional resurgence (photo: Siegfried Modola/Reuters/Newscom)
CENTRAL AFRICA’S INFRASTRUCTURE
Sub-Saharan Africa’s strong growth over the past decade has highlighted the importance of infrastructure development.
Senior officials, academics, business executives, and civil society figures from Central Africa and representatives of international financial institutions gathered in Yaoundé, Cameroon, on March 10 for a regional conference on “Financing the Future: Infrastructure Development in Central Africa.”
The one-day event examined options for infrastructure financing, including how to leverage existing financing and promote innovative alternatives. The event also emphasized the role of private capital in infrastructure financing.
Delegates heard, however, that a robust private sector response depends on the returns from public infrastructure investment. Infrastructure development should therefore proceed alongside reforms aimed at improving the business and investment climate. Appropriate safeguards, as well as review of the risks faced by governments, are also essential to effective private sector participation.
Public-private partnerships
The conference considered several core issues, including the need to optimize domestic financing, especially from natural resources, and streamline inefficient expenditure to free up fiscal space for investment; national and regional infrastructure projects; and domestic and international financing options, including public-private partnerships.
Central African officials acknowledged that infrastructure is critical to the region’s continued resurgence. They agreed that investing in infrastructure can boost growth, raise productivity, and assist poverty reduction. However, they noted that building and upgrading infrastructure is costly and implies large financing needs during the construction phase and for subsequent maintenance.
For Central African countries, increasing investment without taking on excessive debt will continue to be a crucial policy challenge. Conference participants widely agreed that a good debt management strategy is important as infrastructure investments are scaled up.
Right financing mix
The conference recognized that the right financing mix will depend on multiple factors, including financial development, indebtedness, business environment, and each country’s home-designed development strategy.
The conference also signaled the IMF’s commitment to strengthen its partnership with its African membership at a time of optimism about the region’s economic achievements and prospects.
Opening the conference, IMF African Department Deputy Director Anne-Marie Gulde-Wolf observed that “Better road and rail networks are necessary to increase regional trade and investment; higher levels of power generation will improve the productivity of businesses; better communication services will facilitate cross-border financial transactions; access to clean water and sanitation will improve the general health of the population, thus contributing productively to development.”
Savvy about scaling up
Gulde-Wolf stressed that while the choices of available financing options can open up opportunities for African countries, governments also have to be savvy about how they finance their scaled-up investments.
She added that the Cameroon conference is part of the build-up to a major conference on Africa jointly organized by the government of Mozambique and the IMF in Maputo, Mozambique.
The outcome of the Cameroon conference will be presented at the Mozambique conference, where representatives from sub-Saharan African countries will gather on May 29–30 to discuss “Africa Rising: Building to the Future”. Both Alamine Ousmane Mey, Minister of Finance of Cameroon, and Seth Terkper, Minister of Finance and Economic Planning of Ghana, will be among the panelists in Maputo.
Over the past six months, the IMF has held conferences in Kenya to examine the tasks that country faces as it moves toward emerging-market status, and in Ghana, where senior officials from West African Economic and Monetary Union countries discussed the challenges of regional financial sector integration.