The aim of this paper is to focus on infrastructure and economic growth links in low income countries especially in Africa and identify the challenges for sustainable development finance. The link between infrastructure and growth can act in both directions – in reality this can be seen as moving through thresholds from one level to another.
Though infrastructure challenges are complex in Africa, the concept of national infrastructure systems has important relevance to Africa. In some cases this is already emerging as a priority but at the same time the policy space is dominated by debates about what kind of infrastructure should be prioritised and whether it is a zero sum game requiring a greater focus on social sectors such as education and health more than economic infrastructures.
As the McKinsey (2011) and AfDB (2012) reports noted, Africa is a continent of nations on the move with many resource-rich primary commodity exporting nations experiencing a sustained period of growth episode. In 2012, the second and third places in terms of GDP growth rate by region were taken by Middle East and North Africa (4.3 per cent) and the Sub Saharan Africa (4.24 per cent) compared to the World average of 2.3 per cent or High Income OECD’s average of 1.4 per cent (data from World Development Indicators). Though capital formation is picking up, it still lags behind in Sub Saharan Africa considerably compared to other regions such as East Asia and South Asia. Notwithstanding this macro-picture, several major infrastructure projects are being conceived including large hydro-electric dams in the DRC, High-Tech cities (innovation hubs) such as Konza city in Kenya and Hope City in Ghana; international rail and road projects such as Mombasa-Kigali rail project, and a large scale solar power farm in South Africa. With several billion dollars of outlay each of these projects is of orders of magnitude in size and complexity compared with many previous infrastructure projects on the continent.
However, as Foster et al (2011) and AfDB (2012) note infrastructure deficiencies are now more than ever becoming binding constraints for continuing economic growth. Within Africa, the causal link between growth and infrastructure runs in both directions and infrastructure can be an important link in explaining whether growth translates into prosperity. What is interesting is that there is a clear and significant positive relationship between sustained investment and long term growth – this is evident when we examine the average gross capital formation between 2000 and 2012 and the average of GDP growth rates in 2000 to 2012.