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Vivien Foster & Cecilia Briceño-Garmendia, World Bank Africa Infrastructure Country Diagnostic: a multi-stakeholder effort Key Message #1 Infrastructure critical to growth, but Africa hampered by limited stocks and high costs Infrastructure critical to Africa’s past and future growth performance n Of the increase in SSA’s per capita growth rates between 1990s vs. 2000s – Infrastructure contributed 99 basis points – Structural policies contributed 68 basis points n Infrastructure effect – Comes almost entirely from the ICT revolution – Inadequate power supply is dragging growth n Raising all countries to level of the best in Africa could add 2.2 percentage points to per capita growth Africa’s infrastructure services several times more expensive than elsewhere Sub-Saharan Africa Other developing regions Power tariffs ($/kWh) 0.02-0.46 0.05-0.10 Water tariffs ($/kWh) 0.86-6.56 0.03-0.60 Road freight tariffs ($/ton-km) 0.04-0.14 0.01-0.04 Mobile telephony ($/mo.) 2.6-21.0 9.9 International telephony ($/min.) 0.44-12.5 2.0 Internet dial-up service ($/mo.) 6.7-148.0 11.0 Africa’s Infrastructure lags other developing countries Normalized units* Paved road density SubSaharan Africa LICs Other lowincome countries SubSaharan Africa MICs Other middle income countries 31 134 94 141 137 211 215 343 Mainline density 10 78 106 131 Mobile density 55 76 201 298 Internet density 2 3 5 8 Generation capacity 37 326 256 434 Electricity coverage 16 41 35 80 Improved water 60 72 75 86 Improved sanitation 34 51 48 74 Total road density Key Message #2 Africa’s Infrastructure gap widening relative to other developing countries Africa expanded its infrastructure stocks slowly and a gap opened between Africa and Asia Paved Road Density Road Density Power Generation Power Coverage Fixed Line Density Water Coverage Key Message #3 Spending needs are US$93 billion a year – double Commission for Africa estimates Some sensible targets for catching-up Economic target ICT Irrigation Complete network of submarine cables, and fiber optic backbone linking capitals Develop all financially viable opportunities for large and small scale irrigation Social target Extend GSM voice signal and public access broadband to 100% of the rural population Na. Power Attain demand-supply balance in power production within a regional framework Raise household electrification rate by one percentage point annually Transport Attain good quality road networks supporting regional and national connectivity goals Provide 100% rural road access on high value agricultural land Place entire urban population within 500 meters of a road supporting motorized access Na. Meet the Millenium Development Goals for water and sanitation WSS Overall price tag of US$93bn: two thirds for investment one third for maintenance US$bn. pa over 10 years Capital expenditure Operating expenditure Total ICT 7.0 2.0 9.0 Irrigation 2.9 0.6 3.4 26.7 14.1 40.8 8.8 9.4 18.2 WSS 14.9 7.0 21.9 Total 60.4 33.0 93.3 Power Transport Source: AICD 2009 About 40 percent of spending needs are for power reflecting continental power crisis Main cause or trigger of power crisis in the country Droughts Oil price shock Conflict High Growth Source: AICD 2009 Infrastructure needs as percentage of GDP particularly onerous for fragile states Key Message #4 Existing spending at US$45 billion a year much higher than previously thought Existing spending of US$45bn, three quarters domestically financed Annualized Overall Spending Flows traced to needs Capital expenditures US$bn pa Public Sector O&M Total Grand Total Public Sector ODA Middle income 10.3 3.1 0.2 0.0 2.3 5.7 16.0 Resource rich 2.5 3.9 0.6 1.7 3.8 10.0 12.5 Low income no fragile 4.4 1.7 2.6 0.6 2.1 7.0 11.4 Low income fragile 0.7 0.3 0.4 0.3 0.5 1.4 2.2 20.4 9.4 3.6 2.5 9.4 24.9 45.3 Non-OECD Private financiers sector Total SSA Source: AICD 2009 Level and pattern of infrastructure spending differs hugely across country groupings Source: AICD 2009 Key Message #5 There is an efficiency gap worth US$17 billion a year What do we mean by an efficiency gap? n Public sector budget execution ratios only 65% n Widespread inefficiency of operations n n n n Utilities recover only 70-90% of billings Utilities lose 20-35% of production in distribution Utilities over-manned by 50% or more About one third of infrastructure assets are in need of rehabilitation due to lack of preventive maintenance n User charges fail to fully recover costs n Utilities recover only 60-70% of costs n Fuel levies often set too low to fund road maintenance n Public funds are not always well allocated n Apparent “over-spending” in some areas The cost of these inefficiencies adds up to US$17bn a year that is being lost today Energy ICT Irrigation Transport WSS Total Raising capital budget execution 0.2 0.0 0.1 1.3 0.2 1.9 Eliminating operational inefficiencies 3.4 1.2 0.0 2.4 1.0 8.0 Improving cost recovery via tariffs 2.3 0.0 0.0 0.1 1.8 4.2 Reallocating funds across sectors - - - - - 3.3 Total efficiency gap 6.0 1.3 0.1 3.8 2.9 17.4 US$bn pa Key Message #6 Strong institutions are the key to tackle inefficiencies About 3-4% of GDP is public investment primarily executed by central government Source: Preliminary results AICD 2008 Around a third of budgeted capital allocation for infrastructure goes unspent n Potential gain of US$3.3 bn pa from raising capital budget execution ratios Madagascar Ethiopia Cameroon Uganda Malawi n Key problems are poor planning, project selection, tardy project preparation, inefficient procurement, annual budgeting Average Kenya Niger Chad Ghana Benin 0 20 40 60 80 Share on Budget Estimates Source: Preliminary results AICD 2008 100 Source: Preliminary results AICD 2008 Rural Roads Railways Rural average Rural Water Urban Water Irrigation Average Main Roads Non-rural average Generation Average rehabilitation index Large rehabilitation needs are testimony to problem of under-maintenance 50% 40% 30% 20% 10% 0% Countries with road funds and high fuel levies do better at funding road maintenance Percentage of road maintenance requirements met Macro Geography Institutions Financing Source: Preliminary results AICD 2008 Good institutional frameworks pay-off in terms of lower levels of inefficiency Water Utilities Source: AICD 2009 Good institutional frameworks pay-off in terms of lower levels of inefficiency Power Utilities Source: AICD 2009 But there is still a long way to go on institutional reform 1 1 0.9 0.9 Reforms RegulationGovernance 0.8 0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0 0 TELECOM ELECTRICITY WATER Reforms PORTS Regulation RAILWAYS Key Message #7 Cost recovery is challenged by users’ affordability Under-pricing represents 0.3% of GDP on average for power and for water Power Water Source: Preliminary results AICD 2008 Percentage of households Around 90% of those with access to piped water or electricity belong to richest 60% 100% 80% 60% 40% 20% 0% Q1 Q2 Q3 Q4 Piped Water Total monthly household budget (2002 US$) Q5 Electricity National Rural Urban Q1 Q2 Q3 Q4 Q5 177 130 241 59 97 128 169 340 Source: Preliminary results AICD 2008 Key Message #8 After taking care of inefficiencies, a funding gap of US$31 billion a year remains Overall funding gap of US$31bn per year concentrated largely in power Irrigation Transport WSS ICT 10.7 (0.9) 0.1 (0.3) 0.0 (4.1) 5.5 4.5 0.5 1.8 (1.4) 3.7 (0.8) 8.2 4.7 (0.2) 0.7 (0.5) 5.2 (0.4) 9.5 2.7 0.7 0.0 2.0 3.9 0.0 9.4 23.2 (1.3) 2.4 (1.9) 11.4 (3.3) 30.6 US$bn pa MIC Resource-Rich LIC-NonFragile LIC-Fragile Africa Reallocation Total potential Energy Fragile states face largest gaps relative to GDP, particularly in transport and energy Key Message #9 Role of external financiers is very relevant but is not the silver bullet External Finance for African Infrastructure Grows from $5b to $20b Source: Building Bridges, 2008 Non-OECD funding peaks at $8billion in 2006 9 8 Arab Financiers US$ billions 7 6 5 Indian Financiers 4 3 2 Chinese financiers 1 0 2001 2002 2003 Source: Building Bridges, 2008 2004 2005 2006 2007 Chinese funding specializes sectorally and geographically Sectoral breakdown Source: Building Bridges, 2008 Geographical breakdown Evident patterns of concentration according to source of investment finance Source: AICD 2009 Wide variation in cost of capital from different external financiers Cost of Capital relative to the Marginal Cost of Public Funds 1.2 Public 1.1 Private 0.9 India 0.9 China 0.6 Arabs 0.5 ODA 0.3 IDA Grants 0.0 0.0 0.2 0.4 0.6 0.8 Source: AICD 2009 1.0 1.2 Key Message #10 For some countries, the only way to close the circle is by rethinking the targets Taking more time n For some countries and sectors the 10 year time horizon may not be realistic n If inefficiencies could be fully captured, targets could be met with existing spending levels within n 13 years for middle income countries n 20 years for resource rich and low income nonfragile states n 30 years for low income fragile states n Without capturing efficiency gains, it would not be possible to reach targets with existing spending levels even after 30 years in all cases Adopting lower cost technologies n Policy-makers face a tough trade-off between giving a high level of service to a few or a lower level to the many n In some sectors, significant cost savings can be achieved from adopting lower cost technologies n Water and sanitation – the cost of reaching the MDGs can be reduced by 30% by providing stand posts and improved latrines as opposed to piped water connections and septic tanks n Roads – the costs of reaching adequate regional and national connectivity can be reduced by 30% if single surface treatment roads are provided in place of asphalt roads Final Message Both increased funding and improved efficiency are needed to redress Africa’s infrastructure deficit