Africa Finance Corporation (AFC), one of Africa’s leading infrastructure solution providers has secured a tier-2 capital loan worth $250 million from the United States International Development Finance Corporation that will be used to further provide financing solutions for bridging Africa’s infrastructure deficit.
With the funding coming at a time when cross country trade on the African continent officially kicked off Jan.1, experts are of the opinion that the loan facility will be used to enhance necessary infrastructure which will ensure a seamless and stress-free trading activity among African countries.
The African Development Bank estimates that Africa’s infrastructure needs are between $130 and $170 billion annually, however, financing for African infrastructure currently falls short by between $68 billion and $108 billion per year.
Read also: AFC secures $250 million loan to bridge Africa’s infrastructure deficit
Most of Africa lags the rest of the world in coverage of key infrastructure classes, including energy, road and rail transportation, and water infrastructure. Taking electricity as an example, entire communities across large swathes of Africa lack any connection to the grid.
For households and businesses alike, work-arounds are expensive—in 2015, Mckinsey found that that by some measures, generator-based power in sub-Saharan Africa costs three to six times what grid consumers pay across the world.
Even those who do have electricity generally use very little of it: in Mali, for example, the average person uses less electricity in a year overall than a Londoner uses just to power their tea kettle.
Closing the infrastructure gap matters greatly for the continent’s economic development, for the quality of life of its people, and for the growth of its business sector.
Infrastructure investment in Africa has been increasing steadily over the past 15 years, and international investors have both the appetite and the funds to spend much more across the continent. The challenge, however, is that Africa’s track record in moving projects to financial close is poor: 80 percent of infrastructure projects fail at the feasibility and business-plan stage.
This is Africa’s infrastructure paradox—there is need and availability of funding, together with a large pipeline of potential projects, but not enough money is being spent.
It therefore behoves on Africa to deal with this obstacle in order to reap the full benefits of the Africa Continental Free Trade Agreement (AfCFTA).
Jide Babatope, a Lagos-based economic analyst told BusinessDay that the $250mn loan secured by AFC is timely as the lack of proper infrastructure especially road accessibility has damped the prospects of the Agreement.
“The $250 million loan is meant to support investment in modern infrastructure that is essential to growth and better trade relations.
One of the challenges for AfCFTA is the lack of sophisticated road infrastructure from road to rail to maritime which has fostered a form of scepticism regarding the success of the trade agreement.
“But with the funding and expectations that it will deployed to essential infrastructure improvement in the continent, there is hope for a better AFCFTA implementation and also improved trade relations among African countries since infrastructure is an integral aspect of cross-border trade,” Babatope said.
