Opinion: Can Global Capital Markets Help Fund Africa’s Infrastructure Gap?

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Written by Kevin Mwanza

According to the African Development Bank, Africa is faced with a huge infrastructure development problem with almost $100 billion needed annually for the next five years to fill the gap.

It is estimated that only 34 percent of people living on the continent can access roads, compared to over 50 percent in other developing regions like Asia and Latin America.

The proportion gets even lower when it comes to land under irrigation and national electrification.

Matthew Kofi Ocran, an economics professor at University of the Western Cape in South Africa says that even with China’s increased support  in developing key infrastructure in countries like Kenya, Ethiopia, Zambia and Zimbabwe the gap is far from being filled.

Ocran suggests that African governments should turn their focus to it capital markets to help it bridge this divide.

“Sourcing funds for huge infrastructure development in Africa has always been fraught with difficulties,” he said in an opinion piece published by Times Live.

“One major challenge is that the multilateral development finance institutions, which are dominated by the rich western countries, often impose stringent policy conditions to loans.”

While international financial institutions like the world Bank, Africa Development Banks and the recent BRICS Development Bank have over the years injected capital in some infrastructure projects, Ocran says “funding required to close the infrastructure gaps is simply not available on the balance sheets”.

“The needs of Africa are also too many, including social needs in health, education and governance, for such institutions to ignore in favor of physical infrastructure projects.

The truth is that the old approach of countries relying heavily on multilateral and regional development finance institutions to fund infrastructure is unworkable. It is also incapable of closing the huge financing gap,” he said.

“In fact, neither the old nor the new institutions have the risk appetite for the kind of investments needed.”

To solve this Ocran suggests that more African countries need to get sovereign rating and tap the international bond markets for infrastructure funding. According to him, global markets provide a viable source of long term capital

“Local debt markets are shallow or non-existent,” he added.

already 12 sub-Saharan Africa countries have got their ratings, with most of them going for sovereign bonds.

” Countries have to be encouraged to go to international capital markets to raise funds for projects. And these funds should not be used to finance consumption but should be channeled directly into the financing of much-needed economic infrastructure.”