Secretary-General

Addressing policy impediments to private investment in African infrastructure

 

Remarks by Angel Gurría, OECD Secretary-General, OECD-AfDB Seminar

15 July 2014 – OECD, Paris

 

Donald [Kaberuka], Kandeh [Yumkella], dear colleagues, distinguished participants,

 

It is a great pleasure to welcome you to the OECD, and to be here with you to discuss the challenge of financing infrastructure in Africa.

Allow me to set the scene by saying a few words about the scale of the ultimate challenge we are facing. Globally, we have succeeded in halving extreme poverty since 1990, meeting the first Millennium Development Goal ahead of its target date of 2015. But Sub-Saharan Africa is lagging behind: almost half of its population still lived on less than USD 1.25 a day in 2010.

We have seen improvements in health outcomes and school enrolment – including in Sub-Saharan Africa, but performance in the region continues to fall short of other regions. And in 2012, one in three people in Sub-Saharan Africa didn’t have access to safe drinking water. These are only a few of the figures that I took away from the MDG report released just last week by the United Nations.



Africa is on the up, but the challenges ahead are significant


In May this year, we released – in partnership with the African Development Bank and UNDP – our latest African Economic Outlook. Thank you, Donald, for such strong collaboration on the Outlook, which is now in its 13th edition.

This year’s Outlook focuses on Global Value Chains and Africa’s industrialisation. It tells a promising story for Africa: thanks to changes in global production and trade, African countries can now integrate into a value chain without having all the other steps of the chain in place. And while Africa has experienced impressive growth in the last decade, participation in global value chains also has the potential to boost employment and structural transformation.

The Outlook flags a range of important considerations: the need for good social and environmental frameworks, and appropriate trade and tax policies, for example. One of those considerations is infrastructure – the very focus of our meeting today.



Poor infrastructure: a binding constraint to Africa’s development


Your home country, Donald [Kaberuka], illustrates the scale of the infrastructure challenge for African exporters: according to this year’s African Economic Outlook, the transport costs faced by Rwanda are estimated at 40% of the value of its imports and exports.


And Kandeh [Yumkella] will, as a former Minister of Trade of Sierra Leone, confirm how challenging it is to move up the value chain and add value to the products you grow or extract if you don’t have adequate infrastructure. In Sierra Leone, only one in every eight people has access to electricity, and only 9% of trunk roads are paved. (Kandeh: these figures come from the ADB, so you know who to call if I’m mistaken!)

These countries are not alone. There are many other examples:


• The density of Africa’s network of paved roads is one-third the level of that of South Asia.

• Annual GDP growth in Nigeria could be boosted from the current 7-8% to over 10% if it had adequate power supplies.

• And while Africa has one-sixth of the world’s population, it accounts for only 3% of the world’s electricity generation.


The impact is clear: poor quality infrastructure is a binding constraint to economic development, and in turn to well-being. Without better infrastructure, African countries – 16 of which are landlocked – risk being pushed towards the peripheries of global economic activity.


The importance of unlocking private finance for African infrastructure


We have the diagnosis. Now we need to find the solutions! And this means moving beyond a discussion on generalities. Let’s start to get specific about the bottlenecks to attracting financing for infrastructure, and see what we can do about them.


We know that 90 per cent of the investment in African infrastructure still comes from public resources – both African governments, and international official flows. Private investment remains low for various reasons. For example, only a third of African countries have stock markets, and many of them don’t have sufficient liquidity for large investors – both local and international. Some do so few deals that they don’t open on every business day.



The OECD: partnering with Africa to overcome hurdles to infrastructure financing


There’s no such thing as a free lunch! So allow me to say a few words about how the OECD is working with many of you to try and resolve some of the challenges I have just described.


First, we have the Policy Framework on Investment and have been using it to help countries undertake investment policy reviews. We have carried out targeted reviews in seven countries so far. In Tanzania, for example, the recommendations from this work have provided impetus for revising the country’s PPP Act and Regulations. And we are now working with SADC to help its members elaborate a regional investment policy framework.


Second, we are working with the SADC 3P Network – which is represented here today – to help strengthen public sector capacity to mobilise investment for infrastructure projects. There is high demand for support here: we concluded a week-long training programme in Zambia, and are now preparing a workshop with the Tunisian government.


And third, we are – along with the G20 – looking at how institutional investors could play a greater role in financing infrastructure. We know that right now, less than 1 per cent of the assets of insurers, pension funds and sovereign wealth funds are invested in infrastructure – and most of this is outside Africa.


I should also add that we are doing all of this – and more – with an increasing emphasis on “going green”. This is a moment of opportunity for Africa: it cannot afford to lock itself into an unsustainable development path. I hope our work on Investment in Clean Energy Infrastructure is helpful in this regard.


Ladies and gentlemen,


Before concluding, allow me to thank Paul Collier for taking the initiative to convene this group of leading thinkers and practitioners. This gathering is unique, and I hope you will use it to dig into the detail; to identify some areas where policy changes can help scale up investment in infrastructure; and in turn to help implement them. The OECD stands ready to play its part – in close collaboration with the African Development Bank and others.


As I mentioned at the outset: the stakes are high. But I can think of no better experts than those gathered here today to find the solutions. I look forward to this afternoon’s deliberations.


Thank you.

 

 

 

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