The African Continental Free Trade Area (AfCFTA) began in 2021 with the noble intention of creating a continent-wide free trade market for its 1.3billion population and beyond. There is no doubt therefore, that this almost $3.4 trillion economic bloc is a game changer for Africa’s economic growth, industrialisation and sustainable development.
The challenge of diversity in economic strength amongst the member countries, is one that cannot be wished away, as it creates major operational hiccups exemplified by poor road and rail links, political unrests, excessive border bureaucracy among others.
Required infrastructure ecosystem
Increasing intra-African trade will naturally increase industrialisation, in addition to diversification and, essentially for Africa, the beneficiation of Africa’s natural resources, commodities and some of the agricultural produce, in so doing to capture fuller value within Africa. There will also be substantially increased demand for new industrial parks and, where permitted, Special Economic Zones. The parks need to be financed and built, but so too does the associated infrastructure ecosystem – roads, rails, power, telecom, water, sanitation, waste management, housing, schools and more.
UN Under-Secretary-General and Executive Secretary of the ECA, Vera Songwe, said the AfCFTA is “expected to significantly increase traffic flows on all transport modes: Road, Rail, Maritime, and Air,” but that such gains will only be optimized if the AfCFTA is accompanied by the implementation of regional infrastructure projects.
Another obvious fact is that infrastructural development within the continent would be an ideal prerequisite to the achievement of the AfCFTA’s vision and mission.
The Economic Commission for Africa (ECA) has forecast that the AfCFTA will increase intra-African trade in transport services by almost 50%, in absolute terms, over 25% of intra-African trade gains in services going to transport alone.
Research has shown that implementing AfCFTA would double maritime freight from 58 to 131.5 million tonnes. Today, Africa’s maritime network includes 142 links connecting 65 ports; accounts for 22.1% of intra-African freight transport. This share will increase by 0.6% to 22.7% if both AfCFTA and planned infrastructure projects are implemented.
AfCFTA requires 126 vessels for bulk cargo and 15 vessels for container cargo by 2030.
The continent’s air transport network includes a total of 14,762 air routes (connecting each airport with the other 121 airports). Implementing AfCFTA would double the number of tonnes transported by air from 2.3 to 4.5 million. In 2019 for example, air transport accounted for only 0.9% of intra-Africa freight transport. Air traffic is therefore expected to double in 2030 compared to 2019.
Power to digitize
Insufficient power generation and frequent outages coupled with vast swathes of rural areas being unsupplied – almost 600 million people in sub-Saharan Africa lack access to grid electricity – create real socio-economic barriers, including constraints to business productivity, growth and employment creation. With the global desire to transition to renewable energies, Africa’s climate has innate advantages to harness solar, hydro, wind and geothermal energy, but the infrastructure spend required is enormous.
Similarly, as Africa becomes increasingly beholden to digitisation – predominantly through mobile phones currently – substantial investments in telecommunications and ICT infrastructure investment are also required if the continent is to fully realise the benefits of the AfCFTA.
Rapid urbanisation and the forecast growth in the African population – from just under 1.3 billion now to almost 2.5 billion by 2050 – further inflate the infrastructure deficit. African governments (now additionally constrained by rising debt-to-GDP ratios due to the pandemic), international investors, DFIs, pension funds, investment companies and the private sector all have a key role to play in providing and mobilising investments into African infrastructure. China, the USA and Europe among others are also competing for investments and influence across Africa.
The AFC perspective
Africa has many favourable growth factors - the AfCFTA, young and growing population, most of the world’s resources in metals and minerals required for the global energy transition, increased industrialisation and demand growth, amongst others - so the rewards are there for the successful. In AFC’s experience, average returns on infrastructure investments in Africa often surpass that of other emerging markets.
The colossal scale of the challenge should not be underestimated, however. Annual infrastructure investment in Africa has equated to about 3.5% of GDP since 2000, whereas China spends 7.7% of its GDP and India is at 5.2%, suggesting that Africa needs to be spending US$150 billion a year by 2025. The pre-Covid financing gap forecast has obviously widened as some projected spending commitments failed to materialise due to the pandemic.
AFC managed to emerge largely unscathed from the ravages of the Covid-19 pandemic, having retained both its investment grade credit rating and the access and ability to successfully tap international capital markets. With such a solutions mind-set, strong fundamentals, an ecosystem investment approach and in-depth knowledge of Africa, AFC is uniquely positioned – in partnership with other organisations – to increase its contribution to closing Africa’s infrastructure gap across the focus sectors of power, heavy industry, natural resources, telecommunications, transport and logistics.