Accelerating Infrastructure Investments
Friday 11th May 2012 - 10:45am - 12:00pm
Friday 11 May
In past years, transportation, energy and communication investments contributed substantially more to per capita growth than structural policies. What winning models and partnerships are accelerating infrastructure investment?
Dimensions to be addressed:
- Maximizing social and economic returns
- Increasing private sector investment
- Reaping benefits from leapfrogging
- Infrastructure is critical to Africa’s transformation, particularly in the manufacturing sector
- It is time for the public and private sector to move from design to action and work together to constructively build Africa’s future
- De-risking infrastructure investment is the most daunting challenge
- The private sector’s behaviour in the past is not a prediction of how it will be behave in the future
Infrastructure is the lifeblood of economic development and is critical to Africa’s transformation. The needs are huge, the financing is available, but the risks are high. In a lively debate, the panellists agreed that it is time for the public and private sectors to move from design to action and work together constructively to build Africa’s future. But there is apprehension on both sides due to past failures and mistrust.
“Without the private sector, there is no development. Our policy is to have fast and equitable growth, but you cannot have that without a clear division of labour in partnership with the public and the private sectors,” said Meles Zenawi, Prime Minister of Ethiopia. “If we don’t use this window of opportunity to transform our economies, [particularly the manufacturing sector], we will be lost.”
However, the Prime Minister cautioned against the private sector’s need to secure high returns and that the public sector should not be expected to shoulder the risk while the private sector makes the profits. “If the private sector engages, what will be the cost? They need profits. Do I want to support the private sector that generates electricity or the private sector that uses it? For, me, it is [the latter].”
It is time to come up with a common African agenda and to engage the international community with one voice, Zenawi recommended. “There is a big change globally and if we don’t take care, we will be taken for a ride and dropped,” he said.
All panellists agreed that it is time to move from design to action. According to Donald Kaberuka, President, African Development Bank (AfDB): “The most dangerous thing is to confuse an action plan with action.” Nevertheless, progress is being made, he commented. “It is not all doom and gloom, but it is slow. But if you compare today to 1980, there is a big area of interconnection between the public and the private sector.”
Kaberuka pointed out that in China, public authorities recognized that it was impossible to build first-class infrastructure across the vast country. Instead, it focused its investment on industrial parks. “This is a good model. Begin with a cluster, put in an industrial park with electricity, infrastructure and skills – and then you scale it up.” He commented that the explosion of telephony across Africa was driven by the private sector, but there is a role for the public sector to ensure a level playing field. “We need to do this case by case, country by country,” he said.
The most daunting challenge is de-risking infrastructure investment if the private sector is to engage and help to close Africa’s infrastructure gap, which will require an estimated US$ 90 billion annually. “We are engaged in a dialogue with the public sector. There is a lot of capital available in the world. The challenge is how to organize a pipeline of bankable projects and the risks that go with it,” said Tidjane Thiam, Group Chief Executive, Prudential.
At the same time, he added, there is a lot of benefit to be derived by developing a deep financial services sector. “With imagination, there is a lot that we can do. For this, the private and public sectors need to work hand in hand.”
Still, there remains trepidation among some African leaders due to past failures, but it is time to move forward. “The private sector is a gentle giant. The behaviour in the past is not a reliable prediction of how it will behave in the future. There has been a sea change,” said Thiam.
“The financial sector has not always performed in the way that is in the best interest of countries,” acknowledged Gordon Brown, Prime Minister of the United Kingdom (2007-2010) and Chair of World Economic Forum Global Issues Group. “[Today], Africa’s infrastructure is not fit for purpose for domestic trade. If the private and public sector could work together more effectively and lay down guidelines that deal with risk, we could mobilize [private capital] . . . There is a new energy in Africa to move from design to delivery and create an organization with the power to bring all partners together. The huge defects in the African economy could be addressed if we all come together,” he said.
But how to boost Africa’s standing among skittish investors? “It is time to overcome the perceived dichotomy between the public and private sectors,” advised Ahmed Heikal, Chairman and Chief Executive Officer, Citadel Capital. “We need to focus on the question, ‘Why Africa now?’” Heikal pointed to three important answers to reassure private investors:
- Governance has changed – most governments are being accountable to their people and are trying to deliver.
- Africa is the last bastion of growth for the next 30 to 40 years.
- Many Africans have been well educated in the West and are returning home to make a positive contribution to the continent.
The capital is there, said Brian Molefe, Group Chief Executive, Transnet, South Africa. Pension funds in Africa have an excess of US$ 450 billion in reserves. “The only problem is, what do we need to do to trap capital on the continent? Developing manufacturing is critical.” But he warned that in going forward, the bulk of capital should not be debt. “The public and the private sectors [both] have a tendency to fail. We need a compact between the public and private sector on development in Africa that must be underpinned by industrialization.”
Jubril Adewale Tinubu, Group Chief Executive, Oando, called for an enabling environment for investment. “The private sector needs to know it has a transparent entry into investments. Capital needs to come in from all over the world in an ethical fashion and it must have an exit.” Tinubu noted that private sector-driven projects are cheaper and have a shorter timeline. He pointed to the electricity sector where existing infrastructure is improved, there is a strong regulator and proper pricing, but the asset is owned and run by the private sector. “With this model, we are seeing progress,” he said.
However, President Zenawi warned: “The [premise] that the public sector is inefficient and the private sector is efficient is a [destructive] myth.”
This summary was written by Dianna Rienstra. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.
Copyright 2012 World Economic Forum
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Keywords: 2012 World Economic Forum on Africa, Addis Ababa, Ethiopia, shaping Africa’s transformation, accelerating investment in frontier markets, infrastructure, private investment, financial sector, manufacturing, public-private partnership, de-risk, risk
Gordon Brown, Prime Minister of the United Kingdom (2007-2010) and Chair of World Economic Forum Global Issues Group
Ahmed Heikal, Chairman and Chief Executive Officer, Citadel Capital, Egypt
Donald Kaberuka, President, African Development Bank (AfDB), Tunis; Co-Chair of the World Economic Forum on Africa
Brian Molefe, Group Chief Executive, Transnet, South Africa
Tidjane Thiam, Group Chief Executive, Prudential, United Kingdom; Co-Chair of the World Economic Forum on Africa
Jubril Adewale Tinubu, Group Chief Executive, Oando, Nigeria; Young Global Leader
Meles Zenawi, Prime Minister of Ethiopia
Robyn Curnow, Correspondent, CNN, South Africa
Group Chief Executive, Prudential, United Kingdom
1984, degree in Engineering, Ecole Polytechnique; 1986, degree in Civil Engineering, Ecole Nationale...
President, African Development Bank (AfDB), Tunis
Educated at universities in Tanzania and Scotland; PhD in Economics, Glasgow University. Formerly, c...
Chairman and Chief Executive Officer, Citadel Capital, Egypt
1984, BSc in Mechanical Design and Production, Cairo University; 1991, PhD in Industrial Engineering...
Chair, World Economic Forum Global Strategic Infrastructure Initiative; UN Special Envoy for Global Education; Prime Minister of the United Kingdom (2007-2010)
Since 1983, Member of UK Parliament. 1997-2007, Chancellor of the Exchequer; 2007-10, Prime Minister...
- Meles Zenawi
Jubril Adewale Tinubu
Group Chief Executive, Oando, Nigeria
1988, LLB, Univ. of Liverpool, UK; 1989, LLM, London School of Economics, UK. Started career with a ...
Group Chief Executive, Transnet, South Africa
BComm, UNISA; Postgraduate diploma in Economics, School of Oriental and African Studies, Univ. of Lo...
Correspondent, CNN, South Africa
MPhil in Int'l Relations, Cambridge Univ. Former: News Reporter, SABC; Reporter, BBC; freelance corr...