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V. B. African Demand for Infrastructure: AID VS. COMMERCE: FACTORS INFLUENCING THE GROWING TIES

Guest post by: International Monetary Fund

Article Overview: Inadequate infrastructure is one of the top constraints to business in Africa, where energy and transportation are among the main bottlenecks to productivity growth and competitiveness.

V. B. African Demand for Infrastructure: AID VS. COMMERCE: FACTORS INFLUENCING THE GROWING TIES

Inadequate infrastructure is one of the top constraints to business in Africa, where energy and
transportation are among the main bottlenecks to productivity growth and competitiveness.
According to a study prepared by the staffs of the World Economic Forum, the World Bank,
and the AfDB, African firms lose as much as 8 percent of sales due to power outages, and
transportation delays can account for as much as 3 percent of lost sales (World Economic
Forum, 2007). Poor infrastructure also holds back commercial agriculture. Improving
infrastructure thus is critical if Africa, particularly SSA, is to diversify exports, move up the
value chain, and achieve sustained growth.
There is thus a large unmet demand; upgrading infrastructure requires financing and
technical expertise, both lacking in many African countries. Moreover, traditional donors,
bilateral and multilateral, tend to allocate only a relatively small proportion of their funding
to infrastructure (Table 4), and for the private sector, investing in infrastructure in poor
countries is a high-risk business.

Chinese enterprises have nevertheless been active in Africa’s infrastructure market. They are
not newcomers—Chinese engineers and workers have been building large projects such as
the Tanzania-Zambia railway since the 1960s. They have also gained experience in
modernizing China’s own infrastructure. Their technology may be less capital-intensive and
their labor and material costs tend to be lower than competitors in industrial countries, which
gives them an edge in pricing and risk taking. Finally, access to substantial, long-term
financing in China reinforces their competitive position. It is therefore not surprising that

IMF Working Paper
African Department
What Drives China’s Growing Role in Africa?
Prepared by Jian-Ye Wang
October 2007

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Article Tags: african countries, bottlenecks, chinese engineers, chinese enterprises, commercial agriculture, high risk, inadequate infrastructure, industrial countries, infrastructure market, material costs, poor countries, poor infrastructure, power outages, productivity growth, risk business, staffs, unmet demand, value chain, world economic forum, world economic forum 2007



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