Why delivering soft infrastructure matters in Africa

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Despite almost a third of African countries growing at a rate of 6 percent and more, and some of them routinely being among the fastest-growing economies in the world, there is little connection between high growth rates and reductions in inequality.

Inclusive growth remains an elusive concept on the world’s poorest continent and threatens to undermine the considerable gains made over the past decade across the areas of macro-economic reform, political stability, and improving business and regulatory environments.

In light of these trends, infrastructure investment remains a key element to Africa’s economic success.

However, the paradigm with which such investment is viewed needs to assume a new form, with the recognition that both “soft” and “hard” infrastructure are critical to unlocking the continent’s economic potential. At present, Africa struggles with major deficits in both these areas.

Hard infrastructure refers to the physical facilities and/or installations needed to operate, manage and monitor a system with the intention that the structures are permanent. For example, when power lines or communication towers are built, the goal is for them to stay in place indefinitely. Other examples include railways, dams, roads and satellites.

Soft infrastructure is more about institutions that maintain standards of a culture such as health, law enforcement, emergency services and education.

Both hard and soft are essential for progress of a nation.

Naturally, building up and investing in a country’s hard infrastructure has an immediate, catalytic effect on growth. Because investment is a component of gross domestic product, increasing investment will increase growth.

The economic pay-offs from building up soft infrastructure are not immediate but show up only in the long run.

The pay-offs are not necessarily reflected in the rate of the growth but rather in the quality of growth, which tends to be more sustainable.

In most countries, the combination of social problems on the scale exhibited in Africa – those of unemployment, massive inequality and a general deterioration in social indicators – tend to result in a sharp and pronounced rise in political risk. There is therefore an urgent need to improve human development.

Income inequality remains unacceptably high and is falling in only about half of Africa’s countries; hundreds of millions remain trapped in poverty. Growth needs to be inclusive if it is to improve human welfare and ensure increasing social and political stability.

This view is echoed in a report published by Africa Progress Panel. “The deep, persistent and enduring inequalities in evidence across Africa have consequences,” the report said.

“They weaken the bonds of trust and solidarity that hold societies together. Over the long run, they will undermine economic growth, productivity and the development of markets.”

Forty years of almost continuous war had left Angola in disarray when peace accords were finally signed in 2002. Today, inequities characterise Angolan society; while the economy has been growing by more than 7 percent a year, 38 percent of Angolans live in poverty.

The Gini coefficient, a measure of inequality, stands at a massive 58.6 for Angola. Angola has invested heavily (and will continue to do so) in infrastructure repair and development, education and health care on the back of significant proposed economic and structural reforms to facilitate economic growth and wider participation.

It will be essential for Angola to convert this desire and articulation of reform into concrete actions to prevent socio-economic instability over the longer term.

Closer to home, South Africa now needs to adopt a “different” kind of growth to absorb the social problems accumulated during the apartheid era and to deal with the problems that have arisen since 1994.

The role of private sector, the government and the development world are vital in creating the correct type of developmental state, which balances various imperatives, particularly in terms of “soft” infrastructure.

In this regard, wealth creation by the private sector must be done differently in Africa if it is to have any meaningful impact on the continent’s development.

Implicit in this is an acknowledgment of the risks of non-inclusive growth. This is because social and political conflict in Africa can happen because of fast growth, not despite it.

Such complex dynamics bring the spotlight on “Africapitalism”, an economic philosophy that is gaining attention across Africa and in other key centres across the world. It is essentially a call on the private sector to lead Africa’s development through long-term investments in strategic sectors that can create both economic prosperity and social wealth.

According to Tony Elumelu, the chairman of Heirs Holdings who first coined the term: “Africapitalism is not simply capitalism for Africa.

“On the contrary, Africapitalism’s intention is to – yes – create wealth for the investors who invest sustainably in Africa, but equally to benefit the broader population by the jobs it creates and the catalytic sectors it develops in its attempt to move Africa forward.”

He adds: “Africapitalism is as much about financial return – and for that we make no apology – as it is about social good. The two are interdependent and the relationship can perhaps be best explained as the space where business and philanthropy meet. Africapitalism marries the financial motives required for business to exist with the good intentions that drive philanthropy to create a powerful unique force that Africa needs today.”

From the public sector perspective, policies are needed to make growth inclusive by reforming the business environment, promoting good governance, and improving the quality of public investment and spending on human development.

Moreover, an effective employment policy will be necessary for matching labour supply and demand, and improving vocational training. Improving access to finance and financial sector intermediation is also critically important.

Brazil’s success in this regard serves as a prime example for other developing nations. The country has been globally praised for its fight against poverty, in which 35 million people have risen into the lower middle class.

Latin America’s largest economy has achieved an 89 percent reduction in the number of its citizens living in extreme poverty in the past 10 years. During this time, Brazil has implemented the world’s largest family income support programme, the Bolsa Familia, which gives about 50 million people, or one in four of the country’s population, a monthly slice of government money.

The Bolsa Familia benefit payments are contingent on all family members under the age of 16 going to school and receiving basic vaccinations.

Once they meet these requirements, families below the poverty line earn between 32 and 38 Brazilian reais (between R150 and R180) a month for each child. Families below the extreme poverty line get 70 reais per child. Funds are normally received through a type of bank card mailed to the female head of the household.

About 13 million families have registered for the scheme, which has prioritised health care and education.

Africa is vulnerable to political and social upheaval due to rising unemployment, which has defied impressive economic growth. The failure to share the fruits of rapid economic growth with a wider section of society creates the prospect of systemic instability.

This has highlighted the urgent need to invest in the provision of quality and efficient infrastructure services, both hard and soft, which are essential to realise the full potential of the continent.

Successfully making inroads into these challenges requires a co-ordinated effort from African governments, their citizens, the private sector and donors.

* Ronak Gopaldas is a country risk analyst at Rand Merchant Bank.


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