Note: this is a shallow overview of a topic that we have not previously examined. For shallow overviews, we typically work for a fixed amount of time, rather than continuing until we answer all possible questions to the best of our abilities. Accordingly, this is not researched and vetted to the same level as our standard recommendations. If you have additional information on this cause that you feel we should consider, please feel free to get in touch. We plan to revisit our shallow overviews at a later date to determine how to prioritize further research.

Published: August 2013

Why did we look into this area?

Improving infrastructure in sub-Saharan Africa is one of many areas where we think there may be outstanding giving opportunities. We looked into the area based on the intuition that infrastructure (roads, electricity, etc.) provides the foundation on which additional development can happen. An initial, very brief perusal of available literature confirmed this possibility.1

Our investigation thus far has consisted of preliminary reading and conversations with Todd Moss of the Center for Global Development, Michael Klein (formerly of the World Bank), Bobby Pittman (Founder of Kupanda Capital and former Vice President of Infrastructure, Private Sector and Regional Integration at the African Development Bank), and Alex Rugamba (Director for Regional Integration and Trade at the African Development Bank):

• Notes from conversation with Todd Moss
• Notes from conversation with Michael Klein
• Notes from conversation with Bobby Pittman
• Notes from conversation with Alex Rugamba

What is the problem?

The lack of infrastructure (e.g, roads, electricity, internet, water) in sub-Saharan Africa may directly reduce welfare and create an obstacle to private investment.

• Access to a network of well-maintained roads enables businesses to easily transport their goods.
• A consistent supply of electricity enables business to conduct their work and provides for basic quality-of-life improvements for individuals (e.g., lighting, refrigeration, charging for electronic devices such as mobile phones).
• Internet provides individuals with access to relevant, actionable information (e.g., market prices) as well as broader knowledge.

The individuals with whom we spoke pointed to several specific factors that contribute to the problem: (Note that we present these as examples, not as a comprehensive statement about the causes of poor infrastructure.)

• Lack of resources (overall) and lack of resources for early stage project investment in activities such as feasibility studies and project planning.2
• Suboptimal regulations that deter investment.3
• Lack of donor interest in infrastructure relative to other priorities like health or education.4
• There are greater political benefits to new road construction than spending on road maintenance, but ongoing maintenance is significantly more expensive.5
• Government-backed cartels may control access and deter private investment.6
• Suboptimal provision of construction subsidies.7
• Construction-project contracts are large and complex, and the degree of due diligence required by investors may not align well with the investment opportunity.8

Who else is working on this?

The African Development Bank estimates that sub-Saharan Africa spends approximately $45 billion per year on infrastructure.9 This spending comes from (a) local governments (~$30b), (b) foreign donors (~$6b), (c) and the private sector (~9b),10 though these proportions vary significantly depending on a specific country's income level (e.g., lower-income countries receive more donor funding relative to local spending than middle-income countries).11

Major players in the sector include:

• Foreign donor funding via development banks (such as the World Bank and the African Development Bank); direct donor funding from OECD countries; and direct funding from non-OECD countries.12
• Funding provided by local governments
• Investment by the private sector
• For internet access specifically, corporate-affiliated nonprofits such as Google.org13 and Internet.org14
• Other actors who play non-financial roles, such as (a) think tanks that provide technical assistance or advocate for specific projects within countries;15 (b) developed-country trade government agencies supporting overseas, private investment;16 and (c) private investors and contractors17

In general, we do not know how much funding is available for the types of interventions described below. We share information where we have it.

In June 2013, the United States government announced a commitment to provide $7 billion over 5 years to increase access to electrical power in Africa.18 Because this effort is new, we do not know how it might change the funding opportunities discussed on this page.

What are possible interventions?

The individuals with whom we spoke suggested several possible philanthropic approaches:

• Funding early stages of infrastructure projects.19 In our conversation with Mr. Rugamba, we learned that, "there are about 50 project preparation facilities in Africa, 15 of which play a significant role in early-stage infrastructure project development. Many of them are underfunded. Funding for these facilities grew from roughly 10 million USD in 2005 to 80 million USD in 2010. The Programme for Infrastructure Development in Africa (PIDA) estimated that, for the years 2012 to 2020, $200 to 500 million USD per year is required for early-stage project development."20 The African Development Bank is seeking to raise $200 million to support project preparation facilities of which it has raised approximately $100 million.21 Both Mr. Pittman and Mr. Rugamba believe that early stage initiatives are underfunded.22
• Experimentation with various models for structuring and financing enterprise zones.23
• Convening investors, government representatives and business leaders.24
• Advocating for improved regulation.25
• Providing subsidies based on output (once the project is completed successfully) rather than before it begins.26
• Supporting public rankings of country performance on various indicators of ease of doing business.27
• Engaging with local communities to incorporate their interests into proposed infrastructure projects.28

Questions for further investigation

Our investigation thus far has been quite preliminary, and we have major areas that require additional research.

• How much funding is currently available for the interventions listed above?
• What impact would the interventions above have on infrastructure development and what would the humanitarian impact be of this increased infrastructure?

Sources

• 1.

  For example:

  • "Recent research suggests that isolation from regional and international markets has contributed significantly to poverty in many Sub-Saharan African countries. Numerous empirical studies identify poor transport infrastructure and border restrictions as significant deterrents to trade expansion. In response, the African Development Bank has proposed an integrated network of functional roads for the subcontinent." Buys et al. 2006, Pg 2.
  • "It is universally accepted that electrification enhances quality of life at the household level and stimulates the economy at a broader level. The immediate benefit of electrification comes through improved lighting, which promotes extended hours of study and reading and other household chores, and in turn contributes to better educational achievements. Lighting can also benefit many other household activities, such as sewing by women, social gatherings after dark, and many others. Electronic devices such as radios and television also improve the access to information by rural households and can provide entertainment to family members. In addition, households’ economic activities both inside and outside the home benefit tremendously from electricity. For example, crop productivity can be increased by the application of electric irrigation pumps, businesses can be operated longer hours in the evening, electric tools and machinery can impart efficiency and production growth to industrial enterprises, and so on. The benefits of electricity have been discussed in a large body of literature (Cabraal and Barnes 2006; Barnes, Peskin and Fitzgerald 2003; Kulkarni and Barnes 2004; Khandker 1996; Filmer and Pritchett 1998; Roddis 2000; World Bank 2002; Agarwal 2005)." Khandker et al. 2009, Pg 2.
• 2.

  "In the early stages of a project, funding is needed to determine whether a project is feasible and to convene the actors who could implement the project. The early stages of project development tend to be underfunded in sub-Saharan Africa. Later in the process, large private and public players are able and willing to move projects forward. There were about 20 private-sector deals closed in Africa as a whole last year. About half of those were power infrastructure. Reasons there were not more deals include:

  • Lack of private developers with large balance sheets. A large balance sheet allows a company to take strategic risks and fund the research necessary to identify new projects.
  • Lack of public or philanthropic funding for project preparation, including feasibility studies.
  • Lack of market information to bring the various parties together. The African Development Bank is working on a project called Sokoni(Swahili for marketplace)to provide information on project funding sources, potential investors, and other market information."

  Pittman conversation (July 7, 2013).

• 3.

  "For example, there are regulations set by OPIC (USAID's Overseas Private Investment Corporation) that impose caps on the amount of carbon emissions that OPIC-supported investments in electricity generation can yield. These regulations prevent investment. Environmental advocacy groups in the U.S. supported these regulations and were able to win because they're relatively strong; there's no lobby aiming to support Africans.
  ." Moss conversation (May 7, 2013).

• 4.

  "Development funding is driven by constituencies. There's a strong constituency for health and education funding but there's no constituency for infrastructure. Potentially selling donors on the idea that "energy poverty" (no access to electricity) as a major humanitarian issue could make a big difference. United States government aid is 95% earmarked by donors because single-issue constituencies drive legislation. There's the food bill, maternal health bill, etc. There is no single-issue constituency for electrification in Africa." Moss conversation (May 7, 2013).

• 5.

  "In roads, a major issue is spending on maintenance vs. construction. For context, in the US, 2/3 of spending on roads is maintenance, but maintenance isn't politically appealing so local politicians are more likely to prioritize construction over maintenance. Also, the politics around road placement are challenging." Moss conversation (May 7, 2013).

• 6.
  "The challenges are different for each of transportation, communications, internet, mobile phones, power, and water. A major barrier in many places is a government-backed cartel in the country blocking progress. It's possible that cell phones broke through and spread so rapidly because it was a new technology with no pre-existing major cartel." Moss conversation (May 7, 2013).
• 7.
  "Subsidies can be structured in various ways: is the subsidy provided upfront before the contractor starts to build, or is it paid once the project is complete? Currently, most subsidies are paid pre-construction due to investor incentives to obtain subsidies upfront, and donor incentives to get money out the door. Philanthropists who instead focused on post-construction subsidies could fill a gap. The Global Program for Output Based Aid does this: http://www.gpoba.org/about. Most donors still prefer paying subsidies upfront, so the GPOBA is the exception rather than the norm. This program is similar to the Center for Global Development's Cash on Delivery initiative." Klein conversation (May 9, 2013).
• 8.

  "Getting all the details of contracts right is difficult, so the cost of doing business is high. Doing something in the area of "capacity building" is an opportunity, but it's hard to figure out how to do this well. The World Bank's International Finance Corporation has transaction advisory services that deal with Public/Private Partnership programs. They have a good appreciation of the problems and issues in this area." Klein conversation (May 9, 2013).

  "There also could be work done around convening investors and actors. Development is complex, and getting all the details right is challenging when the size of the investments might be too small for major investors, like public pension funds. But, philanthropists could play a role bringing together major investors, local government, and implementers." Moss conversation (May 7, 2013).

• 9.

  AfDB, Handbook on Infrastructure Statistics, Pg 52, Table 5.1.

  Note also that another African Development Bank source estimates total external spending on African infrastructure at ~$20 billion per year in 2007: "External finance for Africa’s infrastructure was buoyant in the years leading up to the global financial crisis of 2008/09, swelling from $4 billion in 2002 to $20 billion in 2007." Africa Infrastructure Knowledge Program, Sources of Infrastructure Spending.

• 10.

  AfDB, Handbook on Infrastructure Statistics, Pg 52, Table 5.1.

• 11.

  AfDB, Handbook on Infrastructure Statistics, Pg 52, Table 5.1.

• 12.

  AfDB, Handbook on Infrastructure Statistics, Pg 67, Table 5.4.

• 13.

  "The Internet Society today announced that it has been awarded a grant by Google.org to extend its Internet exchange point (IXP) activities in emerging markets." Google.org internet grants.

• 14.

  New York Times on Internet.org.

• 15.

  Dr. Moss provided the following (not intended to be comprehensive) list of African think tanks focused on energy:

  • Institute of Economic Affairs Ghana
  • Kenya Institute for Public Policy Research and Analysis (KIPPRA)
  • Botswana Institute for Development Policy Analysis (BIDPA)
  • African Center for Economic Transformation (ACET)

  Moss conversation (May 7, 2013).

• 16.

  OPIC (USAID's Overseas Private Investment Corporation) or British Commonwealth Development Corporation (the equivalent of OPIC for the UK). Moss conversation (May 7, 2013).

• 17.

  This includes institutional investors, the private equity firms they invest in and the companies supported by this funding:

  "There also could be work done around convening investors and actors. Development is complex, and getting all the details right is challenging when the size of the investments might be too small for major investors, like public pension funds. But, philanthropists could play a role bringing together major investors, local government, and implementers. An example of an attempt to do this is Sokoni (www.sokoni.com).

  This is an area where there are a lot of problems. There's a lot of demand among investors and capital available, but connections aren't being made. The fact that people are flailing means that there are opportunities. Convening the right parties and coming up with creative solutions could have a big impact." Moss conversation (May 7, 2013).

• 18.

  "Today the President announced Power Africa, a new initiative to double access to power in sub-Saharan Africa. More than two-thirds of the population of sub-Saharan Africa is without electricity, and more than 85 percent of those living in rural areas lack access. Power Africa will build on Africa’s enormous power potential, including new discoveries of vast reserves of oil and gas, and the potential to develop clean geothermal, hydro, wind and solar energy. It will help countries develop newly-discovered resources responsibly, build out power generation and transmission, and expand the reach of mini-grid and off-grid solutions…. The United States will commit more than $7 billion in financial support over the next five years to this effort." Power Africa announcement.

• 19.

  "In the early stages of a project, funding is needed to determine whether a project is feasible and to convene the actors who could implement the project. The early stages of project development tend to be underfunded in sub-Saharan Africa. Later in the process, large private and public players are able and willing to move projects forward." Pittman conversation (July 7, 2013).

• 20.

  Rugamba conversation (July 30, 2013).

• 21.

  " The African Development Bank hosts a project preparation facility, the NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF). Since its inception in 2005, NEPAD-IPPF has participated in preparations of about 60 projects and has spent 50 million USD on these projects. It is looking to raise an additional 200 million USD to expand the number of projects it funds. Donors to this facility include Canada, Denmark, Norway, the UK, Germany, Spain, and the African Development Bank. Close to 100 million USD has been pledged by donors to the facility since its inception, and about 75 million USD has been received." Rugamba conversation (July 30, 2013).

• 22.

  "The African Development Bank is probably the largest funder of these groups. It funds two of the five infrastructure researchers at NEPAD. About $2 million dollars could have a significant impact on NEPAD's work and $5-10 million could have a significant impact on the African Union's work." Pittman conversation (July 7, 2013).

  "The availability of grant funding is probably the main limiting factor for early-stage projects. Once these stages are complete, it is relatively easy to get funding for a project from public or private sources. More early-stage grant funding for infrastructure projects is currently needed. Lenders are hesitant to provide funding because projects at this stage are risky." Rugamba conversation (July 30, 2013).

• 23.

  "Enterprise zones are industrial parks set up within countries to facilitate business. There are often no trade tariffs there, and countries will guarantee them enough power. One possible opportunity for experimentation revolves around different mechanisms for financing such zones." Moss conversation (May 7, 2013).

• 24.

  "This is an area where there are a lot of problems. There's a lot of demand among investors and capital available, but connections aren't being made. The fact that people are flailing means that there are opportunities. Convening the right parties and coming up with creative solutions could have a big impact." Moss conversation (May 7, 2013).

• 25.

  "There are regulations set by OPIC (USAID's Overseas Private Investment Corporation) that impose caps on the amount of carbon emissions that OPIC-supported investments in electricity generation can yield. These regulations prevent investment. Environmental advocacy groups in the US supported these regulations, and it was able to wins because it is strong there's no lobby aiming to support Africans." Moss conversation (May 7, 2013).

• 26.

  "Subsidies can be structured in various ways: is the subsidy provided upfront before the contractor starts to build, or is it paid once the project is complete? Currently, most subsidies are paid pre-construction due to investor incentives to obtain subsidies upfront, and donor incentives to get money out the door. Philanthropists who instead focused on post-construction subsidies could fill a gap. The Global Program for Output Based Aid does this: http://www.gpoba.org/about. Most donors still prefer paying subsidies upfront, so the GPOBA is the exception rather than the norm. This program is similar to the Center for Global Development's Cash on Delivery initiative.

  An example of a GPOBA project: In a project in Cambodia, the GPOBA did research to determine what users would ultimately pay for water services and what additional subsidy would be needed to incentivize the private contractor. GPOBA provided the subsidy." Klein conversation (May 9, 2013).

• 27.

  "The Doing Business rankings (http://www.doingbusiness.org) provide rankings for countries on item like, "What does it take to register a small business?" It has elicited more response/effort from governments than any other type of activity I've seen. Creating benchmarking schemes for infrastructure is an opportunity." Klein conversation (May 9, 2013).

• 28.

  "A philanthropist could provide training to people living near infrastructure projects to help them qualify for jobs generated by the project." Rugamba conversation (July 30, 2013).

  "Philanthropists could add funding to projects that are in progress to benefit neglected communities. Examples include building a rural access road off of a new major road or funding local connections to a new power plant. … Governments generally do not have the rules in place to make sure local communities are consulted. There are some advocacy groups that represent communities' interests. There may be scope to use social media to make community opinions a greater part of infrastructure project planning. A philanthropist could provide funding to a large funder, such as the African Development Bank, to add a social media component or other community involvement component to future projects." Pittman conversation (July 7, 2013).