Infrastructure in Africa: How Institutional Reforms Can Attract More Private Investment
Infrastructure is a crucial driver of development, through its role in stimulating private investment and productivity growth, facilitating domestic, regional, and international trade, and protecting the environment. Despite the crucial importance of infrastructure, developing countries continue to have large infrastructure gaps. According to the World Bank, the Sub-Saharan Africa (SSA) region needs to spend 7.1 percent of GDP annually until 2030 to close its infrastructure gap, but has only been spending about half that amount.
The World Bank estimates that the Sub-Saharan Africa region needs to invest approximately 7.1 percent of gross domestic product (GDP) each year in infrastructure if it is to meet its sustainable development goals. However, investment is currently running at around 3.5 percent of GDP. Boosting private investment in infrastructure has become more urgent than ever as African governments find themselves in increasingly dire fiscal situations due to the impact of the COVID-19 pandemic and, more recently, the global economic slowdown. In that context, this paper examines the determinants of Private Participation in Infrastructure (PPI) in a sample of 36 African countries, using a panel data econometric model.
The study finds that the quality of institutions is the most important driver of PPI, while the cost of lending, the size of the economy, macroeconomic stability, and openness to trade are also significant determinants. Moreover, the study finds that four years of continuous improvements in reforms related to the regulatory framework would generate an additional 0.8 percent of GDP above the baseline of no reforms. The study also highlights that institutional reforms have, on average, higher payoffs for low-income countries than for middle-income countries.
Zivanemoyo, Chinzara, Sebastien Dessus, and Stephan Dreyhaupt. 2023.
