The power of infrastructure to boost business

21st March 2024

This Column was published on Business Day on 20 February 2024. 

Business needs effective governments to provide the infrastructure on which to thrive. Logistics (including roads, rail, and ports), energy, and communications (including internet access) are all vital. The poor quality of infrastructure in many African countries increases costs, putting African businesses at a competitive disadvantage relative to their global peers.

This in turn deters investment. That is self-evident, but two World Bank economists, Justice Tei Mensah and Nouhoum Traore, have recently dug into the data and calculated the impact of providing infrastructure. They looked specifically at how providing high-speed internet influences foreign direct investment (FDI). The staggered connection of submarine cables to African networks between 2000 and 2012 enabled them to observe the impact on local economies and changes in FDI between 2003 and 2018.

They found that the arrival of high-speed internet connectivity is indeed associated with increased frequency and size of FDI and that this is associated with increased business activity. This is concentrated in the services sector, and particularly finance, technology, retail and health services. These are internet-dependent sectors. There was no effect on manufacturing or construction. 

They then looked further and found that complementary infrastructure such as roads and electricity amplify the effects of internet connectivity on FDI. Their point is that infrastructural provision works best when provided as a bundle rather than in isolation. “For instance, in the absence of reliable (and affordable) electricity, uptake and utilisation of digital services will be constrained even with the best of digital infrastructure.”

They also provide evidence that access to the internet increases citizens’ access to information and therefore the demand for accountability from government. This improves governance and reduces the risk to potential investors. 

Increased internet connectivity also allows African companies to access new markets.

They looked primarily at internet access, but I imagine that if they looked at other infrastructure provision, particularly when bundled with complementary infrastructure development, they would find a similar effect on other sectors like manufacturing and construction and on SMEs, which thrive on increased economic activity. 

That is inspiring for government and reminds us that large infrastructure projects are a means to an end, not an end in themselves. They should be planned accordingly to have maximum impact on economic activity.

The Lobito Corridor looks to me like a project where this can be implemented. At its core is the rehabilitation of the rail link from Zambia and the DRC to Lobito in Angola. It entails cooperation between the three governments concerned, international partners, the EU and US, big business, notably in the form of mining companies, and agencies such as the African Development Bank.

The EU and US motivation to support this may arise from competition with China’s Belt and Road infrastructure initiatives that have almost wrapped up the supply of minerals needed for electric vehicles; but it is very much in African countries’ interests to ensure that extracting and exporting minerals is accompanied by holistic development of local industry. This should be supported by complementary infrastructure like feeder roads, energy, digital access and practical policy support for local business.

Ironically the need for the Lobito Corridor has been accentuated by South Africa’s failure in rail and ports. South Africa has unusually good infrastructure, but by allowing it to deteriorate, the authorities are not just inconveniencing people, but killing jobs and livelihoods throughout SA and even in neighbouring countries that have accessed markets through SA ports. Interrupted electricity supply, collapsing rail routes, and inefficient ports have led to huge lost opportunities in industries as widely diverse as coal mining and fruit farming. 

One might wish for careless politicians and officials to be charged with economic treason for the impact on the nation’s viability.  But let’s celebrate progress and look for ways to provide an integrated infrastructural foundation for the continent’s growth.

Jonathan Cook, a Counselling Psychologist and Chairman of the African Management Institute. If you’d like to read previous columns in this series or ask Jonathan a question please visit http://www.africanmanagers.org/jonathan-cook

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