BRIC's Role In Africa's Economic And Infastructural Development

BRIC’s role in Africa’s economic and infrastructural development: New partners in a new era

 

CONSULTANCY AFRICA INTELLIGENCE

Published 18 Nov 2010

 

Article by: Consultancy Africa Intelligence CAI

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The lack of physical infrastructure in Africa is said to be the largest obstacle to the continent's global integration. The shortage of industrialisation and diversification in trade and business has in turn greatly disadvantaged Africa's ability to become regionally, as well as internationally connected. While the solution to this dilemma is making Africa more competitive, the issue of the continent's poor infrastructure must first be addressed. Up to now, many African Governments and multilateral agencies have begun allocating larger amounts of capital in an attempt to upgrade infrastructure areas, while private investment has allowed the continent to build stable foundations upon which clear commercial objectives can be created.

However, despite the growing optimism of a burgeoning African market, there still remains a large vacuum in significant funding. While it is clear that new sources of infrastructure funding and skills are needed for Africa to raise its economic standard, estimates have highlighted that the continent requires an additional US$ 31 billion each year to meet its basic infrastructure concerns, and finding that financial well has proven to be problematic.(2) Similarly, Brazil, Russia, India and China (BRIC) are facing similar internal challenges, but have also over time accumulated enough experience that can be implemented in Africa. As a result, the BRIC's have engaged ambitiously in supporting the development of infrastructure in Africa that has brought about a reprioritisation on the continent, which will hopefully in time see these emerging economies integrate themselves in the international economic arena. This discussion paper will briefly examine Africa's infrastructural challenges and then identify the role of BRIC in assisting the continent with its economic development.

The depth of Africa's infrastructure crisis

The weakness of Africa's infrastructure is notorious, most notably in the power sector. The continent's unreliable power supply has created losses of industrial production valued at 6% of turnover and has, as a whole, reduced per capita growth by 0.11 percentage points (PPS) over the last few decades. Similarly, Africa's transport system has failed to meet growing demands. The inadequate supply of railways and paved roads have not only led to bottlenecks, but have also created an unreliable and dangerous trading system, leaving prospective businesses at the mercy of unsafe trade routes. Current figures show that Africa has the highest transport costs in the world, almost double in relation to the international average. Landlocked countries, of which Africa has sixteen, face even greater constraints, paying up to 50% more on transport costs than what coastal countries do.(3)

Public services such as water and sanitation that meet international standards have also created challenges for Governments across the continent, while corruption and inadequate border-control systems have eroded competition and generated unforeseen costs in doing business. In 1980, Africa's share of world trade stood at 5%, whereas BRIC's only stood at 3.5%. As the body began to build upon experience and diverge into infrastructure, 2010 figures have shown that Africa's share is now only 3.2% and BRIC's share is 15%. Similarly, BRIC's power consumption per capita is twice as high as Africa's and its road density is five times larger, thus halving logistics costs in relation to Africa's.(4)

BRIC's Engagement in Africa

Given the depth of the deficit, it is not surprising that an immense capital outlay is needed in order for Africa to enhance its connectivity through improved transport networks and reliable power sources. When private and public funding sources are combined, it is estimated that Africa is currently able to generate US$ 72 billion each year in infrastructure funding; however, it is unable to acquire the remaining US$ 31 billion. Here, at the base of BRIC's relationship with Africa is where that deficit is thought to be found. The BRIC's are adopting visibly softer approaches to their bilateral relations with Africa, playing on the South-South linkage and thus slowly reversing Africa's marginalisation in trade and investment.

Brazil has attempted to gain greater access to the continent's natural resources, foster South-South relations and create new avenues for the increase of its largely agro-based commercial offering. The development of Africa's infrastructure in relation to Brazil has immediately centred itself on natural resource extraction. In May 2010, Brazil pledged to support infrastructure development in the East African Community (EAC) and included energy, railways, environment construction and agriculture as areas of interest.

Russian trade in Africa stood at US$ 8 billion in 2008 and 2009, motivated by economic incentives, private capital and an improved domestic macroeconomic status. Currently, Russia is the fourteenth largest outward global investor with a foreign direct investment (FDI) stock of almost US$ 400 billion.(5) While it has not shown a dramatic interest in Africa, observers have predicted that this will change over the next few years, most notably in transport-related infrastructure and mining.

With regards to India, infrastructure-related investments have only played an auxiliary role in India's emergence in Africa. While the country is planning to invest US$ 1.5 trillion in its own infrastructure, it can be said that certain synergies are emerging within India-Africa relations. The World Bank has estimated that Indian infrastructure deals in Africa averaged US$ 500 million per year between 2003 and 2007, the majority of which was channelled through India Exim Bank, which extends lines of credit (LOCs) to African Governments and regional institutions for infrastructure purposes.(6) As of 1 September 2010, almost two-thirds of India Exim Bank's total operative LOC's were in resource-rich African countries.

On average, China's infrastructure investments in Africa have primarily served two core purposes. Firstly, investing in Africa's infrastructure has allowed China to unlock natural resources and secondly, Africa has provided an outlet for excess engineering, construction and mechanical equipment capacity. China is the leading player in the BRIC grouping, and between 2003 and 2007, it allocated US$ 16 billion to sub-Saharan Africa, compared to the US$ 2 billion from the World Bank.(7) Between 2001 and 2007, China increased its overall infrastructure spending in Africa by 48%. In total, thirty-five African countries have received or are currently in the process of receiving Chinese financing for infrastructure projects.

Putting Africa on the map of global competitiveness

Given the importance of upgrading Africa's infrastructure, new and innovative avenues of finance, expertise and cooperation are imperative. China has given Africa priceless assistance, which is sure to only intensify, along with that of Russia, India and Brazil. Infrastructure firms in the BRIC's have been given important shares of fiscal support during the economic recession, which has allowed them to remain competitive in the face of noteworthy antagonism. As a result, these firms have sought new opportunities for economic gain, of which African economies will form a core element in this global strategy. Indeed, this BRIC-Africa relationship will allow the development of a closer and resourceful relationship to emerge, thus interlinking Africa to the competitive global market.

Written by: Daniela Kirkby(1)

NOTES:

(1) Contact Daniela Kirkby through Consultancy Africa Intelligence's Eyes on Africa Unit (eyesonafrica@consultancyafrica.com). 
(2) Simon Freemantle and Jeremy Stevens, ‘BRIC and Africa', Standard Bank Group Economics Research, 15 October 2010
(3) Vivien Foster and Cecilia Briceño-Garmendia, ‘Africa's Infrastructure: A time for Transformation', 2010, http://www.infrastructureafrica.org.
(4) Simon Freemantle and Jeremy Stevens, ‘BRIC and Africa', Standard Bank Group Economics Research, 15 October 2010
(5) Ibid.
(6) Renu Modi and Seema Shekhawat, ‘Indian and Chinese Investment in Africa - From no alternative to many alternatives', Issue 456, Pambazuka News, 5 November 2009, http://pambazuka.org. 
(7) Simon Freemantle and Jeremy Stevens, ‘BRIC and Africa', Standard Bank Group Economics Research, 15 October 2010