Great powers scramble for African infrastructure - what is the ROI
Introduction
The scramble for African infrastructure by great powers has intensified in recent years, driven by the continent’s vast potential and strategic importance. This infrastructure push offers both opportunities and challenges for African nations, with varying returns on investment (ROI) for different stakeholders.
Infrastructure Investment Landscape
African countries face a significant infrastructure deficit, with the African Development Bank (AfDB) estimating that the continent requires $130-170 billion annually in infrastructure financing. This gap presents a compelling opportunity for foreign investors and great powers seeking to expand their influence.
Key Players
China
Through its Belt and Road Initiative (BRI), China has become a dominant force in African infrastructure development.
European Union
The Global Gateway Initiative aims to counter China’s influence and promote sustainable infrastructure development.
G7 countries
The Partnership for Global Infrastructure and Investment (PGI) plan seeks to provide an alternative to Chinese-led projects.
Investment Scale
China has signed an estimated $700 billion in construction contracts in Africa over the past decade.
Chinese companies have completed approximately $400 billion worth of projects.
From 2013 to 2022, China committed around $114.4 billion in loans to African countries.
Return on Investment
The ROI for infrastructure investments in Africa varies depending on the perspective and metrics used:
Economic Returns
Infrastructure projects, when properly executed, can yield substantial economic benefits. The World Bank estimates that inadequate infrastructure decreases annual economic growth in Africa by two percentage points and reduces business productivity by up to 40%.
The AfDB reports that poor water and sanitation infrastructure costs the continent about 5% of GDP, while high transport costs add 75% to the price of African goods.
Financial Returns
According to African Infrastructure Investment Managers (AIIM), investments in African infrastructure projects from construction through maturity can target dollar returns of around 20%.
Investments made once projects are operating offer dollar returns in the low-to-mid teens.
Strategic Returns
For great powers, the ROI extends beyond financial metrics:
Economic influence
Infrastructure investments can lead to increased trade and economic ties.
Political leverage
Countries providing infrastructure funding may gain diplomatic influence.
Resource access
Investments often facilitate access to Africa’s natural resources.
Challenges and Risks
Despite the potential for high returns, investors face significant challenges:
Project delays
Gestation periods for African projects are typically 7-10 years, often 20-30% longer than in developed economies.
Political instability
Changes in government or policies can affect project viability.
Currency risk
Many projects require dollar-denominated investments, exposing them to currency fluctuations.
Conclusion
The scramble for African infrastructure presents a complex ROI picture. While the potential for high financial returns exists, particularly in sectors like energy and transport, the true value often lies in the strategic and long-term economic benefits.
For African nations, the influx of infrastructure investment offers a path to economic growth and improved living standards, but careful management is required to ensure sustainable development and avoid over-reliance on any single foreign partner.
As this infrastructure push continues, African countries must navigate the competing interests of great powers while prioritizing projects that align with their national development goals. The success and ROI of these investments will ultimately depend on effective project selection, efficient implementation, and the ability to leverage new infrastructure to drive broader economic growth across the continent.
