Absa Bank economist says infrastructure is key in driving Africa’s productivity and economic growth.
Speaking at a recent Construction Thought Leadership Forum, Naledi Madala, said inadequate infrastructure in key areas such as power, water, and transport is a significant barrier to Africa’s industrialisation.
Madala traced the continent’s infrastructure challenges back to the 1980s and 1990s, a period marked by reduced investments due to structural adjustment programs influenced by the Washington Consensus. This lack of investment has left Africa lagging other regions in developing the infrastructure necessary to support industrial growth. While capital accumulation began to rise again in the early 2000s, Madala noted that the progress has been too slow to close the existing infrastructure gap.
According to estimates from the African Development Bank (AfDB), Africa requires between $130 billion and $170 billion annually to meet its infrastructure needs.
She explained how infrastructure directly contributes to a country’s GDP by lowering production and transaction costs, leading to more efficient resource utilisation. For instance, poor energy quality results in additional costs for businesses, including lost production and damaged equipment. Conversely, modern transport systems can enhance manufacturing competitiveness by facilitating the movement of raw materials and finished goods.
Madala pointed to the experiences of the “Asian Tigers” (Japan, South Korea, Taiwan, and Singapore) and China, which achieved rapid economic growth in the mid-20th century by investing in infrastructure, education, and supportive industrial policies. These strategies helped transform them from low-income to high-income economies in a relatively short time.
Turning to Botswana, Madala acknowledged the government’s efforts to address infrastructure deficiencies. She referenced the Vision 2036 agenda, which aims to elevate the country to a high-income economy, with infrastructure development as a cornerstone of this strategy. The current fiscal budget and the upcoming National Development Plan (NDP) 12 indicate a substantial increase in infrastructure spending, with plans to boost investment by at least 33 percent in 2024/25.
Under NDP 11, Botswana made notable progress in extending its water and sanitation networks to meet the needs of rapidly growing settlements and to enhance national water storage and distribution systems. Madala expects NDP 12 to continue addressing infrastructure gaps in energy, water, transport, and residential construction.
One significant aspect of NDP 12 is the integration of spatial planning with infrastructure development. Despite being landlocked, Botswana’s central location positions it as a potential transportation hub within the Southern African Development Community (SADC). This geographical advantage could facilitate regional trade, particularly in light of the African Continental Free Trade Agreement (AfCFTA), which aims to promote intra-African commerce.
Madala also discussed Botswana’s mining sector, which is a major driver of foreign direct investment (FDI). While diamonds have traditionally dominated the sector, there is increasing interest in coal and copper projects, which are expected to stimulate infrastructure development, especially in energy and water. Additionally, there is a growing focus on renewable energy projects aimed at improving electrification rates, particularly in rural areas.
Water scarcity remains a pressing challenge for Botswana, but it is also expected to drive infrastructure investments. Ranked 17th globally in terms of its water stress index, the government has prioritised water infrastructure to mitigate shortages that threaten economic growth and business operations.
Despite these opportunities, Madala warned that macroeconomic headwinds could hinder Botswana’s infrastructure ambitions. She noted, “The biggest threat facing the outlook is the macroeconomic headwinds and difficult fiscal position that the country is now in. The deeper we fall into this position, the higher the likelihood that some planned projects may be postponed.”
Analysing the local construction sector, Madala remarked that it consistently contributes to GDP and is one of the top employers in Botswana. Before the COVID-19 pandemic, the sector enjoyed strong growth momentum. However, she pointed to the volatility in public investment, primarily driven by the mining industry. Although Botswana’s public capital stock is high compared to its peers, Madala indicated that improvements in the management and governance of infrastructure projects are necessary. She highlighted the weak link between public capital spending and capital stock accumulation, resulting in low efficiency of public investment.
“Strengthening public investment management can reduce the efficiency gap, making public investment more predictable, credible, and productive,” she stated, noting that this could significantly enhance the impact of public investment on economic output. Although Botswana’s infrastructure efficiency gap has improved from 37 percent to 31 percent, further reforms are needed to ensure public capital spending translates into tangible economic growth. Initiatives like the Development Manager Model aim to enhance spending efficiency, and the government has implemented a three-stage appraisal process to thoroughly vet projects before inclusion in the NDP and national budgets.
Madala emphasised the essential role of the private sector in Botswana’s infrastructure development. She called for expediting the passage of a stand-alone bill on public-private partnerships (PPP), which would provide a legal framework for private sector participation in infrastructure projects. Drawing on Australia as a model, she illustrated how PPPs have established infrastructure as a robust asset class driven by a well-developed secondary market.
