Does Africa need more private finance?
The COVID-19 pandemic has aggravated the tension between large development needs in infrastructure and scarce public resources. To alleviate this tension and promote a strong and job-rich recovery from the crisis, Africa needs to mobilize more financing from and to the private sector.
Why now?
It is a pivotal moment for Africa. In recent years, many African countries have relied on public investment-driven growth, which is reaching its limits given high debt levels and limited domestic revenue mobilization. Moreover, the pandemic has eroded the foundations on which progress was achieved in the past two decades (strong global growth, easy access to external financing, supportive commodity prices). In this new environment, development strategies need a rethink.
Is this time different?
Developing countries have already experienced a wave of private sector participation in infrastructure in the 1990s. Results were disappointing, which undermined public confidence and support, and the experiment was later reversed. Lessons have been learned from this episode to make private sector delivery of infrastructure services more sustainable, both economically and socially.
How much could the private sector contribute to meeting development spending needs?
Historical evidence shows that the private sector takes increasing responsibilities in the provision and financing of infrastructure as countries move up the income ladder. The paper estimates that private finance could bring an additional 3 percent of GDP in African countries over the next decade, equally split between domestic and international investors. Going beyond this figure would require active policies to attract new types of private finance flows (foreign institutional investors and philanthropy), above and beyond historical patterns.
Please fin the full report here.