In recent days, several major infrastructure projects have been launched in the East African Community (EAC). While governments will pay for them from domestic savings, others will need borrowing from money markets.
President Uhuru Kenyatta got the new Standard Gauge railway underway and construction work on an international terminal at the Jomo Kenyatta International Airport has started.
Burundi, Rwanda and Tanzania will soon be linked by the Rusumo hydroelectric project that straddles their borders. The World Bank and African Development Bank are fully behind the enterprise.
This increased supply of electricity will also be complemented by construction of a better bridge (thanks to the Japanese) between Rwanda and Tanzania to boost trade.
Rwanda is building a brand new international airport while at the Julius Nyerere International Airport, a Danish lead contractor is involved in construction of a bigger terminal to cater for an expected rise in foreign arrivals. Tanzania is thinking of setting up a petrochemicals complex at Lindi as Uganda gets close to finally getting a contractor for the new refinery.
These are the kind of things investors that like to hear. However the costs involved can be relatively huge to the governments. On the other hand, it is much costlier if you cannot offer these facilities.
Most sub-Saharan African countries have long had to rely on foreign assistance or loans from international financial institutions to supply part of their foreign currency needs. But now, for the first time, many of them are able to borrow in international financial markets, selling so-called eurobonds, which are usually denominated in dollars or euros.
In this region, Rwanda was first when it issued one for $400 million and which was oversubscribed. Next year, Kenya is to lead probably Uganda and Tanzania to issue a euro-bond in the region of $2 billion. The IMF has already said conditions are good. Uganda have also expressed their intentions but not the amounts.
This sudden surge in borrowing in a region that contains some of the world’s poorest economies is due to a variety of factors, including rapid growth and better economic policies, low global interest rates, and continued economic stress in many major advanced economies, especially in Europe. EAC should take advantage of the situation also keep in mind that market conditions can drastically change for the worse.
Public funding support for infrastructure development is a big challenge for African countries given the need to take on sovereign debt, but there are options for public-private partnerships.
This was clearly shown by Uganda’s 250MW Bujagali hydroelectric dam, partly paid for by the Aga Khan Development Network.
While infrastructure alone will not lead directly to top-level manufacturing, a serious lack of infrastructure and even worse, a decaying one, makes you a non-starter. The EAC cannot afford to miss out.
Such things as bad roads negatively impact on a nation’s manufacturing competitiveness and create obstacles for the supply chain networks of global multinationals. In the coming years, as China moves up the value chain from the world’s factory into an technology innovator, manufacturing will shift elsewhere.
If the EAC borrows smart and uses this money smartly without any controversy over such things as procurement, the region can prosper faster.