Africa needs to prioritise on internal development - CNBC Africa

Africa needs to prioritise on internal development

Special Report

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$93 billion is annually needed to fund infrastructure development in Africa. PHOTO: Getty Images

“The challenge for these growth markets is to find viable funding mechanisms and create an enabling environment to literally power the future of a continent that holds 15 per cent of the world’s population,” David Humphrey, head of power and infrastructure at Standard Bank, said in a statement.

“Coupled with funding, financial services institutions are also giving more attention to interest rate risk management and hedging products; foreign exchange, and fuel hedging; and local currency funding on a corporate, structured or project basis.”

According to the World Economic Forum, roughly 93 billion dollars is annually needed to fund infrastructure development in Africa alone.

(READ MORE: Infrastructure still Africa's biggest problem)

Despite the continent being regarded as the next frontier market, its growing middle class and consumer markets are expected to add even more pressure for countries to deliver consumers’ needs for more quality and variety at the same level as the rest of the world.

“These challenges cannot be viewed in a silo and without a broader economic context. Global economic activity remains subdued, and despite signs of strengthening in high-income countries, significant downside risks persist,” Standard Bank explained.

“This affects factors such as intra-trade flows, the cost of capital equipment, and rising energy costs.”

According to a 2013 United Nations Conference on Trade and Development survey, foreign direct investment (FDI) flows to African countries increased by five per cent to 50 billion dollars in 2012, despite the fact that FDI flows globally decelerated by 18 per cent.

“While natural resources are still the mainstay of FDI flows to Africa, FDI in consumer-oriented manufacturing and services is beginning to climb, reflecting the growing purchasing power of the continent’s emerging middle class,” Standard Bank explained.

“Between 2008 and 2012, the share of consumer-related industries in the value of greenfields investment projects in Africa grew from 7 per cent of the total to 23 per cent.”

Adding to the period of prosperity in terms of growth in consumer demand, international luxury goods companies have made the exodus into the continent.

(READ MORE: Africa's appetitie for luxury goods to be sated)

According to Euromonitor International, markets such as Kenya, South Africa and Nigeria in particular lead the way as vehicles for this particular demand.

Before various African countries can begin to meet its growing middle class consumer demands, key internal structures such as infrastructure and intra-regional trade relations would need to be reinforced.

“For the Pan-African agenda, the development of cross-border projects, such as transport corridors and transnational water and power supplies is required. An estimate of Africa’s current road coverage is 34 per cent, while its electricity access average is at only 30 per cent,” Standard Bank explained.

“Regional collaboration is particularly critical to landlocked nations, which can pay almost double to export their goods compared with coastal nations.”

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