NAIROBI (Reuters) – The African Union is setting up a fund to finance the construction of urgently needed roads, railways and power plants on the continent, its infrastructure chief said, and is turning to new sources of money due to donor fatigue and higher debt.
The continent has an estimated annual infrastructure finance deficit of $ 60 billion to $ 90 billion, the AU says.
“Africa is financially starved when it comes to expanding its infrastructure,” Raila Odinga, the AU’s high representative for infrastructure, told Reuters.
The AU from 55 nations is now turning to sovereign wealth funds, insurance companies and pension funds in countries like South Africa, Angola, Nigeria, Morocco, Egypt and Kenya to raise the money.
The funds are being asked to invest about 5% of their holdings, said Odinga, “which will actually be more lucrative for these institutions than that money goes unused”.
Talks with the funds are ongoing and the AU experts are setting up the legal and financial structure for the infrastructure fund, which will be administered by the newly established development agency of the African Union, said Odinga.
The move contradicts the previous trend of dependence on wealthy donor countries and borrowing in financial markets.
China, which has been one of the largest financiers of infrastructure projects on the continent for the past decade, has cut lending due to the high debt levels of individual countries such as Kenya.
“We are now trying to think outside the box,” said Odinga.
The urge to find new ways to finance the construction of roads, railways and other utilities comes as Africa seeks to bring 1.3 billion people together in a $ 3.4 trillion economic bloc known as the African Continental Free Trade Area (AfCFTA ) is known.
“This infrastructure is urgently required for the implementation of the AfCFTA, otherwise it will remain on paper,” said Odinga.
Linking landlocked states to coastal ports and completing missing links for transcontinental highways is crucial to facilitate the free flow of goods under the AfCFTA and lift people out of poverty, he said.
“Africa has to trade with itself,” said Odinga, citing figures that show intra-African trade is only 15% compared to intra-European trade levels of 70% and 50% in Asia.