Infrastructure is the backbone of economies throughout the universe. An efficient and well-maintained infrastructure is critical in sustaining an economy.
By Dephine Mazambani
Infrastructure is considered a key component of the investment climate as it reduces the costs of doing business by enabling people to access markets as it allows the easy flow of people and movement of goods. Even as we consider regional integration and therefore enlarged markets, infrastructure will determine what benefits will be realised from such integration.
The World Bank in 2008 acknowledged that a 10% increase in infrastructure development contributes 1% to the growth of gross domestic product in the long term. In Sub-Saharan Africa, infrastructure development has contributed about half of the recent acceleration in growth. Between 1990 and 2005, China invested approximately $600 billion in upgrades to its road system which connected all of its larger cities. Such infrastructure investments are some of the leading contributory factors to China becoming the largest economy in terms of the Purchasing Power Parity (PPP).
Poor or no infrastructure is a drawback, especially in Africa when it comes to economic growth and poverty is the order of the day. Increasing the stock of infrastructure even by small percentage points will definitely push gross domestic product in the positive direction. Therefore, it is vital for developing countries to come up with infrastructural financing options which will enable for short term and long term growth in respective economies.
Zimbabwe’s infrastructure was once ranked among the best in Africa. This is now a mirage from the past and the infrastructure is now dilapidated. “The Zimbabwean Economy has poor infrastructure which has become one of the major impediments to economic development. The increasingly dilapidated roads and rail network, information and communication technology (ICT), water and sanitation and energy sectors have resulted in investors shunning the country,’’ part of the Interim Poverty Reduction Strategy Paper of 2016-2018 reads.
The 2017-18 Global Competitiveness Report ranks Zimbabwe’s Infrastructure development at number 123 out of 138; one being the best and this is a sure indicator of how far the deterioration in our infrastructure has gone. Against this background, there is need for policy makers to come up with noble infrastructure financing options that will assist the economy to develop as other countries in Africa are doing notably Rwanda, Botswana and South Africa.
Policy makers need to take into consideration issues like harnessing diaspora remittances, which is an important component in providing infrastructure options for the economy. Harnessing Diaspora funds through diaspora savings accounts with attractive returns could be a mechanism for financing infrastructure. Public Private Partnerships (PPPs) have already been explored and there is need to increase and expedite this initiative of infrastructure financing.
PPPs are contractual arrangements in which governments form partnerships with the private sector to design, finance, build and maintain infrastructure such as roads, water supply facilities, and wastewater treatment plants. For instance, the construction of the Gwayi-Tshangani Dam or Tokwe Mukosi in Matabeleland North and Masvingo South required PPP Infrastructure finance as this provides for irrigation to boost agriculture during times of uneven patterns of rainfall.
In the transport sector, for example, road construction requires PPPs in order to provide continuous and long term finance. Another notable example is the $984 million Beitbridge-Harare highway dualisation project which was launched in May 2017 and is expected to be completed over three years. PPPs have become crucial in kick-starting such projects, which have an added component where 40% of the project value will be earmarked and sub-contracted to local companies, positively impacting local employment creation.
Provision of capital expenditure through infrastructure sharing is an essential part in the provision of infrastructure financing in sectors like the Information Communication Technology. In 2016 the Government of Zimbabwe, through the Ministry of Information Communication Technology, passed a new regulation, Statutory Instrument (SI) 137 of 2016 introducing compulsory infrastructure sharing for the country’s telecommunications operators. However, the policy has still not been put into full effect, although there is notable progress in that direction. Joint ventures in constructing ICT infrastructure could go a long way in cost sharing, thereby increasing consumer welfare.
Consideration for the issuance of infrastructure bonds at low interest rate is key. These infrastructural bonds could then be pegged at the United States dollar interest rate in order to bring confidence to the market.
Efforts are already underway to attract investment and the bond markets should be explored. Crucially, such bonds should ideally be listed on local stock exchanges in order to improve market depth and promote liquidity of the instruments.
Multilateral institutions can also play a key role in financing infrastructure projects. The clearance of Zimbabwe’s external debt arrears is therefore key in unlocking new financing options for infrastructural investment and development.
However, whilst this could be viewed as a long term plan as it will take time to implement, in the near term, a clear policy direction and strategy as well effort towards debt clearance is an immediate imperative.
Government needs negotiations with other neighbouring African member states in order to seek for infrastructure funds which will improve trade facilitation in the region. Zimbabwe is a signatory to a number of regional blocs such as the Southern African Development Community. This has many implications on the design and implementation of infrastructure financing, policy and programmes in Zimbabwe. For example, the construction of the Beitbridge-Harare highway dualisation will assist other member states surrounding Zimbabwe in terms of Trade Facilitation.
Private players are also crucial in providing financing infrastructure projects, however private players in nature are profit making institutions and where there are free rider challenges, private players are unlikely to readily finance such public infrastructure projects. It remains key, however that Zimbabwe needs to develop its infrastructure because of the positive multiplier effects that this will have on all sectors of the economy.
Dephine Mazambani writes in her capacity as Chief Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, Dephine can be contacted on firstname.lastname@example.org or on numbers 04-744686 and 0773841566