High Ambitions and High Risks: Programme for Infrastructure Development in Africa (PIDA) By Dr. Mzukisi Qobo About the Author Dr Mzukisi Qobo is senior lecturer in the Department of Political Sciences at the University of Pretoria and Deputy Director at the Centre for the Study of Governance Innovation (GovInn) at the same university. He is also a political risk analyst focusing on Africa’s political economy and emerging powers. He previously worked for the South African government as chief director responsible for trade policy at the Department of Trade and Industry. Acknowledgements  I wish to acknowledge the research support of Ms Dimpho Motsamai who is policy analyst with the Conflict Prevention and Risk Analysis division of the Institute for Security Studies. Ms Motsamai is pursuing her Ph.D. at the the University of the Witwatersrand, South Africa. I also with to acknowledge the support of the Heinrich Böll Foundation - North America. Nancy Alexander commented extensively and offered valuable inputs on various drafts of this paper. I value her support, guidance and encouragement. Any errors are those of the author. Published by the Heinrich Böll Stiftung Washington, DC, April 2014 Creative Commons Attribution NonCommercial-NoDerivs 3.0 Unported License Author: Dr. Mzukisi Qobo Editor: Nancy Alexander Design: Anna Liesa Fero Cover Image: “Power to the people #1: Eskom’s new 765kV lines tower over existing transmission lines” by Andrew Ashton (CC BY-NC-ND 2.0) Heinrich Böll Stiftung North America 1432 K Street NW Suite 500 Washington, DC 20005 United States T +1 202 462 7512 F +1 202 462 5230 E [email protected] www.us.boell.org Table of Contents ACRONYMS 5 1. Overview 6 Chart 1: Key Institutions Driving PIDA 6 Chart 2: Sectors and Funding Gap 7 Chart 3: Regional Variations and PIDA Cost 8 2. PIDA Governance 8 PIDA operational model 8 The Presidential Infrastructure Champions Initiative (PICI) 8 3. PIDA’s Vision 9 Foggy Vision? 9 Box 1: PIDA Hydropower Case Study 10 Table 1: List of PIDA regional energy projects and costs 12 Box 2: Examples of Renewable Energy Initiatives: South African and Kenya 13 Regional variation 15 4. PIDA’s Project Cycle 15 Project Preparation 15 Project Implementation 16 Table 2: Milestones of the Project Cycle 16 Table 3: RECs covered by PIDA 16 Chart 4: PIDA Priority Action Plan by Region 17 Chart 5: PIDA Strategic Framework 17 5. The Role of the Private Sector 18 6. PIDA Norm diffusion 19 7. External Actors and PIDA 20 ICA and EU 20 G20 20 The BRICS Bank and Infrastructure Development 21 8. Conclusion: PIDA Challenges and Opportunities 21 ANNEX I: Bujagali Dam: Case Study 25 ANNEX II: PIDA’s Energy, Transportation, and Water Projects on the African Continent 26 a) PIDA’s energy impact 26 b) PIDA’s transport impact 27 c) PIDA’s transboundary water impact 28 High Ambitions and High Risks 4 Dr. Mzukisi Qobo ACRONYMS AfDB African Development Bank AU African Union AUC African Union Commission CAR Central African Republic EU European Union ECA Economic Commission on Africa (of the UN) ICA Infrastructure Consortium for Africa IFC International Finance Corporation (of the World Bank Group) IPP Independent Power Producer PICI Presidential Infrastructure Champions Initiative NEPAD New Partnership for Africa’s Development ODA Official Development Assistance PIDA Programme for Infrastructure Development in Africa PAP Priority Action Plan (of PIDA) PPP Public Private Partnership REC Regional Economic Community REIPPP Renewable Energy Independent Power Producer Programme Regional Economic Communities in Africa CEN-SAD The Community of Sahel-Saharan States COMESA Common Market for Eastern and Southern Africa EAC East African Community ECCAS Economic Community of Central African States ECOWAS Economic Community of West African States IGAD Intergovernmental Authority on Development SADC Southern African Development Community UMA Arab Maghreb Union 5 High Ambitions and High Risks 1. Overview In 2012, African Heads of State adopted PIDA as a strategic framework that will run through 2040 in order According to the World Bank’s claim, Africa’s to develop continental (cross-border) infrastructure infrastructure funding gap is $93 billion per year until (Energy, Transport, Information and Communication 2020, and 40% of this is for power needs. Of this total, Technologies (ICT) and Trans-boundary Water about $66 billion per year represents Sub-Saharan Resources). PIDA’s main purpose is to strengthen Africa’s funding gap until 2020. Africa can bridge the consensus and ownership of large cross- this gap if it doubles its spending on infrastructure border infrastructure project that integrate energy, (investment plus operations and maintenance) to transportation, and water development on a continental about 15% of the continental GDP. Importantly, if Africa scale. recovers the approximately $50 billion in illicit financial flows that leave the continent each year, it would go PIDA is spearheaded by three pivotal African a long way toward financing its broader development institutions: the African Union Commission (AUC), the agenda.1 New Partnership for Africa’s Development Planning and Coordination Agency (NEPAD Agency), and the In justifying a major expansion in spending, a World African Development Bank (AfDB). Bank’s study, “Infrastructure: A Time for Transformation”, conducted in 24 African countries, estimates that the Chart 1: Key Institutions Driving PIDA poor state of infrastructure in Sub-Saharan Africa cuts national economic growth by 2 percentage points every year and reduces business productivity by as much as 40 percent.2 Accordingly, infrastructure improvements are associated with increased economic growth rate, and with little consideration of negative environmental and other externalities. African Leaders support the recommended scaling-up of infrastructure development and called for the creation of the Programme for Infrastructure Development in Africa (PIDA), as the blueprint for the continent.3 This programme weaves together two plans: the New Economic Partnership for Africa’s Development (NEPAD)4 and the Infrastructure Master Plan of the African Union (AU) in a single, inter-regional, and overarching framework for infrastructure development for Africa. PIDA’s projects are estimated at $360 billion up to 2040. For its 51 priority action projects (PAP), the cost estimate stands at $68 billion from 2012 to 2020, or $7.5 1 Fioramonti highlights the risks of preoccupation with billion in expenditure per year.5 Since PIDA spending GDP to the exclusion of a variety of other social dimensions for represents about 17% of the anticipated $45 billion policy making. He lays out his argument perspicaciously in “Gross annual increase in infrastructure spending, the manner Domestic Problem: The Politics of the World’s Most Powerful Number.” London: Zed Books, pp.50-81. in which it complements other infrastructure spending 2 Foster, Vivien and Briceno-Garmendia, C, “Africa In- on the continent is critical. See Annex II for maps of frastructure: A Time for Transformation.” Washington D.C: World PIDA’s energy, water and transportation projects. Bank, 2010. Middle income countries spend about $16bn from do- mestic sources, often representing 5-6 percent of GDP, whereas PIDA is also intended to support economic integration low-income countries spend $1.4 to $6.7bn, which represent 6% to 10% of GDP. of Africa and its nine regional economic communities 3 OECD: Mapping Support for Africa’s Infrastructure Investment (2012) 4 NEPAD’s Short Term Action Plan and its Medium to 5 World Economic Forum, Strategic Infrastructure in Af- Long Term Strategic Framework. rica: A Business Approach to Project Acceleration (2013). 6 Dr. Mzukisi Qobo (RECs). Infrastructure deficiencies are seen as This report describes PIDA in the context of Africa’s competitive disadvantages as they hinder intra-regional infrastructure needs; its vision; its projects; its trade flows and make it harder to take advantage of aspirations to attract private financing; and the way that regional markets. external actors, including public and private lenders and investors, relate to PIDA and infrastructure investment Currently, the bulk of infrastructure spending in African opportunities more broadly. This is especially critical countries, about two-thirds, comes from domestic since the financial architecture for infrastructure is sources. African governments, infrastructure users, undergoing dramatic changes that present high risks the private sector, and external sources (outside of as well as opportunities for the continent. official development assistance (ODA)) are said to contribute a combined $45bn.6 With respect to the four PIDA will funnel resources from a new generation of areas of prioritisation, PIDA highlights: energy, which development finance institutions is being launched, takes the lion share at $40 billion (60%), followed by including the Asian Infrastructure Investment Bank, transport (roads, railroads, ports and airports) at $25.4 and a BRICS Bank (led by Brazil, Russia, India, China, billion (37%), and water at $1.7 billion (2.5%). ICT and South Africa) which may invest heavily in African sector accounts for only $0.5 billion.7 These areas are infrastructure. There are also private equity funds that regarded as both public and private sector challenges. are both listed and unlisted, and with the intention to invest in Africa’s infrastructure. Sovereign wealth funds PIDA’s blueprints assume that “the average economic too are mobilised to augment Africa’s infrastructure. growth rate for African countries will be 6% a year Importantly, each of the BRICS countries, especially between 2010 and 2040, driven by a surging population, China, has a rising investment portfolio in Africa. increasing levels of education and technology absorption.”8 With the strong encouragement of the Group of 20 (G20), existing development finance institutions are re- orienting their business lines to feature infrastructure. Chart 2: Sectors and Funding Gap For instance, in 2014, the World Bank Group is expected to launch a new Global Infrastructure Facility. To expand the assets of new and existing institutions, the G20 is working to mobilize long-term institutional investors, such as pension funds, to take advantage of infrastructure as an “asset class” with potential for strong, long-term returns. This report also focuses on the challenges of infrastructure as an aspect of development, and more specifically assesses the efforts undertaken by PIDA, African policymakers and external actors to overcome these challenges. In particular, it undertakes a critical assessment of the gaps in the governance of infrastructure projects, especially: the fragmented nature of programme execution; lack of effective agency coordination; and weaknesses with respect to environment and social impacts, which are often dealt with at the domestic level where institutional capacities can be weak. 6 Foster, Vivien and Briceno-Garmendia, C, “Africa In- frastructure: A Time for Transformation.” Washington D.C: World The report concludes that PIDA represents both high Bank, 2010, p.65. 7 “Programme for Infrastructure Development in Africa: ambitions and high risks. It will be promising if PIDA Closing Africa’s Infrastructure Gap.” can serve as the blueprint for multiple and competing 8 PIDA: Interconnecting and Transforming a Continent: sources to invest in sustainable and equitable African Union Commission, African Development Bank, Economic infrastructure. Yet, as the conclusion describes, Commission for Africa. 7 High Ambitions and High Risks PIDA must rise to meet a range of challenges related peer review.9 to: political buy-in; sensitivity to environmental, • A steering committee chaired by the AU. The employment and social questions; costs to taxpayers Steering Committee comprises representatives of and users of infrastructure services; institutional the AUC, AfDB, NEPAD Secretariat, RECs and the capacity; technical ability to harmonize policies and Economic Commission for Africa (ECA). It serves regulations within and across borders; and security. as the programme orientation and approval organ of the POE. Its other functions include providing coordination; direction; and facilitating cooperation Chart 3: Regional Variations and PIDA Cost with regional and national institutions vis a vis research and data collection and navigating political and security hindrances. • The Technical Committee is chaired by the AfDB and serves as the quality control organ. It comprises experts from the AUC, NEPAD Secretariat, AfDB, ECA and resource persons from the specialized regional and international institutions. It is a technical group, and will also be responsible for preparing meetings of the Steering Committee. • AfDB as the executing agency is responsible for PIDA’s contractual, financial and administrative management. • A Project Management team led by division managers, including the NEPAD Division Manager, and the Regional Integration and Trade Department 2. PIDA Governance of AfDB.10 Overall political accountability of the programme falls The PIDA Priority Action Plan sets out the top priority under the AU, in particular, the AU Summit.11 regional infrastructure needs up to 2020 estimated to cost $68 billion; and rightly points out that African The Presidential Infrastructure Champions Initiative countries will have to mobilize most of this financing (PICI) themselves from domestic public and private resources as well as through foreign private investment. National The Presidential Infrastructure Champions Initiative governments are expected to take action to address (PICI) is a mechanism for consolidating support for key the many barriers to trade and investment that hold PIDA projects, especially to sustain political will and back PIDA implementation. commitment at national levels. This mechanism uses PIDA operational model the concept of “political championing” by individual heads of states/governments in order to accelerate the implementation of prioritized regional and continental The governance structure of PIDA was envisaged infrastructure projects in the continent. However, this as participatory and involves, in particular, the AU mechanism also risks marginalizing citizens and their Commission, the NEPAD Secretariat and the African elected representatives in parliaments. It could become Development Bank, which are jointly the programme too elite-driven to have resonance with citizens or even sponsors and owners. The structure claims to hinge allow for accountability to national parliaments. on two main principles: i) Results-based Programme management and efficiency; and ii) the participation of each key stakeholder (See table 1) in PIDA governance organs. These stakeholders include: 9 See the PIDA organisational profile at the PIDA website here. 10 Ibid. • A seven-member panel of Experts (POE), which 11 Author interview with Michele Reuters, Infrastructure guides PIDA consultants and provides high-level Specialist- Development Bank of Southern Africa, 21 March 2014. 8 Dr. Mzukisi Qobo NEPAD serves as the PICI secretariat. What this colonial era, infrastructure was used to extract raw means is that NEPAD is expected to play a role as materials from subject countries. To develop, countries an executing agency and coordinator, while the AUC have diversified through processes of industrialization is a member of its Technical Task Team. PICI has (secondary and tertiary processing of raw materials) Seven Projects for which there are “Six Champions” - and service provision. Often, countries have pursued namely, the “host” countries. The various projects and labour-intensive industrialization in order to absorb their champions are: the Nigeria-Algeria Gas pipeline excess labour and expand domestic demand. (Nigeria); the trans-Saharan highway (Algeria); Congo- DRC rail, road and border post (DRC); North-South Today, the economies of Sub-Saharan Africa are Corridor rail and road (South Africa); the Great Lakes still significantly dependent upon the export of raw optical fibre network (Rwanda); and Dakar-Ndjamena- materials. Industrialisation remains a pipedream. Djibouti rail and road (Senegal). The PICI project under Instead, there has been evidence of deindustrialization the responsibility of Egypt became defunct largely in Sub-Saharan Africa to the point where today, the owing to that country’s protracted political instability.12 industrial sector has a smaller share of GDP than it The projects that are performing well in PIDA are those had in 1970.15 that have active PICI Champions13, as set out above. Those that do not have champions are laggards. It remains unclear how PIDA’s high ambition will help pilot a development trajectory that can shift Africa 3. PIDA’s Vision away from resource-dependence towards broad diversification of economic sectors. Foggy Vision? A set of visions for each sector was articulated in the PIDA framework. The grand vision for PIDA is that of economic integration and to act as a springboard for growth and prosperity. On water, PIDA’s vision is “to promote integrated water As noted below, PIDA’s projects are implemented by resources management to develop transboundary the nine regional economic communities (RECs) within water infrastructure projects, strengthen transboundary Africa with the goal of internal integration within each management frameworks for regional integration REC as well as integration among the RECs. and enable water security for the socio-economic development of Africa”. Trans-boundary water The core principles that guide PIDA include an resources are by their very nature shared resources integrated vision of infrastructure development; build that require regional cooperation with the purpose being synergies between the priority infrastructure sectors; to ensure food security and hydropower generation. ensure harmonised national policies, regulatory and Yet, it critical that such a vision advance access to institutional frameworks; adopt a strategic approach water services and agricultural prosperity, since lack towards prioritisation of programmes; establish effective of access severely constrains quality of life, health, regional mechanisma for programme development livelihoods, and progress. This is especially important and implementation; promote innovative financing since, due to the impact of climate change, agricultural architecture and private sector orientation; and ensure yields could decline by as much as 50% by 2020 and stronger partnerships and coordination.14 millions of people could be at risk of increased water stress.16 The principles lead to a foggy vision because, in the 12 The department of International Relations and coopera- Roughly 80 percent of Africa’s waters are shared tion, “Presentation on the AU/NEPAD Presidential Infrastructure across borders and growing populations and climate Championing Initiative (PICI) aimed at advancing Regional Inte- change could, therefore, exacerbate sources of intra- gration through Infrastructure development in Africa,” 3 February 2012 13 Author interview with Ms. Xolelwa Mlumbi-Peter, Chief 15 “Industrial Policy in the African Context,” Joseph Stiglitz, Director: Africa Multilateral: International Trade and Economic Justin Lin, Célestin Monga, and Ebrahim Patel, Policy Research Development Division, Department of Trade and Industry, South Paper 6633, World Bank, September 2013. Africa, 25 March 2014. 16 UNCTAD, “Economic development in Africa: Structural 14 PIDA Executive Note, “Interconnecting, Integrating, and transformation and sustainable development in Africa,” Trade and Transforming a Continent”, 1 April 2012. Unpublished Note. Development Board, 17-28 September 2012, p. 4. 9 High Ambitions and High Risks regional tensions and conflict. and security of access to broadband connectivity. Regarding transport, PIDA’s vision is to “work From North to South, examples of PIDA water projects towards an integrated continent where the transport include: infrastructure and services enable the free movement of goods and passengers”. It hopes to achieve this • the North-West Sahara Aquifer System, by improving interconnections of African capitals and • Dams: Gourbassy Dam,Fomi Dam, Noumbiel Dam, major centres with modern paved roads and modern Palombo Dam rail systems, amongst others. This, of course, is with a • Lesotho Highlands Water Project (Phase II Water view to build functional transport corridors and facilitate Transfer) trade. • On Information Communications Technologies, Transport has importance for trade facilitation, PIDA’s vision seeks to “enable Africa to build an strengthening economic relations, creating larger information society and an integrated digital economy markets, facilitating mobility of people, and enhancing in which every government, business and citizens has overall socio-economic development. access to reliable and affordable ICT networks.” To achieve this PIDA sets out to double the ICT contribution Currently 20 – 25 percent of roads are paved on the to GDP from 5% to 10% by 2025; and increase access continent, with level of maintenance worsening since Box 1: PIDA Hydropower Case Study PIDA Hydropower Case Study: Ruzizi III An example of a promising project is the Ruzizi III project , a 145 MW hydropower plant located on the Ruzizi River that flows between Lake Kivu, bordering the Democratic Republic of Congo and Rwanda, and Lake Tanganyika in Tanzania, which will cost $400million –$600 million. As is well-known, for over two decades, this part of Sub-Saharan Africa has existed under a cloud of internal and cross-border tensions that took on ethnic dimensions. This is also an area that has high poverty levels, with countries that are characterised as “least-developed”. Using low-cost renewable resource in the form of hydropower and geothermal energy promises to go a long way in generating energy that will not only be accessible to the citizens, but also hold promise for economic growth. It is also hoped that this form of eco- nomic cooperation over a resource that is vital for the three countries will act as a pivot for stability. This hydropower plant generates electricity in equal portions for Rwanda, Burundi and the Democratic Republic of Congo (DRC). This, in a sense, is a form of regional integration arrangement, which requires a great deal of cooperation amongst the various partners to manage this critical public good. It straddles countries from the East African Community and the Common Market for East and Southern Africa (COMESA). The objectives of this project are to bridge the medium-term energy deficit; provide energy necessary for economic recovery in the sub-region; and contribute to reconstruction and re- habilitation of socio-economic infrastructure and rural electrification. One of the signifying factors of this project is that it is the first regional PPP in Africa that is financed through debt and equity, and with a majority of private ownership. Significantly, it is part of the PIDA Priority Action Plan. The feasibility for the project was undertaken by SOFRECO (French) and Fichtner (German) during 2008-2011. If there is any doubt about the thrust of donor-supported infrastructure programmes in Africa, and PIDA projects in particular, the Ruzizi III project is an exhibit: these are commercially-based projects, and largely driven by the private sector. The private sector and donors tend to trust projects that are based on a transparent and clear regulatory framework that is reflected in viable PPP, i.e., underpinned by feasibility assessments (“bankability”) and legal agreements. For energy projects, this is in the form of Power Purchasing Agreements by government-backed off-takers (public utilities companies). A private consortium selected through a tender process (see below) will build, operate, own, and transfer the plant back to government after 20 years. The strength of the project so far is due to a set of conditions that have been put into place: 10