Monday, December 6, 2021

Botswana above domestic infrastructure financing threshold

Botswana is one of the 10 countries in Sub-Saharan Africa which have surpassed the threshold for domestic financing of infrastructure.

There is consensus among experts that when it comes to domestic financing for infrastructure, 5-6 percent of GDP should be sufficient. Alongside the Central Republic of Africa, Rwanda, South Africa, Uganda and Rwanda, Botswana allocates between 7.1 and 8 percent of its GDP to infrastructure. These findings are from the Brookings Institute in the United States, which has just been rated the best think tank in that country and one of the best in the world.

According to Brookings, national governments in Sub-Saharan Africa are the main single source of infrastructure financing, and that role is increasing.

“These governments spend most of their resources on two sectors: transport and energy. That said, the level of public finance is still insufficient to cover the large infrastructure needs: They need to raise more domestic revenues and diversify their sources of revenues. Importantly, though, they need to recognize that new money is not the only way to meet the infrastructure gap as, currently, they have not fully exploited potential efficiency gains. Finally, these governments often lack a strategic approach to infrastructure and pay little attention to sub-national infrastructure needs, which are increasing quickly with the rapid pace of urbanization,” the US think tank says.

The International Monetary Fund estimates that national budget spending by Sub-Saharan African countries reached about US$59.4 billion – or 72.9 percent of total funding for infrastructure in 2012. These figures include financing by international financial institutions (IFIs) such as the World Bank and the African Development Bank of about $8 billion. In Botswana, the stated IFIs have co-financed the Morupule B Power project and the latter is part-financing the Kazungula Bridge whose construction started in December 2014.

As Brookings notes, increasingly nowadays, China is playing a major role in Sub-Saharan African infrastructure financing by filling the gaps that are not met by either the private sector or official development finance (ODF). The largest support has been for resource-rich countries like Botswana. Brookings says that the Asian nation is especially targeting the transport sector, particularly railways and roads.

“These are sub-sectors in which Chinese firms have particular experience and successfully compete for contracts under multilateral financing. They are also sub-sectors that have received less interest from private investment in Sub-Saharan Africa. More recently, Chinese financing has increasingly targeted the energy sector and hydropower in particular. Here China is joining the efforts of Private Participation in Infrastructure and ODF to close the energy gap in sub-Saharan Africa,” Brookings says.


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