Emerging Infrastructure Financing Mechanisms in Sub-Saharan Africa

by Tewodaj Mengistu

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Abstract

It is widely acknowledged that infrastructure plays a fundamental role in stimulating economic growth in developing countries. Conversely, the large infrastructure gap in low and middle income countries (LMICs) is a major impediment to growth. The deficit is particularly acute for Sub-Saharan Africa (SSA) where new infrastructure investment needs are estimated at US $22 billion a year for the next decade. While many SSA countries are unable to finance these investments on their own, the continent has experienced a significant increase in infrastructure investments since the 2000s. A substantial portion of these investments is coming from "non-traditional" sources: The private sector and emerging countries, especially China. However, the determinants of these investments, the terms of engagement underlying the new flows, and the associated tradeoffs are not well-understood. From the policy perspective, while the rise of funding for infrastructure is welcome, if the resources are not channeled adequately, the risk is that the funds will not be invested in a way that would contribute to economic growth and development, and will therefore be wasted. Thus, the overall goal of this dissertation is to better understand the new flows and their policy implications.

Given that the issues associated with Chinese and private sector financing are very different in nature, the dissertation takes a mixed-method approach and is broadly divided into two parts. In a first part, a systematic qualitative comparison between the Chinese approach to infrastructure financing in SSA and that of other large multi- and bilateral financiers is undertaken. Unlike previous research, this dissertation takes a holistic approach and compares the different financing models using a framework that assesses infrastructure financing along the "lifecycle" of an infrastructure investment — from the planning stage to the monitoring and upkeep of the facility once it has been built. In a second part, the determinants and the extent of private participation in infrastructure (PPI) in SSA are compared to that in other LMICs using a cross-country panel regression framework. Additionally, using theoretical findings from the literature on the broader topic of private delivery of public services, the contracting mechanisms used for PPI are further explored.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Overview and Background

  • Chapter Three

    The Role of China as a Financier of SSA Infrastructure

  • Chapter Four

    Determinants of Private Participation in Infrastructure

  • Chapter Five

    Determinants of the Extent of Private Participation in SSA

  • Chapter Six

    Determinants of the Optimal Contract

  • Chapter Seven

    Conclusions and Policy Implications

  • Appendix A

    List of sources for the comparative analysis

  • Appendix B

    Financing Mechanisms for Infrastructure

  • Appendix C

    Historical Context of China-Africa Relations and Motivations of Chinese Involvement in SSA Infrastructure

  • Appendix D

    Exploring the Outcome Variable: PPI

  • Appendix E

    Explanatory Variables - Determinants of PPI

  • Appendix F

    Determinants of PPI - Results

  • Appendix G

    Determinants of PPI - Robustness Checks

  • Appendix H

    PPP Contracts for PPI - Definitions

  • Appendix I

    Determinants of the Extent of PPI - Results

  • Appendix J

    Robustness Checks

  • Appendix K

    Determinants of the Optimal Contract

This document was submitted as a dissertation in June 2013 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Krishna B. Kumar (Chair), Gery Ryan, and Rafiq Dossani.

This report is part of the RAND Corporation dissertation series. PRGS dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a PRGS faculty committee overseeing each dissertation.

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