Mark Lowcock: How Britain is helping develop Africa’s infrastructure

Speech by Mark Lowcock, the Permanent Secretary at the Department for International Development looking at how Britain is supporting Africa's economic growth and infrastructure.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Mark Lowcock

Let me first thank Lynda for such a kind introduction. She was a wonderful Minister for Overseas Development between 1989 – 1997, as well as Minister for Africa in the latter years of that period. It was a delight as well as a privilege to run her office from 1992 to 1994.

I remember vividly our first trip together to Africa. It told me a lot about Lynda. We visited 6 countries – Somalia, Kenya, Zambia, Zimbabwe, Mozambique and South Africa – all in 9 days. We were nearly thrown off-track right at the beginning, when the plane due to take us from Nairobi to Mogadishu developed a fault. Lynda simply rang up the RAF in London and asked them to provide a replacement. Which they instantly did. Her energy, desire to get things done and ability to solve problems was a hallmark of her tenure as a Minister. And also of her continuing work in Africa throughout the 16 years since she left office.

I want to congratulate Corporate Africa for attracting such an impressive attendance today.

I would like to say a few words about the prospects for Africa. And then to say why we think infrastructure is so important. And finally to set out some of the key ways in which Britain is helping.

I am an Afro optimist. I believe that this century can be Africa’s century. The African Lions catching up with the Asian Tigers.

Why this optimism? Essentially because Africa has over the last decade started to live up to its potential. And that potential is vast.

First, the continent has enjoyed fast economic growth over the last decade. In their book “The Fastest Billion”, Charles Robinson, Michael Moran and other economists report that 9 of the world’s fastest growing economies are in sub-Saharan Africa. And that 5 of these booming African nations are not associated with either energy or metals exports. Many countries in Africa have finally begun the long awaited period of catch up with the developed world.

The bottom billion is thus becoming the fastest billion.

Second, in the period ahead Africa can enjoy the demographic dividend which has fuelled growth in Asia over the last 30 years. By 2050 nearly 1 person in 4 on the planet will be African. By the end of the century that could be 1 in 3. A growing population is typically accompanied by rising average incomes. And as the ratio of people of working age to dependents rises, economic growth could get a further boost, a trend that can be accelerated by urbanisation.

Third, Africa has huge unexploited natural resources. Its land mass amounts to more than the combined areas of China, the US, India and Europe. Of the 600 million hectares of potentially productive agricultural land, less than 5% is in production. And productivity is a quarter of the global average, which means that enormous gains are potentially feasible.

Africa also of course has a vast and abundant endowment of minerals. Metals, precious stones, oil and gas as well as coal. And major renewable energy potential. These resources are not just concentrated in a few places, as we have seen with new discoveries over the last decade in Ghana, Kenya, Mozambique, Tanzania, Uganda and elsewhere.

Fourth, as the decades pass, Africa’s democracies are becoming more entrenched. While problems remain, violence and conflict have fallen. The 2012 Mo Ibrahim Index found that across four major governance criteria, almost 70% of African countries have improved their scores. The majority of countries have got better at giving people the freedom to participate in wealth creation and to benefit from development to improve the quality of their lives.

Businesses in Africa already share this optimism. Those now active in the continent rate it as the second most attractive investment destination in the world, only just behind Asia.

All that said, there remain important risks to be managed. Poverty remains chronic. There is no guarantee that the mineral boom will be managed well. Democracy and the quality of governance remains much in need of improvement in too many countries. Climate change is a real threat.

A lot remains to be done to unleash the full economic opportunity.

Justine Greening, my Secretary of State, set out the three pillars of the DFID strategy for supporting economic development in her speech at the London Stock Exchange in March.

First, reducing overall barriers to trade and investment – regulatory, infrastructural, legal or institutional.

Second, unlocking the ability of entrepreneurs and business people in developing countries to drive economic growth by making their own businesses more successful.

Third, promoting greater investment by international business, not least those companies from the UK.

Infrastructure is key. Which is why we put such emphasis on it at the G8 Summit we hosted last month. The African Union has emphasised the need for a stronger focus on regional cross-border infrastructure to help achieve its target of doubling intra-African trade by 2022. The G8 specifically committed itself to work with African countries and the regional economic communities to achieve that.

The challenges are real. In a recent speech, Jim Kim, the President of the World Bank, noted that there is a $95 billion annual need for funding for infrastructure in Africa, much currently unfunded. Infrastructure already existing is often poorly maintained, inefficient and hampered by poor revenue collection.

Infrastructure for regional integration is a particular problem with slow border crossings and inadequate connections to the coast. Again, the World Bank estimate that a 1 day reduction in transit times would be sufficient to increase exports from land-locked countries by an average of 7%.

British businesses have long been at the forefront of investing in Africa. In 2011 UK direct investment in the continent reached over £30 billion. We have provided 10% of the total global foreign direct investment to Africa over the last decade. British financial institutions already provide substantial levels of senior debt and equity to infrastructure projects. Other UK companies are heavily involved in providing engineering design and support services.

We are helping through government channels too.

First, DFID is providing technical assistance to improve the enabling environment for investors. It isn’t easy to invest in African infrastructure. I need hardly tell you that. By helping improve the legal environment, the regulatory regime and the functioning of capital markets we are helping address that.

Second, in 2011 we launched the UK African Free Trade Initiative. AFTI, supporting home grown initiatives across the continent, aims to help cut the cost and increase the value of African trade, improve regional transport and energy, tackle burdens and non-tariff barriers like excessive border post bureaucracy, and promote cross border markets.

We provide much of our support in this area through Trademark East Africa and Trademark Southern Africa.

Earlier this week Justine Greening announced that we would provide £28 million for a Trademark East Africa programme modernising the port of Mombasa and cutting the time taken to move goods to Kampala and beyond. We are also financing upgrading of the road link between Uganda and Rwanda. And improving customs facilities at the Ugandan border with South Sudan.

Further south, we’re supporting the project preparation and implementation unit of the Tripartite of the three Regional Economic Communities (COMESA-SADC-EAC). We’re helping them prepare and implement regional projects along the north south corridor, including for roads and energy transmission between the DRC and Zambia.

Third, DFID is helping finance the Public Private Infrastructure Advisory Facility, based at the World Bank, which provides technical assistance to help improve the investment environment for public private infrastructure. One example is PPIAF’s funding for the legal and transactions advisers working on the Lake Kivu gas project, providing up to 100 megawatts power for Rwanda and its neighbours.

We are strong supporters of the Africa Development Bank’s infrastructure work. We particularly welcome President Kaberuka’s Africa 50 fund, intended to unlock private financing and accelerate infrastructure delivery especially in the energy, transport, ICT and water sectors.

And fourth, we are the major financier of the private infrastructure development group – PIDG. DFID has committed up to £700 million to PIDG.

It has a range of facilities. The Emerging Africa Infrastructure Fund provides long term debt on commercial terms to private sector projects. InfraCo Africa develops projects by addressing issues around the risks and cost of early stage project development. Green Africa Power will soon provide long term support including capital and guarantees to cover construction costs and risks for renewable energy projects.

PIDG has now financed 96 infrastructure projects, expected to attract over £17 billion of private investment. By last year 39 of these projects, drawing in over £10 billion of private investment, were operational. And providing nearly 100 million people with new or improved infrastructure services.

And fifth and finally we have strengthened the role of our development finance institution, CDC. In the last decade CDC has invested over £650 million in infrastructure in Africa. CDC was a pioneer investor in telecoms in Africa, where it took a key early stake in Mo Ibrahim’s fantastic Celtel business which grew to operate in 13 countries.

CDC’s investment in African infrastructure also includes the Songas gas facility in Tanzania, the Azito power station in Côte d’Ivoire, and the development of the Johannesburg/Pretoria-Maputo road corridor which, as well as improving road safety, has enabled small businesses to flourish in communities along the way, benefiting from the better transport links.

I hope you will agree that this all amounts to a substantial British contribution.

And we are updating our business model to do even more…

We know the development landscape is changing rapidly, affecting the nature, context and geography of poverty, and the future prospects of the poor. Financing needs are also changing, as more countries reach middle income status, move towards the capital markets and build new relationships with private investors as well as large scale philanthropists.

So we in DFID are currently reviewing our business model. We have been asking whether we are doing the right things, in the right places and in the right way. One conclusion is that we will do a lot more on growth, job creation and supporting the key role of the private sector in promoting economic development.

We are also looking at whether we have the right instruments in this changing world. Our Parliamentary International Development Select Committee is currently conducting an important inquiry on that topic. We look forward to their findings with eager interest.

So by working in partnership with Africa, and harnessing the power of the private sector, Britain is helping to build Africa’s infrastructure. At DFID we are playing our part in opening the door to a brighter future for Africa. A place where the world wants to do business. Which would be good for Africa, good for us and good for the wider world too.

I wish you all the best of success in your proceedings today in helping bring these aspirations to reality.

Published 18 July 2013