Africa encouraged to leverage private financing for infrastructure development in Kenya
The African continent is making a significant shift in its development finance strategy, as African nations are urging each other to pursue public-private partnerships (PPPs) for critical infrastructure development. This move towards PPPs is a response to escalating global trade tensions and supply chain disruptions, as well as a step towards building a self-sufficient trade network.
Deputy President Kithure Kindiki made this call at the Intra-African Trade Fair (IATF) in Algiers, emphasizing the importance of modernizing financial institutions for trade under the African Continental Free Trade Area (AfCFTA). He also highlighted the need to develop railways, roads, and digital networks, stating that these projects will be essential for overcoming a key obstacle to the success of the AfCFTA: a lack of interconnected infrastructure.
The AfCFTA, aimed at creating the world's largest free trade area, connects 1.3 billion people across 55 countries with a combined GDP of $3.4 trillion. However, intra-African trade currently stands at just 14.4% of total African trade, compared to over 60% in Europe and Asia. This low intra-African trade is estimated to add an additional $5 billion annually in transaction costs due to the reliance on hard currencies like the US dollar in African trade.
Several African countries have engaged in joint negotiations on PPPs for infrastructure development, with Ethiopia and Sierra Leone being notable examples. In these countries, the German development agency GIZ supports capacity-building and frameworks for PPPs linked to CFTA goals, aiming to enhance regional connectivity and economic integration.
The push for PPPs comes as Africa grapples with mounting debt distress. Over half of sub-Saharan African countries are at high risk of debt distress or already in crisis. In this context, nations are seeking sustainable alternatives to debt-driven models. The Pan-African Payment and Settlement System (PAPSS), which enables real-time settlement of commercial transactions in local currencies, is one such alternative.
Future infrastructure programs must ensure the participation of women and young people, as stated by Deputy President Kithure Kindiki. Private sector money is crucial in providing public services, and it is essential that these programs are inclusive and empower the next generation of African leaders.
The Kenyan government is actively involved in this shift, with Kenyan negotiations ongoing to extend its Chinese-built Standard Gauge Railway (SGR) to Uganda and eventually the Democratic Republic of Congo. These projects are envisioned to be funded through PPPs.
The move towards PPPs signals a fundamental shift in development finance strategy across Africa. As the continent continues to work towards the goals of the AfCFTA, the focus on PPPs is expected to play a key role in driving economic growth and insulating African economies from external shocks.
