Friday, April 20, 2012

Infrastructure development in the COMESA-EAC-SADC Tripartite Free Trade Area

JB Cronje, a tralac Researcher, discusses infrastructure development in the COMESA-EAC-SADC Tripartite Free Trade Area

The COMESA-EAC-SADC Tripartite Free Trade Area Members identified three priority areas for the development of regional infrastructure programmes. The three identified sectors include energy, information and communications, and transport. The motivation for regional infrastructure development is to increase interconnectivity and competitiveness. It will also facilitate intra-African trade which is at 10 per cent very low in comparison with other regions of the world. For example, intra-regional trade for Europe is almost 70 per cent, 52 per cent for Asian countries and 26 per cent for South American countries.

African countries are lagging behind the rest of the world in almost every measure of infrastructure coverage whether it is road or telephone density or power generation. It is estimated that the average economic growth rate for African countries will be 6 per cent per year for the next 30 years. This growth rate would be similar to India’s over the past three decades. This continuing growth will increase the already high demand for infrastructure. For example, power demand will increase from 590 terawatt hours to 3100 terawatt hours; transport volumes will increase 6-8 times and even up to 14 times for some landlocked countries; and port throughput will rise from 265 million tons to more than 2 billion tons. One of the objectives of the Tripartite FTA is to attract private investment through public-private partnerships to fill the infrastructure deficit. However, closing the infrastructure gap will also require appropriate regulation, different funding sources and sound implementation strategies.

Many infrastructure services were previously viewed as government responsibilities. Nowadays infrastructure services are viewed as commercial economic sectors that must operate efficiently to satisfy customers’ needs. This necessitates the introduction of competition into those parts of the network industry that could be supplied competitively; the accommodation of private interests through, for example, private ownership; and, the redefinition of the roles and responsibilities of government.

With an ever increasing number of priorities competing for public funds, governments are increasingly forced to make use of private-sector participation in the development of infrastructure projects. One of the main challenges for governments is to create the necessary incentives to encourage private participation and simultaneously achieve broader policy objectives. Public-private partnerships can be structured in a variety of forms. Responsibility must be assigned to either the public or private sector for the design, construction, operation, maintenance and finance of projects. 

The allocation of each of these elements with their related risks will determine the structure of the partnership. However, these partnerships work best where there is a competitive and well-subscribed market of service providers operating in an investment environment that is well regulated and certain.