President Barack Obama’s trip to Kenya and Ethiopia has focused on trade, investment and entrepreneurship.
One of the highlight of the visit occurred this past weekend when he hosted the Global Entrepreneurship Summit in Nairobi, where thousands of top business leaders, entrepreneurs and politicians gathered to discuss opportunities and challenges in today’s Africa. Obama called on American investors to fund African entrepreneurs to support job creation, backing it up with a pledge of more than US$1 billion in new private and US government commitments for start-ups.
Less discussed, however, was infrastructure investment and the role it plays in driving employment, particularly as China and others pour billions into projects across Africa.
Africa has seen a surge in infrastructure investment in recent decades, most notably in the construction of roads, ports, bridges and airports, yet the continent still has a serious infrastructure gap. The World Bank estimates the continent must spend $93 billion a year through 2020 to close it.
More importantly, however, questions linger over how successful these investments have been in promoting long-term growth in employment.
In particular, concerns have been raised that many of the recent developments suffer from a short-term mindset and make only a small dent in employment beyond the life of the project. Others, such as some financed by the Chinese, bring in their own labor force for much of the work, which further limits the long-term impact on local employment.
So the question is: with hundreds of billions of cash in the pipeline, how can countries on the continent get the most out of all that investment?
An infrastructure surge
Africa has experienced a surge in major infrastructure development projects over the past two decades, which has created many employment opportunities for local communities. They’ve also boosted the marketability of local products.
For instance, due to lack of viable railway infrastructure and machinery, the food chain supply between rural communities (zone of production) and cities (place of consumption) has been disconnected, creating food insecurity for many people. To address this challenge, the Democratic Republic of the Congo invested $31 million in new locomotives and millions more restoring railways to make it easier to market and sell local products.
More broadly, the value of mega-projects under construction in Africa soared 46% last year to $326 billion, according to Deloitte. Almost half of that was in southern Africa, and 80% involved the transport or energy and power sectors.
Such developments have provided significant opportunities for both skilled and unskilled residents alike as the projects are usually quite labor-intensive.
Every $1 billion invested in infrastructure has the potential to generate, on average, about 110,000 related jobs in oil-importing countries and 49,000 jobs in oil-exporting countries, according to the World Bank.
In 2012, the African Development Bank raised $22 billion from a pan-African infrastructure bond to invest based on its Programme for Infrastructure Development in Africa (PIDA) project. Another $368 billion is expected to be invested through 2040 on roads, ports, hospitals, schools and other key infrastructure, which is expected to create hundreds of thousands of jobs.
Resource-rich Angola in the south and Kenya in the east are two countries that have been among the biggest beneficiaries of this growing investment and show how these projects can facilitate strong economic growth.
Angola, for instance, is a prime example of the success of state-led infrastructure spending, primarily through its partnership with China. The impact of these projects on job creation has been encouraging, helping reduce unemployment to 26% in 2014 from 35% eight years earlier. That’s still quite high, but it’s a start.
Kenya, where Obama spent most of his Africa trip, has invested mainly in its energy and railroad infrastructure. That investment is estimated to have boosted growth in the country to 6%–7% through 2017, compared with 5.4% in 2014, providing its citizens with additional employment.
These examples and many more demonstrate how promising infrastructure investment in Africa can be.
Costs versus benefits
But the promise isn’t always fulfilled. One of the main concerns about these projects is that they are contract-based, tied to the duration of the development.
While they generate useful economic opportunities during implementation, many of them often provide only short-term employment gains and fail to provide a long-term sustainable solution to Africa’s persistent underemployment problems. Because the initial jobs are tied to contracts, most people employed in these infrastructure development projects will not be able to secure long-term employment at the closure of their contracts.
Other complaints include the poor working conditions, which are often below international standards and provide limited safety, especially in labor-intensive infrastructure projects. And again, their contract-based nature mean they lack minimum wages, legal protections and security.
The question then becomes: are these projects worth it, despite the problems?
Anticipating what comes next
All in all, despite the shortfalls, infrastructure development in Africa has been positive. Whether in developed or developing countries, the economic benefits of such projects can generally be seen over the long run.
But these projects give a greater boost when they are linked with critical economic sectors such as agriculture, energy and farming. Or when officials anticipate what economic opportunities could be kickstarted by a project and ensure they translate into serious long-term employment.
In the Democratic Republic of the Congo, for instance, roads, ports and other projects are serving as a means toward developing other economic sectors, notably agriculture, tourism, mining and trade. This serves as an anticipatory mechanism within government planning to help ensure sustainable economic growth and social development.
Policies along these lines will be of greater benefit to other African countries as well.
How to get the most out of a project
Governments can follow a few policy suggestions to help ensure they get the most out of infrastructure investment.
For example, governments and other stakeholders should emphasize skills transfer so that after a project is complete, locals can be employed in keeping up the road or bridge. The Democratic Republic of the Congo can be used again as example of how local governments are establishing maintenance and public recycling groups in major cities. This will not only help ensure sustainability of the infrastructure, it will also guarantee long-term jobs for a large number of people.
Anticipating what comes after a project ends is key so that during its development workers can be trained in other jobs that will result, thus offsetting the sudden drop in unemployment at completion.
Africa has complex economic and politic issues and huge infrastructure needs that will drive growth and employment for decades to come. The benefits are many. By taking a careful strategic approach, countries can ensure the short-term projects translate into long-term economic and employment gains.