Overall trends in Africa continue to be positive, despite the difficulties associated with the process of profound change.

Foreword
Overview
Part I Monitoring recent events
Political Developments:

West Africa
Central Africa
East Africa
Southern Africa

Economic and Social Performance:

Economic trends
Trends in social indicators
External resource flows

Part II Infrastructure and Growth in Sub-saharan Africa:Toward a new strategy

Infrastructure in Sub-Saharan Africa Today:

Transportation
Roads
Railways
Ports

Electric Power
Telecommunications
Priorities for Infrastructure Development

Institutional reform
Choices in management

Financing Options for Infrastructure Development

Private investment in infrastructure
Mobilizing investment financing
Attracting private capital
Sub-Saharan Development indicators

Foreword

This annual review of social and economic trends in Africa presents a picture of continuing change throughout the continent. African leaders recognize that their people want better, more participatory, and more open governmentas well as increased freedom to pursue opportunities for business enterprise, free of bureaucratic interference. In this respect, Nigeria provides a recent example of the strong popular demand for good governance, transparency, and democratic choice in virtually all African countries.

Countries that have embraced economic and political reform are seeing more growth and stability, but those that have resisted change continue to experience difficulties. An increasing number of African countries are quietly and peacefully making changes to speed up economic growth, liberalize their political systems, and attract both national and international private investments. As the pace of global change quickens, these reform-oriented African countries are implementing policies to improve their international competitiveness. In effect they must compare their efforts and progress against the performance and growth prospects of the rest of the worldnot against their own past performance. The wide spectrum of political and economic change in Africa that this review describesfrom the quietly effective to the chronically unstablefurther highlights the diversity among Sub-Saharan African countries.

The political news from Africa continues to be mixed. There have been advances in democratization and constitutional government in all regions. But persistent conflict in a few countries continues to hurt Africas international image.

The good economic performance of recent years has continued, with many countries achieving growth rates of more than 4 percent. This is a direct result of the consistent application of the long-term programs of economic reform that have been at the top of the Global Coalition for Africa (GCA) agenda for several years. Of course, much higher rates of growth and domestic investment are needed for real poverty reduction, but there are no reasons why several of these countries cannot eventually reach these levels.

The ongoing economic crisis that began in East Asia, of interest to Africa because of its impact on the global economy, provides lessons for future reference in Africa. Among the countries immediately affected by the international market volatility was South Africa. But in the longer term most African countries will be affected by reduced Asian demand for African exports, particularly minerals and oil, and a reduction in Asian investments. Among the lessons of the East Asian crisis: the importance of openness, transparency, and economic and political accountability, as well as the indispensability of prudential regulation of the financial sector.

As in earlier years the GCA continues to concentrate on how African governments and the private sector can work as partners to accelerate economic expansion. In November 1997 in Maputo the GCA Policy Forum took up the issue of corruption, which is clearly a development problem as well as a moral issue. GCA Chairperson Emeritus Robert McNamara has been working directly with several African governments to establish anticorruption measures for domestic and international transactions. In March 1998 the GCA Economic Committee met in Gabarone to discuss investment promotion in Africa. A special essay in this annual report discusses the crucial role of infrastructure in development.

The GCA also continues to work at the cutting edge of African development issues to generate discussion and stimulate consensus between African countries and their development partners. In 1998 we again communicated our views on African development issues directly to the Group of Eight countries (G-8) before their annual summit in Birmingham, United Kingdom. As in 1997 we expressed particular concern about the need to do more to alleviate the crushing burden of Africas external debtand to continue concessional assistance.

We take this opportunity to express our gratitude to the Hon. Christine Stewart, who resigned as GCA Co-Chairperson, and to welcome the Hon. Diane Marleau, Canadian Minister for International Development and Minister responsible for La Francophonie, as Co-Chairperson of the GCA.

Co-Chairpersons
Ketumile Masire
Alpha O. Konaré
Meles Zenawi
Jan P. Pronk
Diane Marleau
Frene Ginwala

Overview

Africas latest economic and social indicators show that the region continued the steady positive trend of recent years. Overall, African countries registered impressive GDP growth rates of 4 percent in 1996 and 3.6 percent in 1997. Not surprisingly, individual country performances vary considerably, with more than a dozen countries growing by more than 5 percent, but some posting very low or even negative scores.

In general, African economic performance suggests that more countries are on the right path to sustainable development. But some larger countries with abundant resources and potential to become regional growth engines, such as Nigeria and the Democratic Republic of the Congo, continue to be plagued by instability and poor governance. And South Africa, the regions biggest economy, has yet to resume robust and sustained growth.

Behind the economic success are strong correlations with sound macroeconomic policies, political stability, internal security, good governance, a favorable environment for the private sector, and open societies with personal freedom. Countries that have not implemented sound economic reforms, or that are suffering from violent conflict, repressive and corrupt governance, or an antibusiness atmosphere, are clearly falling behind.

Even for countries enjoying strong economic growthsuch as Burkina Faso, Côte dIvoire, Mali, and Ugandaone cannot say that they are on the threshold of reducing their high levels of poverty. To do that, annual growth rates will have to rise to between 7 and 9 percent, and investments will have to go from the current average of 17 percent of GDP to as high as 2530 percent. And to reach those levels, African countries will need to reform and strengthen their banking systems, vastly improve the mobilization of domestic savings, establish attractive conditions for both domestic and foreign private investment, and create the confidence needed to encourage citizens to produce wealth and generate revenues required for social programs to help the poor.

The changes needed to achieve this second level of structural reforms will not be easy to implement. Why? Because vested interests block the way. Because the availability and utilization of institutional capacity is limited. Because resources are constrained. And because often there is an absence of political will.

There have been some significant reverses recently, including the resurgence of conflict in Central Africa. The high profile media reports associated with conflict give the impression that civil unrest is the norm in Africa. Even so it would be more accurate to describe todays Africa as a continent undergoing promising economic and political change rather than one bedeviled by widespread conflict. Change inevitably brings strain, but in most African countries change in recent years has been toward fewer restrictions on political activity, increased individual freedom, greater citizen participation in governance, and more open economic systems.

Amid the political and economic change in Africa, interesting patterns are emerging. Some countries are taking charge of their development strategies, assuming leadership in coordinating their efforts with those of their development partners. They are also acting more through subregional mechanisms to restore peace and security. Above all, African populations are showing stronger determination in their rejection of continued authoritarianism and corruption. Many will be watching Nigeria in 1998 and 1999, hoping that this giant will finally fulfill its great potential for democracy and prosperity.

One positive change appearing in several African countries is the increase in private sector activity. Many impediments to private sector growth have been removed as governments roll back their involvement in the economy. But inadequate provision of infrastructure remains a significant constraint. Part II of this report looks at the state of Africas infrastructure. It also reviews some of the financing and management options that may help African countries improve the coverage and quality of infrastructure and to take advantage of new technologies.

Ahmedou Ould-Abdallah
Executive Secretary

Part I Monitoring recent events

For the period covered by this report many African countries were continuing to benefit from economic growth surpassing population growth, and from progress toward pluralistic, participatory, and transparent governance. Some countries also deepened moves toward regional economic integrationmost notably the member states of the West African Economic and Monetary Union (UEMOA) and the East African Cooperation states of Kenya, Tanzania, and Uganda.

But it was not all good news. The period was marked by violent conflict within and between states, suggesting a continuing tendency to resort to arms to resolve differences, regardless of the cost. And the persistence in some countries of the corrupt authoritarian rule so widespread in the past points to the difficulty of overcoming the legacy of the one-party system, breaking entrenched coalitions of vested interests and bringing about effective political change. Needless to say, both the countries in conflict and those still governed under authoritarian systems are experiencing negligible or even negative economic growth. One positive development, even in these countries, however, is the expansion of civil liberties and popular access to information.

African countries reinforced their differentiation in four distinct categories. Some are persisting with economic and political reforms and beginning to see the fruits of their efforts. Some continue to be held back, both politically and economically, by anachronistic regimes, despite the outward trappings of multiparty democracy. Some are caught up in chronic conflict that has become, or is threatening to become, violent. And some are postconflict countries that need to deal with the urgent requirements of demobilization and reconstruction of essential infrastructure and services, as they embark on political and economic reform.

Political developments

Although major violent conflict in Africa continues to decline steadily, new disputes, as well as the stubborn persistence of some long-standing hostilities, tend to give the continent an unwarranted image of instability and insecurity. Changing this image by resolving differences before they escalate into violence is thus a development imperative for Africa. Of particular concern is the interstate conflict between Ethiopia and Eritreaa dangerous phenomenon that had more or less disappeared since the end of the Cold War. Such conflicts, often starting as boundary disputes, can be enflamed by political rivalries and nationalistic sentiments that aggravate long-standing grievances.

Among older civil wars, those in Angola, Burundi, Rwanda, Somalia, and Sudan continued to cause tremendous disruption and hardship to civilian populations. Mediation efforts continued in 1998 with varying degrees of hope for peace. African-led peace operations restored the democratically elected government to power in Sierra Leone and strengthened the position of the elected government in the Central African Republic. A new civil conflict broke out in Guinea-Bissau in the form of a power struggle among military commanders who were involved with arms trafficking to rebel forces in neighboring Senegals Casamance Province. In the Democratic Republic of Congo a new rebellion against the central government in mid-1998 halted that countrys rehabilitation. All these armed conflicts, both old and new, forcefully demonstrate the devastating impact on civilians and the major setbacks to development.

Recognizing this, African countries made some progress in continent-wide conflict management, but there is still a considerable distance to go. The Organization of African Unity (OAU) continued to build its Mechanism for the Prevention, Management, and Resolution of Conflicts, and its Central Organ met regularly to address conflict situations. But the major activity continued in subregions, especially in the Economic Community of West African States (ECOWAS), whose peacekeeping forces under the Economic Community of West African States Military Observer Group (ECOMOG) remained active in Liberia and Sierra Leone. In the Horn of Africa, efforts to deal with the Sudanese and Somali conflicts by the Egyptian and Ethiopian governments and by the Intergovernmental Authority on Development (IGAD) were energetic but not yet productive.

In part, the continuing conflict and civil unrest throughout the continent highlight the difficulties of creating functioning democratic institutions and a culture of political tolerance. But it is undoubtedly facilitated by porous borders and ready access to arms, and in some instances by the use of private security firms. Far from hastening the end of conflict, the use of outside forces can prolong or escalate itand contribute to its recurrence. Indeed, the privatization of security has become a major issue, especially when financed through the granting of business, mineral, or trading concessions. This contrasts with the continuing downward trend in official defense spending in most African countries (table 7.1).

African countries continued to hold elections with varying degrees of transparency and credibility. As in previous years, the most discouraging news came from Central Africa, where some governments and opposition parties suggest that the pursuit of power, rather than the institutionalization of democratic practices, still dominates. Moreover, the active consideration of constitutional amendments governing term limits in an increasing number of countries is a troubling sign. On the positive side, most countries are making progress in developing the administrative capacity to run elections efficiently and expose irregularities. As they gain more experience with elections, issues of campaign finance, party funding, and the overwhelming advantages of incumbency have increased in significance in some countries.

In governance, concerns about crime and corruption came to the fore during the year. The demise of the Mobutu regime in the former Zaire and the death of Nigerias General Sani Abacha further highlighted the enormity of the problems in those countries. And throughout Africa there has been a groundswell of public opinion against corruption. Civil society organizations and the press have been particularly active in building public awareness. Although more African governments realize that corruption exacts a high cost, the challenge facing them is to build the political will and administrative capacity to translate good intentions into action.

West Africa

The war in Liberia has come to an end, but it has left an arc of instability along the West African coast from Liberia north to Senegals Casamance region. Restoring power to the democratically elected government of Sierra Leone by the military action of West African forces in ECOMOG was hailed as a major victory for democracy by the OAU Heads of State meeting in Ouagadougou in May 1998. But maintaining security throughout the country remains a challenge, as does reestablishing effective governance.

Elections in Senegal and Togo were contrastswith the apparent correctness of the exercise that returned the ruling Socialist Party to power in Senegal and the significant irregularities that marred President Eyademas election to his fifth and constitutionally final term. In Mali, despite extensive efforts at mediation, the political opposition remains unwilling to normalize relations with the elected government of President Alpha Oumar Konaré. In June 1998 full-scale warfare broke out between factions in the Guinea-Bissau military, resulting in large-scale destruction of the capital and the displacement of hundreds of thousands of people. As in many military power struggles, civilians suffered the most. As of August 1998 the fighting was suspended, and mediation by Lusophone governments was under way.

Perhaps the most significant events in the region took place in Nigeria, where the sudden death of General Sani Abacha in June 1998 led to the appointment of General Abdelsalaam Abubakar as the new head of the military regime. He promptly released most of the political prisoners and promised to place Nigeria on the path to civilian rule, thereby restoring hope that Nigeria might return to a democratically elected government within a reasonable time. The willingness of the military establishment to hand over powerand of the country as a whole to put ethnic, religious, and geographical differences asidewill remain determining factors.

Central Africa

In the Democratic Republic of Congo, high hopes for change raised by the forced departure of the Mobutu regime have been dampened by the apparent inability of the Kabila government to develop a national consensus around coherent policies. During its first year, the new regime has not managed to consolidate power, revive economic activity, revitalize administrative structures, or rally popular support. As a result, both official development assistance and foreign direct investment have been slow in coming. Moreover, hopes for positive change were dealt a further setback in mid-1998 by the resurgence of armed conflict, which also involved the military intervention of some neighboring countries, and raised fears of violence along ethnic lines.

Also in Central Africa a four-month conflict in the Republic of Congo ended in October 1997 with the military victory of Denis Sassou Nguesso. The country now faces the formidable tasks of national reconciliation and physical reconstruction. African peacekeeping forces in the Central African Republic, with the help of the OAU and the United Nations, appeared to stabilize the country sufficiently for the preparation of elections, but the situation remains potentially volatile. In Cameroon the government has realized that it must reach out to previously disaffected opposition leaders in an effort to stabilize politics and resume economic growth. Both Chad and Equatorial Guineawith little experience with democratic transition, transparent governance, and political oppositionexpect significant revenue increases from major oil discoveries in the next few years.

Instability reigns in the Great Lakes region, as it has since the early 1990s. In Burundi a political agreement based on power sharing was signed in June 1998 by the Frodebu-dominated parliament and the Uprona army-dominated government. A new constitution was approved, and a government of national unity was put in place. Efforts led by former Tanzanian President Julius Nyerere to mediate a political settlement also appeared to get new life in June 1998 with the signing of a cease-fire agreement in Arusha. In Rwanda the military battled with rebel forces that attacked almost daily from bases in the neighboring Democratic Republic of Congo.

East Africa

The Horn of Africa, which was moving toward tangible economic revival, was thrown into turmoil in May with the outbreak of hostilities between Ethiopia and Eritrea over disputed territories along their common border. By mid-1998 the dispute had escalated to dangerous levels, threatening the regions stability and jeopardizing economic progress in both countries. The Organization of African Unity and other international parties have been making vigorous efforts to contain and resolve the dispute.

The deadly civil war in Sudan continued, with no breakthrough negotiations in sight. There are an estimated 4 million refugees and the untold hardship already suffered by villagers in much of southern Sudan was worsened by the prospect of famine and difficulties in delivering relief supplies. In Somalia establishing national administrative and governance structures remained elusive, despite increased stability and a modest economic revival in the north.

In Kenya presidential and legislative elections returned President Moi to power for his constitutionally last term, but further reduced the ruling KANU majority in parliament. Kenya has four daunting challenges. To achieve national reconciliation after years of ethnic strife. To prepare an orderly presidential succession. To attack the pervasive corruption that has put a strong brake on economic growth. And to intensify subregional efforts toward economic integration in the context of East African Cooperation.

Southern Africa

In Angola rising hopes for the definitive implementation of the Lusaka peace accords were dashed in July 1998 when UNITA failed to relinquish remaining territories under its control and to demobilize its army. UNITA is now divided in two parts, with one group in Luanda establishing its own political identity and the main body continuing to control territory and engage in armed confrontation with the government. There was growing speculation that the Angolan government would resort to the use of force to restore its authority in UNITA-occupied provinces, although the United Nations was continuing its efforts to complete the peace process.

Elsewhere in the subregion democratization continued to be generally vigorous. Particularly noteworthy was President Ketumile Masire of Botswanas voluntary retirement from politics before his term of office endedand his handing over of the presidency to Vice President Festus Mogae. Despite political tensions and civil disturbances Zambia and Zimbabwe avoided large-scale unrest, and the people of both countries appear to be committed to peaceful change. The border dispute between Botswana and Namibia appears to be headed toward an arbitrated, peaceful solution. In Lesotho, however, SADC countries paid closer attention as political instability continued. The positive relationship between South Africa and Mozambique, which signed agreements to begin the major Maputo Corridor development project, is becoming a model for subregional economic cooperation.

In South Africa Vice President Thabo Mbeki assumed leadership of the ruling ANC party in anticipation of elections and President Mandelas announced retirement from politics in 1999. Since its accession to majority rule South Africa has made impressive progress in opening the political process, developing representative political institutions, and maintaining racial harmony. Despite implementing sound macroeconomic and financial policies, however, it is yet to expand socioeconomic opportunities for most of its citizens. As a result, social and economic inequalities threaten its long-term stability, and crime, rather than politically motivated unrest, presents a major governance challenge.

Economic and Social Performance

Based on data for 1996 and preliminary data for 1997, Africas economic turnaround appears to be holding, with many Sub-Saharan African countries showing significant improvements in economic growth in 1996 and 1997. Overall trends in Africa continue to be positive, despite the difficulties associated with the process of profound change. Although growth rates are not yet at the higher and sustained levels required for tangible reductions in poverty, they should help to reverse the erosion in social welfare seen throughout Africa in the 1980s and early 1990s.

Economic trends

The economic upswing that began in 1995 continued markedly in 1996 and more moderately in 1997. Indeed, GDP growth in 199597 was almost twice that achieved in the first half of the 1990s. GDP growth for all of Sub-Saharan Africa was 4.7 percent in 1996 and 3.6 percent in 1997. It would have been higher except for sluggishness in South Africa and Nigeria. Excluding those two countries, the regions GDP grew at 5.7 percent in 1996 and 4.9 percent in 1997. Other than in the Central Africa subregion, where continued political instability depressed many economies, the turnaround was fairly evenly spread among all subregions. More than a dozen countries grew by at least 5 percent, and more than two-thirds of Sub-Saharan countries grew by 3 percent or more. Also, budget deficits and inflation were substantially lower in several countries.

Results are all the more encouraging because they appear to be principally due to better policy environments and higher capacity use, not to improvements in the terms of trade. In fact, international prices were unfavorable for mineral and oil exporters, while irregular weather hurt agricultural growth. The East Asian crisis, which started in mid-1997, did not have an immediate adverse impact on most African countries, since trade with Asia was generally still at low levels. But East Asian investment in Africa probably slowed. And the substantial contraction of imports by Asian countries from South Africa and other mineral exportersand the reduced demand for oilwere significant. The East Asian crisis also triggered a sharp depreciation of the South African currency in mid-1998.

Although the respectable economic performance over the past three years is heartening, most countries recent GDP growth is mainly due to fuller use of existing capacityin effect, a recovery. In fact, there appeared to be some slowing of growth in 1997. Needed for more robust economic growth are stronger implementation of economic reforms, reversals of capital flight, and much higher domestic savings and investment. A major challenge for African countries is to increase investment rates from recent low and stagnant rates of 1618 percent to the 2530 percent levels that characterize the faster-growing Latin American and Asian countries. For growth to be sustained at the higher levels, measures must be taken that will enhance efficiency and competitiveness and thus allow faster integration into the global economy. This would also help the region reduce its dependence on concessional assistance, important, given the continued downward trend in official development assistance (ODA).

Regional trends. Growth in most West African countries was better than the Sub-Saharan African average with significantly reduced inflation rates. In general, the West African franc zone countries had higher growth rates than non-CFA countries in the subregion. Côte dIvoires good performance continued, with growth rates around 6 percent. This came from the serious liberalization and reform measures following the 1994 devaluation of the CFA franc, expanded investment in natural gas deposits, and higher prices for coffee and cocoa. But transparency and public sector efficiency will have to be further improved to attract the investment needed to sustain GDP growth at the relatively high levels of the past three years.

Senegal also maintained high post-devaluation growth with rates of 5.6 percent in 1996 and 5.2 percent in 1997, all the more remarkable because of unfavorable weather in 1997. Mali and Burkina Faso both grew at around 7 percent in 1997, despite their vulnerability to adverse weather. Expanded cotton production and gold mining contributed to the overall growth of both economies. Elsewhere in the subregion Mauritania saw growth of 4.5 percent in 1996 and 5.5 percent in 1997, while Guineas was fairly even at 4.5 percent in 1996 and 4.8 percent in 1997.

Nigeria, the regions largest economy, continued to perform disappointingly, with growth of 3.3 percent in 1996 and 3.5 percent in 1997. The reasons: depressed international prices for oil, shortages and disruptions in the domestic supply of electricity and petroleum products, increased costs from deteriorating infrastructure, endemic corruption, and a poor regulatory environment. Noteworthy, however, are the governments measures to stabilize the economy, reduce the deficit, and moderate inflation.

Ghana also has reestablished stricter fiscal discipline, in part continuing corrective action after loosening budgetary practices in the run-up to the 1996 elections. Contraction of public expenditure slowed growth, as did lower growth in agriculture and a sharp decline in gold prices, both hurting current account balances. GDP growth in 1997 dropped to 3 percent from 5 percent in 1996. Official sources indicate that inflation declined further in 1997from more than 30 percent to about 20 percent (although some in the business community claim that inflation is still closer to 30 percent).

Once again, Central Africa performed less well than other subregions, mainly because several countries continued to be troubled by political instability and internal conflict. The economies of both Burundi and the Central African Republic contracted significantly in 1996, with some recovery in 1997. The scanty data available for the Democratic Republic of Congo show that, at best, the economy was stagnating in both years. In the Republic of the Congo violence, interruption of economic activity, and major destruction of assets that characterized the extra-constitutional shift in political power in 1997 turned growth negative. Rwanda, though not fully stabilized, continued its strong recovery with GDP growth of more than 10 percent in both 1996 and 1997.

The economies of the more stable Central African countries performed quite well. Due to the discovery and exploitation of sizable oil deposits, Equatorial Guinea showed rapid GDP growth, but this has yet to translate into broad-based socioeconomic improvement. Cameroon, the largest economy in the subregion, grew at around 5 percent in both 1996 and 1997, with inflation subdued. From relatively low growth rates in 1996, Gabon rebounded to a more respectable 4.6 percent in 1997, and Chad to 6.6 percent.

Most East African economies suffered reversals in 1997, mainly as the result of irregular weather. Ugandas GDP growth for 1997 was only 4.9 percent, in sharp contrast to the 9 percent in 1996 and the near double-digit growth earlier in the decade. Unseasonable rains, related to the global El Niño phenomenon that affected agricultural production and disrupted Ugandas export-import outlet through Kenya, were the main reason for slower growth. Tanzanias economy, too, was affected by drought followed by heavy unseasonable rains and flooding. GDP there grew by 4.1 percent in both 1996 and 1997. Kenya was hit hardest by the unfavorable weather. Drought, followed by heavy rains, depressed agricultural production. Heavy flooding also damaged infrastructure severely, disrupting export and import activity in Kenya and further inland. Corruption, as well as security problems which hurt tourism, further slowed growth. The three countries tried to strengthen their economic integration within the framework of East African Cooperation, but the full potential of collaboration has yet to be realized.

Elsewhere in the subregion, Ethiopia was also affected by adverse weather, registering growth of 5.3 percent in 1997, down from 10.3 percent in 1996. Good figures are not available for Eritrea, but there are indications that GDP growth was in the range of 68 percent in both 1996 and 1997. The most notable development was Eritreas adoption of a new currency, displacing the Ethiopian birr as the main medium of exchange. This triggered disagreements between Ethiopia and Eritrea on the payment system for their mutual trade, contributing to hostile relations and the eventual outbreak of armed conflict between the two in mid-1998.

The Indian Ocean island states showed considerable variation in economic performance. Mauritius maintained its long-term steady growth at around 5.5 percent to 6.0 percent annually, while Madagascar moved toward recovery, with growth of 2.1 percent in 1996 and 3.7 percent in 1997. But there was no sign of resumption of growth in Comoros, and Seychelles had very poor growth of 1.7 percent in 1996 and 2.3 percent in 1997.

Southern Africa as a whole experienced slower growth in 1997 than in 1996, due partly to unfavorable weather, but also to the pulldown effect of South Africas stagnating economy. The economic performance of South Africawhich accounts for a third of Sub-Saharan Africas GDPwas disappointing in 1996 and 1997: its 3.5 percent growth in 1996 was below the policymakers expectations, while the growth achieved in 1997 was only 1.7 percent. Adverse weather, low gold prices, slightly lower mineral (gold) and manufacturing production, and the need to follow restrictive monetary and fiscal policy all contributed to this poor performance.

Postapartheid South Africa faces a number of challenges, some of which are difficult to reconcile. More public resources have to be allocated to the social sector to redress the substantial inequities that prevailed under apartheid, while vigorous growth is needed to generate employment. The governments economic policies, though fundamentally sound, have yet to yield the required results. Adverse weather and the contagion effect of East Asia aggravate its problems. The South African economy thus had an uphill struggle to serve as the locomotive of the Southern Africa subregion. As a result, there appears to be some restlessness and reassessment of economic relationsin both the inner circle of the Southern African Customs Union (SACU) and the looser outer circle of the Southern African Development Community (SADC).

Zimbabwe, the second most important economy in Southern Africa, grew at a relatively modest 3.6 percent in 1997, down from 7.2 percent in 1996. The reduction was due to lower prices for gold and other mineral products, lower agricultural production due to weather-related reasons (though the weather was much less unfavorable than anticipated). Problems in the financial sector led to a 50 percent devaluation of the currency, in part due to the contagion from East Asia and persisting macroeconomic imbalances. The countrys fiscal deficits and high inflation also need to be brought under control.

Elsewhere in the region, Angola, Botswana, Lesotho, and Mozambique maintained high growth of between 68 percent, which is commendable given the lower international prices for Botswanas diamonds and Angolas oil. Mozambique reaped the rewards of continuing to implement serious reforms. Malawi, Namibia, and Zambia all grew at 3.04.5 percent in 1997, with Malawi way down from 15.7 percent in 1996 and Zambia and Namibia about the same at 4.9 and 3.2 percent, respectively.

Sectoral issues. As already mentioned agriculture was negatively affected by irregular weather patterns in 1997. Production was down in a number of countries including Ghana, Malawi, Senegal, and Uganda. Lower production in such important agricultural producers as Kenya and South Africa contributed significantly to the poor overall performance of the sector.

Although slightly lower than in 1996, Sub-Saharan Africas merchandise exports grew by a respectable 7.2 percent in 1997. As South Africas exports grew by a relatively lower rate of 5.3 percent, the average growth rate for the rest of the region was 8.6 percent. World prices for petroleum and for many of Africas mineral exports were depressed. This implies that some of the oil- and mineral-exporting countries compensated for lower prices by shipping increased quantities of their export commodities. Increased investment, diversification of both export products and destinations, and improvements in international competitiveness are some of the key issues that will need attention.

Higher productivity, international competitiveness, and employment generation remain priorities. African governments have to improve the education and skills base of their workforce. They have to ensure the adequate provision of infrastructure at reasonable cost. And they have to put appropriate regulatory and legal frameworks in place. The enhanced exploitation of oil and gas offer new sources of income for some African countries. Substantial deep water oil deposits along the west coast of Africa could be a major additional source of wealth for some countries, including Angola and the Republic of the Congo, and new technologies now make the exploitation of these deposits feasible. Similarly, sizable offshore gas deposits are attracting considerable interest in Mozambique.

Trends in social indicators

In several stable and reform-oriented countries, more public spending is going for education and health, even within tighter budgets. Africas development partners are also advocating poverty reduction and social programs as priorities for intervention. Moreover, to the extent that countries emerge from conflict and instability, social welfare is bound to improve. Overall though, clear changes in basic indicators for education, health, and other social sectors take time. Most of southern Africa and a few countries elsewhere, including Cameroon, Mauritius, and Togo, showed better enrollment rates for primary and secondary school than the rest of Sub-Saharan Africa. Most countries in the Sahel and in East Africa continue to have low secondary school enrollment rates.

On the health front the threats posed by malaria and other endemic diseases still have to be seriously addressed. Perhaps the most significant health-related issue confronting African countries today is AIDS. Of the reported 30.6 million people with HIV/AIDS worldwide, 21 million (70 percent) are in Sub-Saharan Africa, a region which accounts for less than 10 percent of the worlds population. And of the 11.7 million known deaths from AIDS, 83 percent are in Sub-Saharan Africa. The tragedy will continue for some time, since several countries already have more than 9 percent of their adult populationand Botswana and Zimbabwe, 25 percentalready living with AIDS

The health costs and overall burden of caring for such large numbers of people is beyond the capacity of most countries. The implications for economic and social development are equally momentous, as most of the affected are in the most productive age groups. What is needed is for governments to take the lead in establishing effective partnerships with relevant groups in civil societyto publicize the risks and threats and to support, advocate, and facilitate access to means of prevention. Governments also need to mobilize equitable funding for the prevention, care, and treatment of all affected groups. And donors need to keep the battle against AIDS high on their assistance priority lists.

External resource flows

To sustain the recent upturn in economic growth, African countries have to raise their investment rates. In the long term higher investment should be financed mainly through domestic savings. But in the medium term, most African countries will have to depend on external resource flows to cover a significant portion of their investment requirements, even as they improve efforts to raise savings rates. And, for the majority of Sub-Saharan African countries, such external flows have to continue to be mostly ODA, even as these countries improve the policy and institutional environment for attracting higher private flows.

Concessional finance. Continuing the broad downward trend of recent years, gross ODA flows to developing countries declined in 1996, by $3.5 billion in 1996 prices and exchange rates (or $2.2 billion in 1995 prices and exchange rates). As a proportion of donor GNP, total bilateral ODA by all OECDDevelopment Assistance Committee (DAC) members, having dropped from 0.30 percent in 1994 to 0.27 percent in 1995, declined further to 0.25 percent. Exceptionally, Denmark continued to provide more than 1 percent of its GNP as ODA, followed closely by Sweden, Norway, and the Netherlands, each providing 0.800.85 percent. France provided 0.48 percent, respectable but a decline from its recent average of more than 0.55 percent. Japans ODA also declined in dollar termsfrom $14.5 billion in 1995 to $9.4 billion in 1996and, in terms of GNP, from 0.28 percent to 0.26 percent. United States ODA improved from $7.4 billion in 1995 to $9.4 billion in 1996, a welcome reversal.

As with global ODA, bilateral assistance to Africa peaked in 199294 and has moved downward since. From France, Germany, and Japan it declined by less than 10 percent but from the United States it fell sharply by nearly 30 percent between 1995 and 1996 alone.

Multilateral aid to Sub-Saharan Africa remained about the same in 1996 as the year before. The three most important multilateral sourcesthe World Banks International Development Association (IDA), the European Unions European Development Fund (EDF), and the African Development Banks African Development Fund (ADF)have financed critical social and economic programs. Ensuring their unimpaired availability for the foreseeable future should be a priority for donors and for African countries.

Debt relief

Addressing the serious debt burdens of African countries has also been a feature of the external assistance strategy for both African countries and their development partners. The initiative to provide debt relief to highly indebted poor countries (HIPCs), spearheaded by the World Bank and the IMF, became operational in April 1998 when Uganda became the first beneficiary. Other African countries eligible under the HIPC initiative include Côte dIvoire and Mozambique. For Burkina Faso the basic eligibility decision has been reached, with effectiveness to start in 2000. Mali and Guinea-Bissau appear to be next in line, while other countries are under consideration. Although the HIPC initiative is acknowledged as considerable progress, there are persistent calls to go beyond it for greater relief to more countries in a shorter time frame.

Private flows. Private capital flows have overtaken official development assistance as the main source of external financing for developing countries overall, a trend that has continued and accelerated during the second half of the 1990s. Thus the proportion of private finance in total external flows to developing countries increased from 44 percent in 1990 to 85 percent in 1996. Although the recent East Asian financial crisis may have hurt the growth of private flows to developing countries, the overall trend is expected to continue. It is thus important for African countries to improve their share of this growing source of external finance, especially since ODA is unlikely to grow and may continue its recent decline.

Private flows, particularly foreign direct investments (FDI), are usually the means for acquiring know-howtechnological, managerial, and marketing. However, of the $100 billion or so in annual FDI channelled to developing countries in the past three years, Sub-Saharan Africa received only about $3 billion, or 3 percent. Of this small amount, more than two-thirds went to only six countries: Nigeria, Angola, Ghana, South Africa, Uganda, and Tanzania, in that order. Moreover, the bulk went to the mining and oil sectors. Clearly, the fast-growing private flows were bypassing the majority of Sub-Saharan African countries.

Why? Part of the reason is a continuing perception of Africa as a high-risk investment destination because of political instability in some parts of the continent. Moreover, because even in countries trying to attract investment, the environment remains difficult. A lot remains to be done to attract FDI to the dynamic sectors that will enhance technology-absorption and export competitiveness. Political stability and sound governance must be maintained and serious and sustained measures must be taken to remove the institutional, infrastructure, and policy impediments to FDI. Poor infrastructure increases the cost of doing business. Ancillary services are limited. And low skill levels make some types of production difficult. Added to all this is an uncertain business climate. Among the things that would make a difference: a stable and effective legal system, a clear and consistent regulatory environment, and a well-managed financial sector.

Africas development partners could encourage investors to turn their attention to Africa by providing additional incentives and guaranteesand by catalyzing FDI with parallel loan and equity commitments. Foreign private investment can be particularly useful in infrastructure. And there are signs that the promotion of private investment in infrastructure is becoming more feasible. The second part of this years report is thus devoted to a summary treatment of infrastructure and the investment options available.

1997/1998 Annual Report

Part II Infrastructure and growth in sub-saharan africa: Toward a new strategy

Infrastructure has been closely associated with economic growth. Investments in canals, railroads, ports, electricity, telegraphic cables, and roads were among the major innovations that underpinned and stimulated economic expansion and opened domestic and international markets during the Industrial Revolution. A similar process has characterized succeeding generations of rapidly growing economies. Most recently, technological advances in telecommunications have facilitated the process of globalization. The adequacy, efficiency, and cost of transport, communications, and power infrastructure have become crucial for the smooth functioning of virtually all economic and social sectors in modern societies, as well as for competitiveness in a rapidly integrating global economy.

Some of the more striking benefits of infrastructure for developing countries:

" Transport and telecommunications in particular can promote and strengthen national unity and stability.
" Lower transport costs help to raise producer profits and incomes, trigger supply response from small producers and enterprises, and lower prices for consumer goods, substantially improving welfare.
" Improved access to social and other public services raises living standards and creates opportunities for people to better themselves by investing in health, education, training, and relocation.
" Cross-border transport and communications links advance regional economic integration and optimize investment and use.
" Export competitiveness is increased and integration into the global economy is promoted.
" Investment is facilitated and attracted, and employment opportunities increased.

Infrastructure in Sub-Saharan Africa today

Despite ample evidence linking good infrastructure with economic growth and development, infrastructure in Sub-Saharan Africa remains inadequate for meeting demand and providing satisfactory service. Low coverage, poor maintenance, cumbersome regulation, and high service costs are among the key problems of the regions infrastructure. The public provision of these services is not only inefficient, but it often requires subsidies at a time when African governments already face severe budgetary problems. Two other factors affecting the provision of infrastructure are the small size of some countries and the land locked position of others.

Transportation

Roads
Road transport typically accounts for nearly 80 percent of overall transport infrastructure and yet coverage of both truck roads and rural access roads in many African countries is grossly inadequate. A large proportion of Africans have little or no access to trafficable roads. There has been no significant increase in the share of paved roads within the total road network in most Sub-Saharan African countries. Only about 17 percent of Africas roads are paved, compared with 42 percent in South Asia and 25 percent in Latin America. This low share spells higher transport costs for African producers, reducing their ability to sell competitively in world markets.

Inadequate maintenance is also a problem. The return on investment from road maintenance is estimated to be almost twice as high as that from new construction. Indeed, timely expenditure of $12 billion on road maintenance in Africa would have saved $45 billion in reconstruction. The extra costs of poor maintenance in Africa amount to about $1.2 billion annually. Put differently, each dollar not put into road maintenance actually costs users an additional $2 to $3 in vehicle operating charges. The cost savings from adequate maintenance could have gone into new construction for broader coverage.

In the 1990s many African countries have focused on improving the quality of services through rehabilitation, institutional strengthening, and funding mechanisms based on commercial principles. Lesotho, Malawi, Tanzania, and Zambia are among those countries that have experimented with such new approaches, including the establishment of autonomous roads agencies. Overall, however, road transport needs more dependable sources of investment finance, and its regulatory and operational systems require modernization and reform to raise efficiency and reduce costs. The construction of new roads and the maintenance of old ones need to be addressed in parallel.

Railways
As elsewhere, African railways have been losing out to roads for some time, and rail traffic is on the decline in most countries. There is also general dissatisfaction with the quality and cost of rail services. Compared with railways in other regions, Africas have low capacity utilization and low labor productivity. Poor maintenance, inadequate equipment, and rigidity in labor regulations have all contributed to financial losses.

Most African countries would benefit from better rail services, and streamlining and improving the efficiency of rail operations is essential to their profitability. One preferred option is to commercialize railway operations and to expand the role of the private sector through concessions. The main expected benefits: more traffic, better services, higher productivity, and improved returns on assets. The concessions for rail lines between Zimbabwe and Mozambique and Côte dIvoire and Burkina Faso are among the more successful so far. Concessions have also been adopted for railways in Cameroon, Gabon, Malawi, Mozambique, Namibia, and Zambia.

Ports
Annual traffic has been growing by an average of 4 percent with utilization ranging from as low as 10 percent at Lobito in Angola to almost full capacity at Richards Bay in South Africa. Most African ports have the capacity to handle the growth in traffic expected in the medium term. All major African ports are publicly owned, with private involvement having only recently begun; for example Maputo has leased a specialized terminal to private operators. Most ports in Africa have to lift cumbersome regulations and reduce operational inefficiencies if they are to raise their operating standards to international levels. In some instances investment in new facilities and container-handling equipment is also needed.

Electric power

In most of Africa electricity is limited to urban areas. For almost 90 percent of Africans the main source of energy is wood and other biomass sources for cooking, and candles and kerosene for lighting. Electricity consumption has not increased significantly in recent years, and in some countries it is declining from already low levels. Systems are strained by the lack of maintenance, and capacity has not kept pace with growth in demand. Of 15 countries for which data are available, only twoKenya and South Africamarginally increased per capita consumption of electricity between 1992 and 1995. The lack of adequate, dependable power naturally hampers the productivity and competitiveness of African industries. Regional power grids could improve the supply of electricity, particularly in small countries that would not otherwise be able to achieve economies of scale.

Although power generation and distribution are a public sector monopoly in most developing countries, private investors are beginning to show interest in the power sectors of some African countriesCôte dIvoire and Senegal have already granted concessions to private companies. Their focus will naturally be on countries committed to privatization and liberalization. Because of economies of scale, the more attractive projects will be subregional and will provide for risk-sharing with public sector partners.

Telecommunications

In the midst of the global telecommunications revolution, Sub-Saharan Africa has a mere 11 telephone mainlines per 1,000 peopleexcluding South Africa, perhaps 4 per 1,000. Compare that with South Asias 13, Latin Americas 40, and a world average of 130 per 1,000. The waiting time to get a telephone line installed in Sub-Saharan Africa is more than 10 years, compared with just over 1 year in South Asia and Latin America. African countries could, however, rectify this situation by taking advantage of new technologies such as satellite links and cellular telephones. At the same time, the increased involvement of private sector providers would substantially lower the cost of telecommunications.

Advances in telecommunications technology should spare African governments the cost of developing and maintaining a separate network and facilities for delivering information and public goods especially those involving health, education, and training. Instead, they can use their very limited resources to pay for program content and for the time and facilities they actually require.

For Internet service more African countries are enjoying high-speed links to the outside world. Intraregional connectivity is growing in southern Africa, but most traffic in other parts of Africa is still routed through Europe.

So far, the impact of the Internet in African countries has been felt through e-mail. In future, it will change production and marketing as electronic commerce explodes to an expected $300 billion in worldwide sales in the next five years. For Africa, electronic commerce offers enormous opportunities, because place and location are becoming far less important for success. Africans can offer a wide range of products and servicesexisting and new, tangible and virtualto a global market (box 1).

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Box 1. Internet and opportunities for Commerce in Tanzania and Uganda

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Priorities for Infrastructure Development

Future approaches to infrastructure development are likely to differ markedly from the pastin governments functions as well as in their interaction with the international donor community, previously the major source of external development finance, and with the private sector, an increasingly important contributor of capital and expertise. Tapping the synergy among these three key players will feature prominently in new strategies for investments in infrastructure, while priorites will depend on the situation in each country.

Infrastructure clearly underpins growth, but growth is necessary to generate the resources to deepen and expand facilities and services. Among the other factors affecting the relationship between infrastructure and growth:

	The pattern of investment changes with a countrys income level. As a country moves up the development ladder, the proportion allotted to roads, power, and telecommunications increases, while that for sanitation, railways, water, and irrigation declines.
	The way investment in infrastructure is used makes a difference. Some countries use investments well, others, poorly. For power, most developing country systems have only 60 percent of their generating capacity available, compared with a global benchmark of 80 percent. Most of Sub-Saharan Africa falls around or below the average for developing countries.
	The extent to which investment in infrastructure contributes to poverty eradication.
	The value attached to infrastructure is demonstrated by the fact that people with very modest means will pay for reliable services. Studies of power and water in Africa indicate that some consumers, typically those in lower income groups, often pay up to 10 times more for electricity from small generators and for privately delivered water than do those supplied through public utilities. The cost savings from better services provision could be put to more productive use.

Benefits and opportunities from better infrastructure present compelling reasons for African governments and donors to reconsider their development strategies and assign higher priority to infrastructure development. In most countries, this will require institutional reform, expansion of the skills base, and strategic management, including financing innovations.

Institutional reform

The efficient management of existing services is a top priority. Appropriate measures include involvement of the private sector, operation along commercial lines, encouragement of competition where feasible, clear and transparent lines of authority, and managerial autonomy. Such measures, which need not entail major public expenditure, should raise returns (or cut losses) and make future investment more attractive.

For new investment, governments should introduce procedures and processes that systematize the project cycle and make its various stages more transparent and predictable. Aside from measures that lower the costs of project identification and expand the volume of good projects, governments must focus on making tendering procedures transparent and objective. The absence of a level playing field will raise project financing costs, lengthen the period for implementation, and spawn opportunities for rampant corruption.

Informed, objective, and efficient regulatory arrangements will determine whether a project generates the returns anticipated. They will also affect a governments attempts to improve its overall creditworthinesssince regulatory arrangements influence the way private investors interpret different categories of risk. Governments generally are more motivated to undertake challenging institutional reforms when they see a direct benefit from successfully implementing a high profile and promising project.

As essential as institutional reform will be investment in relevant knowledge and skills. Should skills be internalized within public agencies or contracted as needed? Many needed skills are highly specialized, and current levels of remuneration are often insufficient to retain the people possessing them. Some skills are required only at specific stages of the project cycle, as in financial engineering at the feasibility stage or in negotiating complex contracts.

Governments should expand the overall pool of expertise and, given the limited size of their own immediate market, do so on a regional basis. This pool would comprise private firms and individual professionals whose services could be contracted as needed. Since such firms and professionals benefit directly from specialized training, they should contribute to the cost. The same principle of cost recovery should apply to professionals sponsored by public agencies to ensure that the right people are selected for training and that courses are well-designed to meet the needs of their sponsoring agency.

Training, to be relevant, should be practical, drawing on operational experience and clustering skills typically used in advancing through various stages of the project cycle. Governments should attempt, where possible, to enter into training and skills development agreements with the private sector. Such collaboration will nurture individual links and professional networks, which often are useful in the design and negotiation of projects. Moreover, such contacts can enable government personnel to comprehend more readily how risks are being treated by private investorsknowledge that can be valuable in designing appropriate tendering and regulatory arrangements and in negotiating contracts with the other two partners. Training, especially short courses, should also extend to senior officials charged with policymaking to keep them abreast of ongoing developments that affect management and investment in different types of infrastructure.

Choices in management

Three issues are important in making decisions about the development and financing of infrastructure. First, highest priority should go to maximizing the efficient use of existing stock. Second, efficiency is best realized through a commercially oriented approach to service provision. Third, a commercially oriented approach also ensures that investment in infrastructure will contribute to the eradication of poverty, as the poor are often most likely to benefit from better maintenance and better service.

For a commercial approach, African governments confront various choices whose attractiveness will vary according to the type of infrastructure, the size of the market, the number and location of clients, and the level of government directly responsible for the service in question. The choices may include:

	Facilitating the provision of services by communities.
	Subcontracting specific functions to private local contractorssay, to read meters and collect payments.
	Entering into a management contract with a private provider for a specified period.
	Negotiating an extended lease with a private contractor, covering the operation and maintenance of the service.
	Assigning a long-term concession that, in addition to operation and maintenance, also covers the financing of fixed assets.
	Moving to private ownership and operation of the service.

As a guiding principle, the aim should be commercial operation. Public corporations should have clear guidelines, with autonomy to pursue them while remaining accountable to political authorities for performance. Subsidies to particular groups should be transparent and explicitly earmarked. Privately owned and operated services should be conducted within an efficient and informed regulatory framework, with competition, where feasible, from other suppliers and substitutable services.

Financing Options for Infrastructure Development

Development financing is a relatively recent innovation. Before World War II countries financed infrastructure through direct borrowings from world financial markets, concessions to private investors for specific projects, and capital expenditures from public revenues. The development finance institutions began with the World Bank, established initially to assist in the reconstruction of war-ravaged Europe, and was followed by others addressing the needs of specific regions. They have allowed countries without a credit rating to gain access to world markets on tolerable terms through the indirect guarantees of richer countries. As these borrowers develop, their credit ratings improve, and they begin to obtain direct access on better terms.

Sub-Saharan Africa received a moderately lower share of official development finance for infrastructure than South Asia or Latin America and the Caribbean in recent years and a considerably lower share than East Asia. Moreover, a much lower amount of longer-term private international capital investment in infrastructure went to Sub-Saharan Africa than to any other region. Because of its low per capita income and small pool of domestic savings in relation to its needs, Sub-Saharan Africa will continue to require development finance for infrastructure development for some time. But the importance of private international capital as a source of finance will grow, especially for investment in telecommunications and power. In addition to financing, foreign investment will facilitate the acquisition of required knowledge and skills and of the innovations necessary to tap private funds and manage infrastructure investments more efficiently.

The proportion of overall infrastructure investment in Sub-Saharan Africa financed by ODA remains very high compared with other regions. Conversely, the proportion flowing from private sources is much lower. A major challenge is to reduce this dependence on ODA by mobilizing additional resources from private, domestic, and international investors.

Over the past 15 years the flow of direct and portfolio investment to emerging markets has been heavily concentrated in countries with large and fast-growing markets, and a good supply of attractive investment opportunities. This pattern is bound to become more diffused, its pace depending on the outcome of the current global financial crisis. Over the longer term the proportion received by Sub-Saharan Africa may remain small, but it could be quite large in absolute terms, especially in comparison with existing levels.

Private investment in infrastructure

Although financing infrastructure entirely from public sector resources remains an option, private sector involvement has attractions. It brings additional resources and frees up government funds for other purposes. It can also increase the efficiency of construction and management, ensuring that projects are completed on time and within budget. In the past, private investment in infrastructure has been concentrated in power and telecommunications. There has not been much interest in private financing for transport, largely due to the risks and the size of investments.

There tends to be strong private sector interest in power projects because of the limited market risk in build-operate-transfer arrangements. Other advantages include:

	Reasonably robust estimations of likely costs and revenues
	Established technologies.
	Opportunities for sale to one or a few customers (through a national power grid under a take or pay contract).
	Power purchase agreements from tariffs based on minimum rate of return (cost plus) and awards based on lowest tariff price with no limit on the rate of return.
	Instruments specifically designed (by the International Finance Corporation, among others) to mitigate different kinds of risk and to assuage political sensitivities.
	A new generation of instruments, namely possible guarantees from the World Bank and the African Development Bank, for mitigating sovereign risks for periods beyond those acceptable to private investors (partial credit guarantees), or risks specific to the project, such as failure to supply inputs or purchase output according to the terms originally agreed by the contracting parties (partial risk guarantees).

Financing is increasingly available for some power projects in Africa. Among the current group, a major attraction has been the opportunity to develop natural gas deposits concurrently. But private investors, wary during this current generation of projects, will clearly require the full battery of risk-mitigation measures.

Private investment in telecommunications could grow more rapidly in the future. Among the advantages of this sector are:

	Market potential. Although African markets are tiny by international standards, investors appear anxious to claim a large share of them, foreseeing growth in value-added services, notably in data transmission. Accelerated government deregulation will, therefore, be important in encouraging greater private investment on more favorable terms
	Rapid technology breakthroughs that permit high returns.
	High market growth due to unmet demand.
	Few adverse effects on the environment.
	Willingness of consumers to pay for services and the potential for foreign currency revenues.
	The shorter period needed to recoup the cost of the initial investment that, unlike the case with power, is also smaller and can be financed in stages.

Globally, the rapid growth in private capital flows directly to projects and emerging markets, the declining importance of development finance and the growing pressure felt by developing countries to move more systematically toward accessing directly capital markets on increasingly favorable terms have prompted important changes in development finance. These have included:

	The introduction of such modalities as build-operate-transfer (BOT) projects that can attract private sector financing and management, while avoiding the often thorny issue of private, (and usually) foreign ownership of a major national asset.
	IFC participation in projects to increase the comfort level of private investors.
	Use of concessional assistance to provide partial-credit and partial-risk guarantees.
	Guarantees by the World Bank Groups Multilateral Investment Guarantee Agency (MIGA) to mitigate political risks from war, civil disturbance, and expropriation.
	Projects aimed at developing national capital markets and linking them to regional and international ones.
	A general reluctance, on the part of donors, to finance telecommunications projects. Their efforts have been directed instead toward regulatory reform, liberalization, and privatization to attract private investors.
	These changes hold far-reaching implications for how infrastructure in Africa will be financed in the future.
	The innovations will not necessarily improve the creditworthiness of African countries. Rather, they should be seen as rungs of a ladder that African governments might climb through a succession of successful projects that, together with other policy measures, help raise the leverage of public funds.
	The degree of leverage will not only change (hopefully for the better) over time, but will vary by type of infrastructure, ranging from telecommunications and power downward through different types of transport to water supply, rural roads, and sanitation.
	In the short and medium term, private financing will not substitute for development finance. Rather, there will be a complementary relationship, varying by type of infrastructure, country, and project.

Increased use of private capital will carry a cost. Specifically, it will place a high premium on knowledge and skills that are currently in short supply in all African countries. Overcoming this problem is a major challenge.

Mobilizing investment financing

Future strategic approaches to investment financing will be characterized by a fruitful and evolving partnership of African governments, development financiers, and private investors. Members of any partnership hold divergent as well as shared interests. African governments should recognize what these are, how they will evolve, and how they can best be accommodated while still meeting their own priorities. One way of viewing these interests is through the lens of risks as perceived by the three different partners.

The nature and importance of risk will vary by type of infrastructure. For the private investor, a power project, for example, requires a big lump-sum investment and lengthy commitment that must be offset by firm projections of revenues backed by public guarantees, in the event of nonfulfillment of contractual undertakings and to cover the later years of the project. For development financiers (donors), major concerns will be the projects economic rate of return, the governments capacity to meet contractual agreements, and the environmental impact. For African governments, risks include the performance of the private contractors in constructing the project, covering financial obligations, and operating the facility efficiently. They must also take into account national sensitivities to foreign ownership or leasing of a major asset and possibly adverse customer reaction to more effective billing and collection. For roads, airports, telecommunications, water supply, and so on, the nature and relative importance of these and other risks will be different.

For African governments, political risks loom large. For example, they will want to deliver services more efficiently and at the lowest tariffs consistent with economic and financial rates of return acceptable to the other two partners. For donors, political risk will be concerned with how benefits from the project affect the poor and other vulnerable groups. For private investors, high priority will always be assigned to mitigating financial risks for all types of infrastructure projects. Commercial and technical risksfor example, the danger of losing market share and technological obsolescencewill also be important considerations, especially in telecommunications projects.

A partners interests will also diverge within a given category of risk. Governments, for example, may be more optimistic about the longer-term benefits to be realized from a road project than private or development financiers, who might be more conservative in estimating economic and financial returns. In such instances, the onus is on the government to fill this gap between a low, but reasonably firm, estimate and the minimum financial and economic rate of return necessary for the other two partners to participate in the project. Responses will vary by project. A toll road, for example, might be included within a broader national or regional network, or possibly in a cluster of other investments comprising transport (ports, airports, pipeline, and rail) or development (transport plus manufacturing, mining, and agro-industrial ventures). As with the Maputo Corridor, however, such undertakings can be very complex and are not easily replicated (box 2).

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Box 2. The Maputo Corridor

The Maputo Corridor is often given as an example of a successful development corridor that other countries in the Southern African Development Community are attempting to emulate. It is, however, a complex public/private undertaking. The Corridor involves a mix of transport modalities (toll road, rail, port and possibly telecommunication land and cellular lines) that link the richest market in Sub-Saharan Africa (Gauteng Province) with its nearest port. Much of the investment involves rehabilitation and expansion of a transport route established more than 100 years ago. The investments are linked. Ensuring sufficient road and rail traffic requires improvements in cross-border movements (placing Mozambican customs temporarily under an independent agency); and rehabilitation and partial privatization of port and harbor operations. Traffic projections also rest on exploiting natural resources and developing various industries alongside the corridor, as well as establishing aluminum and steel plants on the coast. Financiers of different corridor-related projects can draw on the resources and know-how of a highly sophisticated financial market (Johannesburg), on development finance from South Africa, and on donor assistance for institutional reforms and other infrastructure improvements in Mozambique. The project has received continuing political backing at the highest level in both countries.

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Attracting private capital

Recent studies of development finance and private investment in southern Africa found a lack of good projects attractive to private investors rather than a shortage of funds as the principal constraintin the short term, at least. Regional money centers, including funds set up explicitly to finance infrastructure projects, have consistently raised this issue. Among the problems:

	The absence of a well-defined, transparent process within government for soliciting and working up projects. Major unanticipated delays, and informal ad hoc processes not only raise perceptions of risk but increase transaction costs in designing and negotiating projects.
	Insufficient coordination among public agencies and officials responsible for various aspects of projects results in unduly complicated, protracted, and expensive negotiations.
	Private financing is often not regarded as an integral component from the outset. Adding on private financing is not always possible or will require extensive redesign and financial reengineering, adding to the project cost and reducing its financial and economic rates of return.

African countries would clearly benefit from a steady, growing volume of projects that attempt, from the outset, to address realistically the concerns of all three partnersAfrican governments, donors, and the private sector. Among the more useful measures would be a clear designation of responsibility for various stages of the project cycle, a more systematic and transparent process for designing projects, and closer coordination among public agencies and officials.

In prioritizing investment projects, African governments should also weigh projects according to whether (and how) they might improve access to private capital over the longer term. This can be pursued in two ways.

The first is through measures that raise the governments credibility. Sound economic management is important because it creates a more attractive environment for investors and enhances the credibility of government policies generally. Parallel measures would be directed toward efficient management of existing services, especially in the sectors earmarked for future investment. For example, a sensibly regulated power sector, run efficiently along commercial lines, will help attract investors to new projects (box 3).

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Box 3. Power Generation in Côte dIvoire

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The second is to show successful implementation of a particular project that will significantly improve access to private capital over the longer term by allowing the government to climb the rungs of the ladder of creditworthiness more rapidly. Some types of infrastructure are more amenable to this than others. Rating highest on the marketability index are investments in telecommunications (local services, long-distance, and value-added services), power (thermal generation, gas production, and transmission), rail (freight and passenger services), ports and airport services, and waste collection.

Within this group there is a compelling argument for assigning the highest priority to telecommunications. This sector, especially because of the rapidly growing importance of the Internet for business, is critical to the future development of African economies. In light of the sectors rapid evolution, governments are ill placed to mitigate technical risks and to capitalize on emerging opportunities. Conversely, it is especially attractive to private investors. There is need, however, to move quickly to take full advantage of this window of opportunity. For governments, the appropriate reaction would be a proactive policy that not only seeks to expand connectivity as in the past, but much more important, aims to accelerate the rate of diffusion of these innovations through appropriate policies and carefully designed interventions.

These features are apparent to some African governments that are opening up the telecom sector to private investment and that have been unbundling and privatizing telecommunications products and services. Such investment is best handled by the private sector, since technologies are changing rapidly and various modalities will be competing with each other. The regulatory framework should aim at lowering barriers to entry and encouraging competition among rival technologies and services. Of particular importance will be the stance of governments toward internet telephony. Some have moved to ban it by reserving the right to voice communication exclusively for telephone companies. In practice, this will be impossible to enforce. Even so, this policy will slow the rate of diffusion of new applications precisely at a time when Africans should be capitalizing on them.

In sum, future approaches to financing and managing infrastructure investments will increasingly differ from past practices. Some African governments are aware of such trends and are trying to respond to them. The issues and suggestions presented may help both African and donor policymakers to reflect on appropriate actions to improve infrastructure provision in African countries.

Sub-Saharan Development indicators

The tables use symbols to mark SPA countries (*)those participating in the Special Program of Assistance for Debt-Distressed Countries in Africaand CFA countries (+)those with their exchange rates fixed to the French franc. Technical notes for the tables are given at the end of the tables.

Economic Growth

1.1 Real GDP growth
1.2 Gross domestic savings
1.3 Gross domestic investment
1.4 Real agricultural growth
1.5 Real industrial growth
1.6 GDP deflator
1.8 Food production per capita

Trade

2.1 Real export growth
2.2 Real import growth
2.3 Terms of trade
2.4 Staple food imports (millions of current US$)
2.5 Staple food imports (as percentage of exports)

Capital Flows

3.1 Gross concessional aid flows
3.2 Debt service ratio
3.3 Foreign direct investment

Human Condition

4.1 Infant mortality rate
4.2 Life expectancy at birth
4.3 Access to health services
4.4 Child immunization and ORT use
4.5 Total primary enrollment
4.6 Total secondary enrollment
4.7 Female primary enrollment
4.8 Female secondary enrollment

Population and Environment

5.1 Population
5.2 Population growth
5.3 Total fertility rate
5.4 Contraceptive prevalence rate
5.5 Environmental Action Plans (EAP)

Bilateral and Multilateral Responses

6.1 Gross ODA extended to Sub-Saharan Africa (as percentage of GDP)
6.2 Gross ODA extended to Sub-Saharan Africa (millions of current US$)
6.3 Lending by the World Bank Group and the IMF to Sub-Saharan Africa

Military expenditures

7.1 Military expenditures

Technical notes

Most macroeconomic data (in particular, national accounts, balance of payments, government finance statistics, and trade) reflect data maintained by World Bank country desks, often referred to as operational data.

Annual data shown for country groups are totals, averages, or medians for the countries included in the group, as indicated in the relevant table. These group aggregates can be either simple (arithmetic)where missing data are not imputedor gap-filledwhere weights are used to adjust group totals for missing countries.

Most group averages are weighted according to the relative importance of the countries in the group total for that indicator, based on simple addition across countries when the indicator is expressed in reasonably comparable units. Group averages for analytical ratios (for example, imports to GDP) can be either weighted or simple.

Period averages are calculated from time series (levels, ratios, growth rates, or medians) for both countries and country groups. They are either simple averages or average annual percentage growth rates, which are computed using the least-squares method and are usually based on real-term time series. The least-squares growth rate is estimated by fitting a least-squares linear regression trend line to the logarithmic annual values of the variable in the relevant period. It takes into account all observations in a period and reflects general trends that are not influenced by exceptional values, particularly at the end points.

Economic Growth

The time series for national accounts are based mainly on national sources as collected by World Bank country economists. They are generally in accord with the UN System of National Accounts. A conversion factor is used to convert national currencies to U.S. dollars, both in this section and in the trade section.

Real gross domestic product (GDP) growthprovides average annual growth rates calculated from GDP at market prices (also known as purchaser values), expressed in constant 1987 U.S. dollars.

Gross domestic savings (GDS)calculated by deducting total consumption from GDP in local currency at current prices, expressed as percentage of GDP.

Gross domestic investment (GDI)gross domestic fixed capital formation plus net changes in the level of inventories, expressed as a percentage of GDP. GDI comprises outlays by the public sector and the private sector. The ratio is calculated in local currency at current prices.

Real agricultural growthcalculated from the value added of agriculture at factor cost, in constant 1987 U.S. dollars. It comprises the gross output of forestry, hunting, and fishing, less the value of their intermediate inputs.

Real industrial growthcalculated from the value added of industry at factor cost, in constant 1987 U.S. dollars. It comprises the gross output of mining, manufacturing, construction, electricity, water, and gas, less the value of their intermediate inputs.

GDP deflatorthe implicit GDP deflator for national currency is obtained by dividing, for each year of the time series, the value of GDP at current prices by the value of GDP at constant 1987 prices, both in national currency.

Real gross national product (GNP) per capitacalculated by the World Bank Atlas method, which uses three-year averages of exchange rates that smooth out sharp fluctuations from year to year, expressed in constant 1987 U.S. dollars. GNP measures the total domestic and foreign value added claimed by residents. It comprises GDP plus net factor income from abroad, which is the income residents receive from abroad for factor services (labor and capital) less similar payments made to nonresidents who contributed to the domestic economy.

Food production per capitaannual per capita production in kilo-grams of cereals, roots, tubers, and pulses.

Trade

Export growth and import growth (goods and nonfactor services)data for exports and imports of goods and nonfactor services refer to all goods and nonfactor series provided to, or by, the rest of the world, including merchandise, freight, insurance, travel, and other nonfactor services. The values of factor services, such as investment income, interest, and labor income, are not included. Calculations use 1987 U.S. dollar series, which are generally estimated on the basis of foreign trade statistics from customs declarations.

Terms of trademeasures the relative movement of export and import prices. This series is calculated as the ratio of a countrys export unit values or prices to its import unit values or prices. It shows changes over a base year (1987) in the level of export unit values as a percentage of import unit values.

Staple food imports (value)calculated by adding the import value (from FAOTRADE databases) of wheat, wheat flour, wheat germ, paddy rice, husked rice, millhusk rice, broken rice, milled paddy rice, rice starch, rice bran, rice flour, maize, maize germ, maize flour, maize bran, and white rice, all expressed in current U.S. dollars.

Staple food imports (as percentage of exports)as above, but as a percentage of exports of goods and nonfactor services in current U.S. dollars.

Capital Flows

The principal sources for information on debt are reports to the World Bank, through the Debtor Reporting System (DRS), from its member countries that have received either International Bank for Reconstruction and Development (IBRD) loans or International Development Association (IDA) credits. Additional information on debt has been drawn from the files of the International Monetary Fund (IMF).

Gross concessional aid flowsall concessional credits plus official transfers as a percentage of the recipient countrys GDP at market prices in current U.S. dollars. This does not include technical assistance.

Debt service ratioservice on long- and short-term debt, including IMF credit, as a percentage of exports of goods and services plus workers remittances in current U.S. dollars. All figures reflect actual cash payments.

Foreign direct investmentnet foreign direct investment is the net amount invested or reinvested by nonresidents to acquire a lasting interest in enterprises in which they exercise significant managerial control. Investment includes equity capital, reinvested earnings, and other capital. The net figures subtract the value of direct investment abroad by residents of the reporting country.

Human Condition

Infant mortality ratethe number of deaths of infants under one year of age per 1,000 live births in a given year. The estimates are based on an analysis of all available information: survey- and census-based indirect and direct estimates, census age structures, health information (especially immunization completeness), and vital registration adjusted for incompleteness. The outcome is a figure that cannot be linked to a single empirical source but that is usually consistent with the demographic situation. Projections for 2000 and 2025 are extrapolations made at the World Bank on the basis of past trends, and they incorporate the effects of AIDS mortality.

Life expectancy at birththe number of years newborn infants would live if prevailing patterns of mortality at the time of their birth stay the same throughout their life. Data are World Bank estimates based on data from the UN Population Division, the UN Statistical Office, and national statistical offices. Projections for 2000 are extrap-olations made at the World Bank on the basis of past trends, and they incorporate the effects of AIDS mortality.

Access to health servicesrefers to the percentage of the population that can reach appropriate local health services by local means of transport in no more than one hour.

Child immunization and oral rehydration therapy (ORT) usechild immunization measures the rate of vaccination coverage of children under one year of age. A child is considered adequately immunized against DPT (diphtheria, pertussis or whooping cough, and tetanus) after receiving two or three doses of vaccine, depending on the immunization scheme. Oral rehydration therapy use is the percentage of all cases of diarrhea in children under five years of age treated with oral rehydration salts or an appropriate household solution (WHO data).

Total primary enrollmenttotal number of pupils enrolled at the primary level of education, regardless of age, expressed as a percentage of the population corresponding to the official school age for primary education in a given country. Figures shown may be more than 100 percent since the total enrollment includes pupils above and pupils below the primary school age, as well as repeaters.

Total secondary enrollmenttotal number of pupils enrolled at the secondary level of education, regardless of age, expressed as a percentage of the population corresponding to the official school age for secondary education in a given country.

Female primary enrollmentfemale pupils as a percentage of total pupils at the primary level. It includes enrollments in public and private schools but may exclude certain specialized schools and training programs.

Female secondary enrollmentfemale pupils as a percentage of total pupils at the secondary level. It includes enrollments in public and private schools but may exclude certain specialized schools and training programs.

Population

Populationusually projections from the most recent population censuses or surveys. Projected figures were prepared by the World Banks Population and Human Resources Department. These projections assume average, or standard, fertility decline. The rapid projection figures are World Bank projections assuming rapid fertility decline, defined as twice the rate of standard fertility decline experienced by developing countries during recent decades. Both standard and rapid fertility decline variants assume that the use of contraception will increase in all countries. But to achieve the rapid projections, contraceptive use has to increase at a much more rapid pace. Mortality levels are assumed to be identical in both variants and incorporate mortality from AIDS.

Population figures under the heading stabilization are World Bank projections of the size of the stationary population. Stationary popu-lations are those in which age-specific and sex-specific mortality rates have not changed over a long period and in which fertility rates have remained at the replacement levelmeaning that women bear, on average, only enough daughters to replace themselves in the population.

Population growth ratesderived from the population figures in table 5. 1.

Total fertility rateaverage number of live children that would be born to a woman during her lifetime if she were to bear children at each age in accord with prevailing age-specific fertility rates. These estimates are derived from the UN World Population Prospects (1990), demographic and health surveys, censuses, U.S. Bureau of the Census data, official estimates, World Bank estimates, and Eurostat data.

Contraceptive prevalence ratepercentage of married women of childbearing age who are using, or whose husbands are using, any form of contraception (modern or traditional). Childbearing age is generally defined as 15 to 49 years, although for some countries contraceptive use is measured for other age groups.

Military Expenditures

Data are from the Stockholm International Peace Research Institute (SIPRI) military expenditure project. SIPRI calculates the ratio of mil-itary spending to GDP in domestic currency using current prices. Although common guidelines are used, it is not possible to adhere to a common definition of military spending in all countries, and there are considerable variations between countries in what is included in official defense spending data.

SIPRI collects data from a variety of sources, including an annual questionnaire that is submitted to each countrys ministries of finance and defense, national statistical office, and central bank. Data also come from a wide range of national and international publications, including government budgets and statistics. IMF data are used for GDP. Other IMF, UN, and Economist Intelligence Unit data are used as well.