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Ugandan Finance Minister Maria Kiwanuka at Washington briefing: ‘Our petroleum revenues will be dedicated to building infrastructure’ (IMF photo)

Ugandan Finance Minister Maria Kiwanuka at Washington briefing: ‘Our petroleum revenues will be dedicated to building infrastructure’ (IMF photo)

AFRICAN FINANCE MINISTERS

Energy Revenues to Help Africa Trim ‘Infrastructure Gap’

IMF Survey

April 12, 2014

  • With growth steady, inflation low, Africa’s attention turns to quality of growth
  • Better roads, railways, ports, power supply would boost employment
  • Energy earnings offer new revenue stream to devote to infrastructure

New revenue streams arising from recent and upcoming crude oil and natural gas production would be channeled into investments in roads, railways, ports, and power, African finance officials said.

Three finance ministers and a central bank governor told a Washington news briefing that Africa’s “infrastructure gap” is a significant development obstacle that will have to be overcome for the continent’s economic growth to be more inclusive.

The officials told reporters during the IMF-World Bank Spring Meetings that investment in infrastructure is a major priority for Africa as the continent’s governments strive to create more jobs and expand social services. They noted that many African countries had achieved macroeconomic stability with steady growth and relatively low inflation. Governments were now aiming for better-quality growth by focusing on creating jobs and improving health and education.

The finance ministers of Uganda and Chad said significant shares of new revenue streams arising from their countries’ recent and upcoming crude oil and natural gas production had been and would be devoted to infrastructure development.

“Our oil reserves are about to start production,” observed Ugandan Finance Minister Maria Kiwanuka, “but our biggest challenge is our infrastructure gap.” She noted, however, that development of Uganda’s roads and railways is under way.

Dedicated revenues

“Our petroleum revenues will be dedicated to building infrastructure,” Kiwanuka said. She noted that that Uganda has a young population. “Therefore our need is for job creation, rather than pensions. So all monies coming from our oil and gas revenues will be invested through our budget, duly appropriated by the parliament of Uganda, in our infrastructure program over the next 20 years,” she declared.

“It’s a question of transforming robust growth into inclusive growth with more jobs, more even income distribution, and better health care and sanitation,” said Mozambican Finance Minister Manuel Chang.

He stressed that targeting better infrastructure is a key part of the government’s investment strategy. “Mozambique is clear about what sectors it needs to support to reduce poverty: the social sectors—health, education— along with infrastructure already 65 percent of the budget is channeled here. And the results are visible.”

Port connections

Now investment would focus on energy, railways, ports, agriculture, tourism, and natural gas as enablers of more inclusive growth, Chang said. Planners would concentrate particularly on connecting Mozambique’s ports to the hinterland.

Finance Minister Bedoumra Kordje said that Chad’s oil revenue stream since 2003 had enabled the country to make a significant qualitative jump in its budgeting. The government was investing in infrastructure and social services and had, for example, added 1,900 kilometers of paved roads in the ten years to 2013.

Kordje noted that two new oil fields would come on stream in 2014 as investment in the energy sector increased. “But it’s imperative that we diversify our economy, as oil is subject to fluctuations in world markets. So we are working to assist the agricultural sector, which is still the main provider of employment,” he added. He observed that Chad’s nonoil growth would likely hit double digits this year.

Regional benefits

Central Bank of Djibouti Governor Ahmed Osman Ali said increased infrastructure development in his nation, located where the Red Sea joins the Gulf of Aden, could benefit the whole of the Horn of Africa. “We have opened new harbors which, in addition to a new deep-water port built a few years ago, have boosted Djibouti’s economy but have also helped Ethiopia,” Ali said.

Ali said added Djibouti’s new harbors, established to export cattle, would be augmented by a new railway in the north of the country that would connect to another new port to export potassium. In addition, upgraded power transmission lines were set to reduce the cost of energy to small businesses and to fully electrify the port of Djibouti.

Kiwanuka said better infrastructure in Uganda could also help East Africa by making Uganda the distribution hub for the region. “When goods come to the sea ports of Mombasa and Dar es Salaam, the quickest and cheapest way to South Sudan, the eastern part of the Democratic Republic of the Congo, and Rwanda is through Uganda.”

Internet cables

Ali noted that Djibouti’s strategic location at the mouth of the Red Sea leading to the Suez Canal meant that six intercontinental submarine cables carrying internet connections passed through Djibouti. This ensured that the country had excellent digital connectivity.

Kiwanuka said infrastructure investment had helped cut the transit time of goods from the Kenyan port of Mombasa to Uganda from more than 20 days to five days. In addition, two new dams would double Uganda’s hydroelectric power capacity and greatly improve the availability and reliability of the country’s power supply.

The finance officials said better agricultural productivity would also promote more inclusive growth in Africa. Kiwanuka noted that some 70 percent of Uganda’s work force was employed in the agricultural sector, which contributed less than 30 percent of national income.

“We are looking to the agricultural sector to drive inclusive growth and contribute to further reducing rural poverty,” Kiwanuka said. Such poverty had been reduced in the past five years by constructing rural roads, extending electricity transmission lines, and improving irrigation projects. Modernized infrastructure would further reduce the cost of doing business in Uganda, she said.

■ Chang noted that infrastructure would be on the agenda at a high-level international conference on sub-Saharan Africa to be held by the IMF and the government of Mozambique in Maputo on May 29–30. The two-day event will bring together policymakers from throughout Africa and from development partners, business, and civil society, and will focus on how the current growth path can be maintained while sharing its benefits among all Africans.



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