HomeBusiness DigestInfrastructure critical to Zim economy

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The economy will not experience growth without infrastructure development, and this point was particularly driven home by Essar Global resident director Middle East, Africa and Turkey, Firdhose Coovadia, who estimated that Zimbabwe needed five to seven more years before its economy could experience real growth.

Coovadia advocated for Zimbabwe to seriously look into infrastructural development, holding the view that once the country develops this, it would be on its way to real growth.

“The game changer is infrastructure development; from the road to the railway network, and to do that government has to pursue Private Public Partnerships (PPPs),” Coovadia suggested.

He cited how in his opinion Hwange Colliery Company would not make a profit exporting coal and compete against the cheaper Mozambican product, especially given that Zimbabwe’s railway system was inefficient and in need of re-capitalisation.

Hwange has said it will export 40 000 tonnes of coking coal to India this year, realising some US$4 million. The company has secured port space in Maputo through a short term contract with a South African company, Grinrod.

By definition, infrastructure refers to basic physical and organisational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function. It can also be generally defined as the set of interconnected structural elements that provide a framework supporting an entire structure of development.

Typically, infrastructure includes roads, water supply, sewers, electrical grids, telecommunications, and so forth. These are some of “the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions.” As such it is an important indicator for judging a country’s or region’s development.

This is because infrastructure facilitates the production of goods and services, and distribution of the same to markets. Infrastructure also consists of basic social services such as schools and hospitals.

Government has identified infrastructure development as one of the country’s top 10 national priority areas. The country will need almost US$2 billion of investment per year over the next decade. According to the Finance ministry, improved infrastructure could boost the annual growth of Zimbabwe by about 2,4 percentage points annually.

The Ministry of Finance is now making concerted efforts to promote national infrastructure programmes, with treasury recently releasing a part of the Special Drawing Rights funds towards water and electricity.  Finance minister Tendai Biti has said Zimbabwe is in danger of missing out on its growth actualisation and may fail to attain the United Nations’ (UN) Millennium Development Goals (MDGs) if its infrastructure project implementation remains low.
Nevertheless, government is moving ahead to systematically involve the private sector in the development, operation and maintenance of infrastructure. Despite these efforts, the infrastructure deficit remains huge, given the slow and uneven pace. While policy and regulatory reforms at the country level are on track, low implementation of infrastructure projects remains a constraint to growth and to attaining the UN MDGs.

The World Bank has estimated that if sub-Saharan Africa’s low-income countries had an infrastructure base equivalent to that of a medium income country such as South Korea, average per capita growth would be higher by 2,6 percentage points per year. Higher transportation, water, and power costs in Africa’s low-income countries are estimated to dampen private sector productivity by almost half — much the same as crime, corruption, and limited financial market access combined.

According to the international Monetary Fund, investing in infrastructure is expensive. The estimated cost of bringing sub-Saharan Africa’s low-income countries’ infrastructure up to the level of other low-income countries and maintaining it ranges from 10-30% of current GDP. However, projected official development assistance, a traditional source of budget finance in Africa, while remaining an important source of financing, is unlikely to be sufficient to support maintaining higher public investment levels.

The power sector is lagging behind in terms of generation capacity. Given growth in electricity consumption, security of its supply in Zimbabwe is in urgent need of expansion. To this effect, expansion works at Kariba hydro and Hwange thermal need to be expedited. The IMF estimates that power deficits in the whole of Africa are holding back the continent’s per-capita growth by two percentage points each year.
In terms of roads, Zimbabwe requires about US$500 million-US$700 million for the Beitbridge-Chirundu highway, according to the Development Bank of Southern Africa

DBSA vice president Admassu Tadesse told the Euromoney Zimbabwe Investment Conference his bank had shown interest in playing a leading role in financing the project together with other potential partners. 

The deal on DBSA’s portion of financing this project had not been finalised but Tadesse expected it to be concluded in the fourth quarter of this year.
“We have made a commitment to this project, but more importantly, the three countries involved, South Africa, Zambia and Zimbabwe had also shown commitment,” Tadesse told the conference.

DBSA had already put in US$1 million in technical assistance to assess how bankable the project was. The highway will form part of the North-South Corridor. Deputy Prime Minister Thokozani Khupe stressed the need for Zimbabwe to take advantage of its location in the region. Tadesse encouraged the use of PPPs, pointing out that South Africa has the biggest road network in the region through such arrangements.

DBSA was also involved in the Plumtree-Mutare highway, where it provided funding of US$206 million. From Plumtree, the 800km road covers Bulawayo, Gweru, Kwekwe, Kadoma, Harare and Rusape up to Mutare.

Zimbabwe National Roads Authority has a 70% shareholding in the joint venture, while Group Five International, a company that has constructed major highways and airports in South Africa, has 30%. In terms of project portfolio, DBSA’s projects portfolio in Zimbabwe includes the Emergency Power Infrastructure Rehabilitation Project and a water supply rehabilitation programme.

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