Using investments in infrastructure to create jobs and promote enterprise development during the downturn

[Business Action for Africa]

Petter Mathews
Director, Engineers Against Poverty

Africa’s infrastructure deficit is greater than had previously been thought. The Africa Infrastructure Country Diagnostic study revealed that close to US$38 billion per year is needed for investment and a further US$37 billion per year for maintenance. This is double the estimate of the Commission for Africa and translates into an existing funding gap of approximately US$35 billion per year.

Mobilising investment on this scale during the current global economic crisis is an extremely remote possibility. In fact it is predicted that Sub-Saharan Africa will experience a 13 percent decline in financial inflows and export earnings in 2009 and that the average growth rate of 5.6 percent achieved during 2003-07 will decline to 2.8 percent in 2009. Efforts to minimise these effects are important but they are only part of the solution.

Engineers Against Poverty and the Institution of Civil Engineers have been exploring how to maximise the local economic and social development opportunities that occur through the processes of procuring, building, operating and maintaining infrastructure. Given that close to half of capital expenditure on infrastructure in Africa is from domestic sources and that public finance accounts for the vast majority of this in all but the most fragile states, public procurement is an obvious area of intervention.

Only a small proportion of the resources currently invested in infrastructure benefit domestic suppliers, contractors and workers. Increasing ‘local content’ (that is, the proportion of goods, services and labour sourced locally) in the delivery of infrastructure would help create jobs, promote enterprise development and accelerate progress towards the Millennium Development Goals. The development of domestic capacity should also lead to increased efficiency and better value for money in the longer term.

Our research has identified opportunities to promote local content at all stages of the project cycle including:
Initial planning: Decisions taken at this stage can have the biggest impact. There are many different ways of meeting needs and consideration should be given to the options that allow for building local capacity while providing cost efficiencies to clients and investors.

Detailed design: Specify technologies and materials that are within the capabilities of local contractors. Designing for labour based approaches for example can boost employment opportunities and save foreign exchange.
Appointment of consultants: Employ consultants with a track record of promoting local content. Clients should spell out their requirements and ask that technical submissions include suggestions for maximising local content throughout the supply chain.

Procurement strategy: Support local contractors through measures such as waiving the requirement for financial bonds, introducing a prompt-payment regime and separating the procurement of labour and materials.
Appointment of contractor: Use prequalification and local registers to ensure contractors with the right experience are invited to tender. Unbundling contracts into smaller work packages can enable local contractors to bid and provides a route for them to develop.

Conventional procurement systems tend to be inflexible and elevate the principle of open competitive bidding and lowest cost above all other considerations, including the building of local capacity. The measures outlined here and detailed in the research report introduce some flexibility into those systems and in the current economic crisis, they could also help to offset the impact of declining levels of investment.

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