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20.11.2008 Business & Finance

Africa`s infrastructure to deteriorate as investment dries upAs Shell pulls out of six African countries, Ghana may be added to the list

By Stephen Odoi Larbi - Ghanaian Chronicle

Africa's infrastructure was set to deteriorate further as investment dried up in the wake of the rapid global economic downturn, delegates were told at the Africa Investment Forum in Midrand on Tuesday.

This lack of investment has caused Royal Dutch Shell to pull out of six African countries since September, with the oil multinational citing poor infrastructure as the reason.

Delegates at the forum, organised by the Commonwealth Business Council and Gauteng Economic Development Agency in South Africa, were told that declining levels of trade with Africa could make infrastructure investment even harder to come by.

Speakers were concerned that it had become very difficult to raise money because of the global financial crisis. Lesao Lehohla, the deputy prime minister of Lesotho, said commercial loans had become too expensive to service. He recommended that financial assistance should come from international institutions in the form of grants and soft loans. "Efficient road, rail and air transport links are very necessary in order to reduce high transaction costs within the countries … and also among trading countries," he said.

In 2006 transport costs were estimated at 50 percent of the value of African exports to the US , while air transport costs across Africa were about four times the costs of getting the same goods over the Atlantic. For landlocked countries, the costs are even higher."

Transnet group executive Vuyo Kahla said African countries had missed the global commodities boom because of the lack of infrastructure. "Now we are playing catch-up," Kahla said, adding that the share of global trade with Africa was declining rapidly.

But he said South Africa's railways and ports were operating at world standards because of the good infrastructure, adding that investment was continuing. "In many areas we are leading, in others we are either number two or three." Shell has pulled out of Lesotho, Gambia, Djibouti, Ethiopia, Mozambique and Eritrea since September. It plans to depart from another five unnamed African countries.

Xavier le Mintier, the executive vice-president of Shell Oil Products, said Shell invested in countries for the long term, but "I found that there was no week when I did not have to deal with supply-related problems" in these countries.