Why DFIs can enable public and private investment for SADC rail expansion

In various regions, one may find tall weeds growing between the tracks, corrosion on rail joints, and even broken or missing sections. Today, no heavy-haul locomotives or passenger trains run on 30% of Africa’s rail infrastructure due to deterioration.

Availability is another stumbling block for the continent’s rail sector. Most African countries average only three kilometres per 1 000 square kilometres compared to high railway density countries such as those in Europe, with 400 kilometres per 1 000 square kilometres. This shortage of built railway lines further exacerbates the impact of inoperable rail lines.

Out of necessity, Africa’s rail network has been replaced as the preferred mode for freight transport. Due to the significant shift to road, various short- and long-term road infrastructure problems have developed.

Traffic congestion has significantly increased across the continent, with three of the world’s cities with the worst traffic delays situated in Africa. Simultaneously, road infrastructure has been damaged by the consistent use of heavy freight vehicles. The frequency of large weight loads exerting pressure on these public roads and highways have led to uneven tar surfaces, premature pavement failure, and potholes.

From an economic perspective, the consequences have also been severe. Africa moves around 80% of goods via road networks, and over 40% of the final purchasing price can be attributed to inflated transport costs. For the SADC region, the economic impact is even more significant, as 90% of freight is transported by road.

Projections estimate that traffic volumes for landlocked SADC countries will grow by 8,2% annually until 2030 and that trade volumes will also expand over the next five years, further stressing the urgency to alleviate trade’s reliance on road.

In response, government organisations have developed long-term expansion plans, such as the African Union’s Program for Infrastructure Development to build an additional 30 200 km of rail networks by 2040. If realised, this expansion would increase Africa’s rail network by four times its current size within the next five years. However, limited progress has been made, with only 4 000 km of expanded railway line implemented to date.

One of the main barriers preventing railway infrastructure expansion from progressing is a lack of funding. In total, Africa needs an estimated $130-$170 billion annually for infrastructure. African governments cannot close this funding gap alone and have only managed to cover approximately 40%.

Apart from this consequential funding gap, the rail sector is also effectively competing against other infrastructure industries that offer private investors lower risk environments and shorter return-on-investment terms. While significant funds are being invested into other infrastructure areas, such as renewable energy generation and ports, there has been a marked decline in rail network funding.

Many economists have pointed to public-private partnerships as a silver bullet solution to close this funding gap, including for the rail sector. While this has been a workable solution for other infrastructure sectors in Africa, rail expansion cannot be approached in the same, derivative way.  The rail sector requires large sums of investment on dual platforms: railway lines and rolling stock. The one is dependent on the other to move freight volumes and passengers.

Despite this dependency, a different funding approach could be the solution to move Africa’s rail industry forward. The stark reality is that there is limited private sector investment appetite when it comes to railway line infrastructure. To date, a lack of bank feasibility, high capital requirements, and long project tenures have given the private sector reason to pause.

This is where development finance institutions (DFIs) are uniquely positioned to get Africa’s rail sector back on track. DFIs can add tremendous value from both a funding and project feasibility perspective. When it comes to infrastructure plans, Africa has never fallen short – it is migrating from the planning phase into implementation, where the shortfall occurs most often.

DFIs with experience in funding and facilitating initiatives in Africa understand this. Consequently, these financial institutions are making money available for comprehensive feasibility studies. By starting future rail projects with funded and credible feasibility studies, actionable steps can be identified to turn rail infrastructure projects into bankable investments.

By removing this deterrent for private investors, DFIs can become the bridge between Africa’s railway infrastructure needs and public-private partnerships. From conceptualisation and feasibility to implementation, DFIs also have the expertise to enable disciplined project frameworks for capital allocation, strategic benchmarks, sustainable building practices, and operational maintenance, further increasing rail projects’ bankability.

In turn, progress in railway infrastructure expansion will stimulate rolling stock investment. Here, public-private partnerships can take the lead. Refurbishing heavy-haul locomotives and wagons have already been proven as a profitable investment in African countries such as South Africa, Namibia, and Kenya. Simultaneously, industries that form the backbone of economies and are heavily reliant on rail transport, such as mining and agriculture, should be incentivised by government to invest in rolling stock.

Investment in the improvement of rail networks through sustainable financing and infrastructure development projects can unlock the economies for African countries, fostering economic growth, assisting the growth and development of markets that have global relevance, key tenants of B20 South Africa.  Even though sections of Africa’s rail network may have been neglected, it certainly has not been forgotten. With the backing of DFIs, the collaboration of governments, and the investment from the private sector, the continent’s rail sector could be enabled to move forward on the same, economically viable, and sustainable track.