## **FORECASTING INVESTMENT NEEDS IN SOUTH AFRICA’S**

## **ELECTRICITY AND TELECOMMUNICATIONS SECTORS**

## **by**

# Željko Bogetić* and Johannes W. Fedderke*

## **Why forecast infrastructure needs?**

There are at least four reasons for the need for more rigorous, empirical forecasting of infrastructure investment needs in South Africa at this time: (i) the strong international evidence on the links between infrastructure and growth and renewed emphasis of the development community on infrastructure in Sub-Saharan Africa, (ii) the broader links between infrastructure, equity and poverty in the Sub-Saharan African context, (iii) the South Africa specific evidence on infrastructure and growth and the significant decline in infrastructure investments in South Africa over the past two decades, and (iv) the ongoing policy efforts to scale up infrastructure as a key element of the South African government’s accelerated and shared growth strategy.

## **_Infrastructure, growth, and the infrastructure deficit in Sub-Saharan Africa_**

Infrastructure investments have long been recognized in the development literature as an influential factor for economic growth and overall welfare (Aschauer 1989, World Bank 1994, Leipziger et al. 2003, Estache 2005). But recently, there has also emerged a growing sense that infrastructure provision has been inadequate relative to needs in many African and Latin American countries (Figure 1). Infrastructure deficits, in turn, have led to lower growth and private investments, deteriorating investment climate, and worse social indicators.<sup>1</sup> _____________________________________________________________________________________ * Bogetić is lead economist at the World Bank, Africa Region, Washington D.C. (E-mail: <u>zbogetic@worldbank.org) and Fedderke is professor of economics at the University of Cape Town, School</u> of Economics (E-mail: jfedderk@commerce.uct.ac.za). The paper builds on and extends the earlier related work by Bogetić and Fedderke (2005 a,b). Helpful discussions with Ioannis Kessides, Anton Eberhard, Antonio Estache, Paul Collier, Alan Gelb, Ritva Reinikka, Cecilia Briceno-Garmendia and Luiz Maurer, and research assistance by Andrew Hill are gratefully acknowledged.

1 For example, Easterly and Serven (2004) show that about one-fifth of Latin American growth underperformance relative to East Asia was directly related to underinvestment in infrastructure. Also shown was that sub-Saharan Africa's poor growth performance was in part related to underinvestment in electricity and telecom infrastructure (Esfahani and Ramirez 2003). It is estimated that if Africa had enjoyed Korea's quantity and quality of infrastructure, it would have raised its annual growth per capita by about 1 percentage point (Eustache 2005). The recent World Development Report (World Bank 2004) on investment climate documents that about half of Sub-Saharan African entrepreneurs cite inadequate power supply as a major constraint to their growth, well ahead of some other constraints such as corruption. Also, Reinikka and Svensson (1999, 2002) find, using a firm-level data, that inadequate provision of public capital (especially infrastructure) reduces private investments.

2