Investments in infrastructure must be paired with investments in innovation ecosystems
In nearly every African country, the derelict state of infrastructure is immediately apparent and so, improving the continent’s infrastructure is a top priority for many governments and development partners. At major conferences on business in Africa, infrastructure consistently features as a key agenda item. For example, at the 2024 Africa CEO Forum in Kigali, the word “infrastructure” appeared 45 times in the program, appearing more times than government (37), institutions (11), digital (43), innovation/innovative (39) and even financing (42). The general consensus among investors, policymakers, entrepreneurs, development partners, and average citizens is clear: Africa must address its infrastructure before growth, development, and prosperity can really take off.
To that end, for more than a decade many African countries have courted billions of dollars of infrastructure investments from China to finance major rail, road, port projects across the continent. Similarly, the United States has also spearheaded programs such as the Power Africa initiative and the Afya Ugavi to help develop electricity and healthcare infrastructure respectively. In May 2024, at the U.S.-Africa Business Forum in Dallas, the U.S. further demonstrated its commitment to developing Africa’s infrastructure by signing a $1.3 billion deal with Angola for three major infrastructure projects. Additionally, one of the outcomes of Kenya’s President Ruto’s visit to the White House in May was a $3.6 billion highway deal with Everstrong Capital, a U.S. infrastructure asset manager.
Yet, progress is painstakingly slow as the continent’s annual infrastructure funding gap is estimated to range between $90 billion to $100 billion. As Africa’s population surges, this gap will only widen if a fundamental shift does not happen.
To accelerate progress, the emphasis on building Africa’s infrastructure needs to be paired with the development of innovation ecosystems that can create value which will ultimately be stored in or distributed via the continent’s infrastructure. Marrying infrastructural investments with the building of innovation ecosystems could yield even more substantial and sustainable long-term economic and social benefits, which in turn enable increasing investment in infrastructure.
It’s important however to first describe the reality in African economies and then define infrastructure and innovation ecosystems.
First, across Africa approximately 96% of people live on less than $10 a day, equivalent to $3,650 a year. Only 0.3% live on more than $50 a day. Furthermore, the vast majority–83%–of people in Africa work in the “informal” sector, plagued with low wages, irregular income, poor working conditions, limited access to credit, and no social security. In effect, most Africans are economically poor and struggling to access products and services that would make life easier for them, such as housing, education, healthcare, transportation, food, security, leisure, and so on.
This widespread poverty and the economic makeup of the continent does not only severely limit its productivity but also hampers the government’s ability to efficiently collect taxes and consequently serve the average African. Annual national government expenditure per capita across Africa, for instance, is approximately $500. In France, Norway, and the United States, government expenditure per capita is $24,000, $41,000, and $30,000 respectively. This disparity, often highlighted by the continent’s poor rankings on most global indices, significantly limits the government’s ability to directly build and develop its infrastructure.
Second, we define infrastructure as the most efficient mechanism through which a society stores or distributes value. For example, road and rail infrastructure are the most efficient means by which societies move people and freight via vehicles and trains. Schools and hospitals are the most efficient ways we have developed to educate learners and treat people who are sick. This definition leads to two simple facts about infrastructure.
- The value of an infrastructure is inextricably linked to the value it stores or distributes.
- The value being stored or distributed must justify–and ultimately contribute to–the cost of construction and maintenance of the infrastructure.
For example, in the United States, state and local governments collected more than $53 billion in gasoline taxes in 2021, most of which was spent on building and maintaining transportation infrastructure such as highways, roads, streets, mass transit, and some general and non-highway purposes. This tax comes from the more than 200 million vehicles in the United States that must be fueled in order to move value–people and freight–from one place to another. No cars, no gas, no gas taxes, no roads.
For Africa to justify filling its large and multibillion dollar infrastructure gap, the continent must create enough value in need of storage or distribution. Unfortunately, this is not the case at the moment. Although the continent is home to 17% of the world’s population, it contributes approximately 3% to global GDP, attracts roughly 5% of global FDI, and is responsible for a little more than 3% of global trade. And since infrastructure does not fundamentally create value–it simply distributes or stores it–African countries will struggle to repay the multibillion dollar investments in infrastructure necessary to close the infrastructure gap.
Additionally, research from Danish scholar at Oxford University, Bent Flyvbjerg, reveals that globally, nine out of ten mega projects–many of which are infrastructures–have the following characteristics. They exceed their budget, fall behind schedule, and fail to reach their economic projections.
Consider these two examples in Africa. In 2014, Kenya borrowed more than $4.5 billion from China to build a rail line linking the port of Mombasa and Uganda, Rwanda, and the Democratic Republic of Congo. Not only does the project remain incomplete today, but the infrastructure is also unlikely to recoup enough funds to pay back the loans. Another example is the $2 billion 800 MW Noor Midelt I solar plant in Morocco. The plant was supposed to start operations this year but by February, construction had not begun.
Flyvberg’s research suggests that the infrastructure projects in Kenya and Morocco are not anomalies–they are the norm. The decks are stacked against infrastructure projects in most parts of the world, especially in poor countries where transparency, accountability, and robust legal and regulatory frameworks aren’t often in place.
Even when infrastructure is provided to people for free or at a heavy subsidy, its impact tends to be nonexistent, or marginal at best, if the infrastructure isn’t directly connected to a value-creating activity. And worse, maintaining the infrastructure often becomes unsustainable.
Understanding this is important because, something paralyzing happens when you tell a person, or a nation for that matter, that it needs a thing that it doesn’t have in order to become something. And that’s the case with infrastructure across Africa. For decades Africans have been told that infrastructure must come before development and so, leaders across the continent have been trying hard to court investments in infrastructure without sufficient efforts to create the value in need of storage or distribution. This is apparent in the continent’s heavy investments in education, for instance. Primary school enrollment has reached 99% across Sub Saharan Africa, yet in many countries tens of millions of students are not learning.
This phenomenon has a profoundly negative effect on the value placed on education and the schooling infrastructure. We are reminded of a comment from an African youth at an event discussing the challenges in their community: All of us here are educated differently yet we are united in our unemployment. You told us education was the key to employment and after we got educated, you changed the locks. Much of the education infrastructure across the continent is not producing graduates who are learning and thus, most cannot create viable companies or access the relatively small number of jobs available.
Third, innovation ecosystems are the interconnected network of people, resources, and organizations necessary to solve a specific problem that creates value for a specific group of people in society. Simply put, innovation ecosystems create the value that is stored in or distributed via infrastructures. Without them, infrastructures are expensive investments that leave countries burdened with debt and ultimately devoid of hope.
To be clear, an innovation ecosystem isn’t simply the collaboration between different actors in an economy–venture capitalists, entrepreneurs, universities, research institutes, corporations, and so on–doing “innovation activity.” This leads to “innovation theater,” not true innovation. The most important element in an innovation ecosystem is the specific problem that has brought the often disparate actors together. As such, each component in an innovation ecosystem must be able to clearly articulate the problem the ecosystem is solving, especially at its inception. Consider the following examples.
More than 100 years ago, entrepreneurs such as Henry Ford (Ford Motor Co.), William Durant (General Motors), and Ransom Eli Olds (Oldsmobile) built an innovation ecosystem focused on solving the problem of mobility in the United States. They leveraged the enabling technology of the internal combustion engine and marshaled together the necessary resources including engineers, researchers, scientists, financiers, technicians, and so on. They invested in steel, iron ore, rubber, glass, paint, management, logistics, training, material science, and many other engineering, manufacturing, and sales activities necessary to sell a car to the average American at the time. Every investment in the ecosystem was to solve the problem of mobility.
Today, there are more than 280 million cars in the US driving on over four million miles of roads. The automotive ecosystem, which got its start in Detroit, is what fuels the nation’s transportation infrastructure. Globally, there are more than 1.4 billion cars driving on over 40 million miles of roads. There is a high correlation between the number of vehicles in a country and the number (and quality) of miles of roads.
Similarly, Silicon Valley, arguably the most celebrated tech ecosystem in the world, and a source of inspiration for many others globally, saw its growth accelerate in the post-World War II era. Although Frederick Terman, Stanford professor and dean of the engineering school (considered one of the fathers of Silicon Valley), encouraged his students to start companies (Bill Hewlett and David Packard of HP, Russell and Sigurd Varian of Varian Associates, and Paul Klipsch of Klipsch Audio Technologies), investment in the ecosystem really boomed during and after the second world war.
Public investments in technologies such as the transistor, integrated circuit, satellite and microwave technology, and subsequently, the Internet, triggered a major technological and economic boom in the region. The U.S. Department of Defense, for instance, was a major driver of semiconductor research and production, giving out contracts to Fairchild Semiconductor, the precursor to Intel Corporation. What’s easily forgotten, considering the maturity of the Silicon Valley ecosystem today, is that the ecosystem started and evolved to solve specific problems. This focus on problem solving is what attracted engineers, entrepreneurs, investors, research organizations, and large companies to the region. The GDP of San Francisco’s Bay Area today is roughly $1.2 trillion and it is from this immense value creation that the region can fund its infrastructure needs.
It’s hard to imagine similar ecosystems emerging across Africa, but over the past two decades, entrepreneurs, investors, and policymakers have built a telecommunications ecosystem that supports close to half a billion unique mobile phone subscriptions, has attracted billions of dollars in funding, has created more than 3.6 million direct and indirect jobs, and generated over $20 billion in public funding. This entire ecosystem exists for the singular purpose of making telecommunication services accessible to the average person in Africa.
Innovation ecosystems are akin to a game of basketball. Each player, with unique skills and roles, moves up and down the court with the shared objectives of scoring points by getting the ball into the opponent’s net and defending their own net to prevent the opposition from scoring. Without these shared objectives, it would just look like a bunch of people running up and down a court for the fun of it. It is only when scoring and defending are prioritized that the game of basketball makes sense. Similarly, in an innovation ecosystem, the coordination and collaboration towards solving a specific problem are what give it purpose and direction.
Examples of innovation ecosystems are emerging
Across Africa, fewer infrastructure challenges are as prevalent as healthcare. The temptation is for leaders across the continent to build healthcare infrastructure, such as large general hospitals, specialized treatment centers, and major research labs, similar to what exists in wealthy countries. The issue with this approach however, is that much of the infrastructure is not connected to an ecosystem designed to solve specific problems that create value.
One way around this problem is to focus on building healthcare ecosystems targeted at solving specific challenges on the continent from the standpoint of the average person experiencing the problem. That’s just what the Investing in Innovation Africa (i3) initiative is designed to do. (Disclaimer: Two of us serve on the steering committee of the i3 program).
In 2022, a consortium of industry actors and donors specifically motivated to advance healthcare supply chains launched a ‘value creation network’ to jointly support African-led supply chain startups. Regional committees selected 60 African-led startups building new approaches to delivering health products to patients and providers.1 Startups each received $50K in flexible funding, bespoke introductions to customers who can help drive their impact at scale, and the commitment of program sponsors to work flexibly to help address challenges they face on the pathway to improved commercialization and impact.2 The Gates Foundation, Cencora (formerly AmerisourceBergen), MSD, Chemonics and Microsoft launched i3 – with guidance from both the WHO AFRO and the Africa CDC.
Today, startups in the i3 cohort are delivering health products to over 115,000 providers across the continent, tracking 250 million health products, and delivering directly to 7.5M patients. To date, i3 has made >450 personalized introductions with potential customers, innovators have signed 122 MOUs/partnerships, and raised >$50M in additional financing, and directly generated nearly 800 jobs. i3 introductions have directly influenced over $10M in signed partnerships currently under discussion, and significantly shaped the investment portfolios of two new early-stage funds. Startups have directly generated nearly 1000 jobs, and indirectly powered many more.
This sort of specificity and focus, in addition to the resources necessary to solve the problem, is what ecosystems need to thrive.
What’s next?
The next phase of i3 will jointly tackle a related challenge: the future of pharmacy, again bringing together industry and donors, with guidance from leading African institutions, to 1) develop an equitable pipeline of early stage startups who are changing how pharmacies bring care to patients, and 2) help connect the most promising growth-stage startups to major healthcare customers who power their impact at greater scale. As the group of supporters grows, i3 seeks to maintain its flexible, focused approach – acting nimbly to advance customer connections and partnership deals, while building healthcare impact and jobs. i3 believes that connecting leading startups to larger healthcare organizations and customer groups (who are seeking partners to lower costs, improve reach, quality and access) is required to grow startups sustainable impact, developing healthcare markets to create value for patients, and (in doing so) complement investments in local manufacturing and healthcare infrastructure.
The challenge across the continent is to build innovation ecosystems that can do the same for food, housing, mobility, and other products and services that will make life easier for the average African. These ecosystems will create the value that will be stored in or distributed via the continent’s infrastructure and, in turn, pay for them. Without investing aggressively in developing innovation ecosystems across the continent, it will remain difficult, and almost impossible, for the continent to close its $100 billion infrastructure financing gap.
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- I3 believes the strongest innovation ecosystems are inclusive. 43% of the innovators selected have women owners in key leadership roles, and 20% are founded by entrepreneurs hailing from Francophone geographies.
↩︎ - For innovation to improve lives at massive scale, startups require demand (customers), but also often require connections to mass production; mass marketing; mass financing or credit; mass distribution and logistics; management for scale and standardization; plus, work with governments to develop and comply with context-specific regulations that protect patient safety.
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