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Economic Development in Africa Report 2015
A. INTRODUCTION The services sector plays an important role in Africa’s economic and social development. However, Africa has not been able to fully capitalize on the sector, and services provision is suboptimal and entails high costs. Many of the market failures and inefficiencies afflicting the sector may be addressed through regulation. This chapter examines the economic development potential of the regulation of the infrastructure services sector (whether public or privately owned) and how regulation may contribute to bridging Africa’s infrastructure gap in order to promote economic development. In addition, this chapter discusses how domestic regulatory and institutional frameworks might improve the provision of infrastructural services, and the analysis of regulatory provision focuses specifically on the means of enhancing the contribution of regulated infrastructure services to growth and development in Africa.
B. WHAT ARE INFRASTRUCTURE SERVICES AND WHY IS THEIR REGULATION IMPORTANT? A critical constraint to realizing economic growth potential in Africa is the state of infrastructure services (transport, telecommunications, water, energy and sanitation). Infrastructure services critical to social development, health and economic growth are provided via physical networks (e.g. electricity wires, gas pipelines and sewage pipe systems) and mainly through local or national monopoly facilities. These services are highly capital intensive, are mainly comprised of sunk assets (i.e. immovable equipment with little second-hand value) and are characterized by considerable economies of scale and scope. Since the 1980s, privatized infrastructure services have grown and demand for effective utility regulation has increased largely because of the poor financial performance of many (State-owned) utilities, inappropriate pricing policies (often due to political pressures) and unsustainable subsidization of services for certain categories of customers. In addition, most African countries face stringent limitations on public sector finance for new capacity in transport, telecommunications, water and energy infrastructure, and wish to accelerate services provision to foster economic growth (World Economic Forum et al., 2009). As infrastructure services industries are typically dependent on monopolistic networks (whether public or privately owned or local and/or national), economic regulation needs to address