Unlocking Digital Growth in Eastern Africa: How Private Sector Investment is Shaping the Future of Connectivity

The article discusses a World Bank and CEPA report titled “Leveraging Private Sector Investment in Digital Communications Infrastructure in Eastern Africa,” focusing on strategies to boost private sector participation in digital infrastructure projects in Djibouti, Ethiopia, Kenya, Madagascar, Somalia, and South Sudan. Key challenges such as political instability, currency volatility, and underdeveloped capital markets are highlighted, along with solutions like Public-Private Partnerships and Multi-Round Reverse Auctions. The report provides a roadmap for sustainable digital growth through enhanced procurement practices and risk management frameworks.

In a rapidly evolving digital world, the need for robust digital infrastructure is more critical than ever, especially in regions with substantial connectivity gaps. A recent report titled “Leveraging Private Sector Investment in Digital Communications Infrastructure in Eastern Africa” by the World Bank Group and CEPA explores how private sector participation can bridge the digital divide in six Eastern African nations: Djibouti, Ethiopia, Kenya, Madagascar, Somalia, and South Sudan. The study outlines how strategic investments, public-private partnerships, and innovative procurement methods can accelerate digital growth and ensure sustainable development.

Addressing the Digital Divide: A Multi-Pronged Approach

The report highlights that while Eastern Africa has seen some progress in digital connectivity, the region still lags behind the global average, particularly in rural areas where digital infrastructure is limited or non-existent. To tackle this issue, the World Bank has focused on three main projects,

Kenya Digital Economy Acceleration Project (KDEAP), aims to enhance access to high-speed internet, improve education, and strengthen government services.

Eastern Africa Regional Digital Integration Project (EARDIP), aimed at expanding cross-border broadband connectivity and digital trade.

Digital and Energy Connectivity for Inclusion in Madagascar (DECIM), is designed to boost access to digital and energy services in Madagascar.

Each project addresses specific digital infrastructure needs and seeks to stimulate private sector involvement by reducing investment risks and introducing innovative financing solutions.

Challenges in Mobilizing Private Capital

The report identifies several obstacles that hinder private investment in digital infrastructure in Eastern Africa. These include,

High Project Risks: Investors are wary of pouring capital into regions with limited digital readiness and uncertain revenue prospects.

Currency Volatility: Fluctuations in local currencies and lack of access to foreign reserves make it difficult for international investors to commit.

Political Instability: Countries like Somalia and South Sudan face ongoing political and security challenges, making long-term investments risky.

Underdeveloped Capital Markets: Limited exit options for investors due to weak financial systems hamper the flow of private capital.

To address these challenges, the World Bank recommends creating a stable policy environment, enhancing governance, and developing a strong regulatory framework that fosters investor confidence.

Innovative Solutions: Public-Private Partnerships and Anchor Tenants

One of the key strategies highlighted in the report is the use of Public-Private Partnerships (PPPs) and anchor tenants to attract private investments. For instance, government agencies can act as stable, long-term customers for digital services, reducing market risk for private investors. This “anchor tenant” model has been successfully implemented in Kenya and Malawi, where public institutions like schools and hospitals committed to long-term contracts, thereby making it viable for private firms to invest in expanding digital infrastructure to underserved areas.

In Kenya, the KDEAP project has leveraged such partnerships to extend broadband connectivity to schools and health centers, enhancing digital literacy and improving service delivery. Similarly, in Malawi, the Digital Foundations Project employed a competitive tender process where private operators committed to building out infrastructure in exchange for government contracts.

Achieving Value for Money: Multi-Round Reverse Auctions (MRRA)

Another innovative solution proposed by the report is the use of Multi-Round Reverse Auctions (MRRA). Unlike traditional procurement methods, MRRAs enable multiple rounds of bidding, allowing bidders to adjust their proposals based on market conditions and competitive dynamics. This approach helps governments avoid the “winner’s curse,” where bidders offer low prices that later prove unsustainable and instead ensure that subsidies reflect the true value of the projects.

MRRAs have been successfully implemented in other parts of the world, and the World Bank believes this model can provide better value for money in Eastern Africa. The process encourages transparency and competition, ultimately reducing costs and delivering more efficient infrastructure solutions.

The Road Ahead: Policy Recommendations for Sustainable Growth

The report concludes with a set of tailored recommendations for each of the six countries, emphasizing the need for stronger procurement practices, enhanced risk management frameworks, and collaboration with Multilateral Development Banks (MDBs). By aligning national policies with international standards and building a robust investment environment, the region can attract more private capital and accelerate its digital transformation.

For the broader digital development of Eastern Africa, the report calls for a concerted effort to address infrastructure bottlenecks, support local entrepreneurs, and ensure that digital inclusion benefits all, particularly marginalized communities. With the right mix of public support, private investment, and innovative policies, Eastern Africa can unlock its digital potential and become a key player in the global digital economy.