Introduction

The incentive to invest in an economic activity is affected by factors such as the cost of labor, the available infrastructure such as transportation and information and communications technology (ICT), and the regulatory and fiscal environment. A potential investor will be drawn to regions or countries that promise to deliver the greatest economic gains. A measure for making such comparisons is the Price Level Index (PLI), which is derived by dividing the purchasing power parity (PPP) index by the corresponding exchange rate. A PLI represents the average percentage by which the prices of goods and services in country X, when converted into country Z's currency at the current exchange rate, exceed or fall below the prices of the same goods and services in country Z. Because the PLI is usually measured in percentages, a PLI of 100 denotes that the price levels in both countries are the same. A higher or lower PLI indicates higher or lower costs, respectively. When currencies are converted using market exchange rates, they provide a comparison at a single point in time of relative purchasing power of one currency over another. However, this is a somewhat distorted picture, since exchange rates are volatile and the comparison does not take the price levels into account. Price level indices are better determinants. They can be used to make investment decisions, for example, whether to transfer capital from one country to another, or whether to alter the composition of an investment portfolio by switching economic activities, depending on the comparative advantage and economies of scale in one country over another.

According to the Africa Infrastructure Country Diagnostic (AICD) report Overhauling the Engine of Growth: Infrastructure in Africa (Foster, 2008), African countries devote 6% to 8% of their gross domestic product (GDP) to infrastructure. Calderón and Servén (2008) argue that across Africa, infrastructure contributed 99 basis points to per capita economic growth over the 1990 to 2005 period, whereas the contribution of structural policies represented 68 basis points. This infrastructural contribution is almost entirely attributable to advances in the telecommunications sector. Foster notes that deterioration in the energy infrastructure over the same period has had a significant lagging effect on economic growth in a number of African countries.