Africa plans to splurge on infrastructure


Infrastructure spend in sub-saharan Africa is projected to reach $180-billion (R2-trillion) a year by 2025, up from $70-billion in 2013, according to PricewaterhouseCoopers' Capital Projects & Infrastructure in East Africa, Southern Africa and West Africa report, which was issued on 2 December.

The continent continues to attract the interest of global investors, developers and operators searching for growth. While there are short-term concerns in some of Africa's regions, the opportunities abound for infrastructure investment and development.

Interviews were conducted among 95 key players in the infrastructure sector, including development finance institutions, private financiers, government organisations and private construction and operations companies in the region.

The sectors surveyed included water, transport and logistics, energy, mining, telecommunications, and property, with the main focus on economic infrastructure.
More than half of respondents indicated that their planned spending on infrastructure – both new projects and refurbishment of assets – would increase by more than 25% from the previous year.

They said much of their spending would be focused on new development, with 51% of all respondents planning to spend more than half of their budgets on new assets. Respondents from West Africa were especially bullish, with 58% planning an increase of more than 25% in spending, followed by those in East Africa (53%) and Southern Africa (40%).
Faster growth regions

"The shallow economic recovery in most developed markets has shifted the focus to faster-growing regions. This is also true for the infrastructure development sector," explains Jonathan Cawood, the capital projects and infrastructure leader for PricewaterhouseCoopers (PwC) Africa.

"With an abundance of natural resources and recent mineral, oil and gas discoveries, demographic and political shifts and a more investor-friendly environment, the investor spotlight shines brightly on Africa.

"While respondents are clearly committed and optimistic about the continent's infrastructure development, there are a number of obstacles they recognise must be dealt with. Resolving these quickly and creatively will not only positively affect their current projects, but more importantly, will attract other project developers, owners and investors to enter the African market," says Cawood.

Despite its slow growth, South Africa remains the powerhouse of sub-Saharan Africa, with the most sophisticated infrastructure, state-owned entities, financial services, telecommunications, regulation and greater industrial and sector capacity.

The top three challenges in delivering capital projects across Southern Africa are: the availability of skills (47%), a lack of internal capacity among state organisations to plan, procure, manage and implement capital infrastructure projects (43%), and the impact of political risk and government interference during project lifecycles (40%).

Access to funding was raised as a concern (33%), as was policy and the inhibiting regulatory environment (27%).

China has made numerous investments in sub-Saharan Africa to support its need for resources. Japan, India and other Asian countries are also investing in infrastructure often linked to resources on the continent. Funding from local players is also increasing significantly.

With many governments and heir agencies reaching debt ceilings, funding models are gradually changing in Africa and respondents expect public-private partnerships to become more prevalent.

"Stability coupled with greater regional integration and cross-border co-operation is essential for the successful economic development of Southern Africa. The region is clearly on a strong growth trajectory but better project selection and preparation, tighter collaboration and improvement in trust are required to ensure sustained development," says Cawood.
Economic growth

"The need to improve infrastructure to drive economic development is undisputed. The survey makes it clear that the availability of funding is a common and critical challenge. However, private capital does not track needs, it tracks opportunities," says Mohale Masithela, a PwC partner in capital projects and infrastructure financing.

"To ensure the need for infrastructure is viewed as an opportunity to provide capital by funders, some of the other challenges identified in the survey such as political risk, policy and regulatory clarity and the availability of appropriately skilled resources must be addressed."

South Africa and Nigeria have the most ambitious infrastructure programmes and together make up almost 60% of the spend across sub-Saharan Africa. Kenya follows as the third largest in planned spend. Transport and utilities (including power and water) will account for approximately 70% of this spend in Southern Africa.

Cawood concludes: "Infrastructure plays a key role in economic growth and reducing poverty, having a 5% to 25% per annum return on investment as an economic multiplier.
"Those countries that have been most successful in developing and maintaining infrastructure have established programmes of prioritised investment opportunities with a number of features, including clear political support, a proper legal and regulatory structure, a procurement framework that can be understood by both procurers and bidders, and credible project timetables."

comments powered by Disqus


This edition

Issue 42