8 February 2014

East Africa: Infrastructure Chance

East Africa is turning the heads of investors, construction firms and multi-national corporations in what could push the region to unprecedented level of development, according to a new report prepared by the management company Delloite.

The African Construction Trends Report 2013 shows that of the 322 large-scale projects sampled on the African continent, one third are in East Africa. Apart from basic infrastructure such as rail, roads, healthcare facilities, housing, real estate and retail space, the discovery of oil in the region has enabled infrastructure development to gain a new impetus, which is expected to drive economic growth for East Africa for many years as the accrued oil revenues spawn even bigger large-scale public-funded infrastructure projects and build local capacity to undertake more private projects. "Infrastructure development can help this continent of over one billion people stand firmly on its own," the report reads in part. It adds that it is indeed a welcome development as any slowdown in development of critical infrastructure could impact the rate of socio-economic growth.

East Africa is credited for the sense of collaboration and strategic integration, which has led to the development "regional assets" with some of these big cross-border projects being in the pipeline. Some 94 projects were sourced by Deloitte for this survey, with transport dominating the share of projects after which energy and power feature strongly. RVR's Mombasa - Malaba Standard Gauge Railway Line is the region's second biggest project.

As if to show commitment to eliminating infrastructure bottlenecks, governments own a dominant 72% of projects in East Africa while Europe/US holds 11% in project ownership. Some 28% of the projects are privately funded and 1% are being funded through PPPs.

Despite the aggressive push by China, European/US construction firms are still dominating the projects scene with 37% of the projects while Chinese firms are taking only 19% of the share. The prospects look even brighter. A potential pipeline through South Sudan, Uganda and Kenya to the proposed new port at Lamu is one such enormous project. It has recently been announced that a Japanese firm will finance and develop the 2,000km oil pipeline, with construction costs in excess of $5 billion.

At the COMESA Sumit in Kampala at the of 2012, the partner states agreed to speed up the implementation of cross-border energy and infrastructure investments to achieve energy security and lower the cost of doing business in the region. They also endorsed a plan to find a 'seed investor' for the COMESA Infrastructure Fund. The findings of the report highlight a growing regional consciousness in Africa.

Missing links

Developing regional infrastructure is crucial to sustaining Africa's current economic growth and competitiveness, said Peter Longworth, the director General of the Commonwealth Business Council in another recent report on infrastructure investment. Building partnerships is vital to bridging the infrastructure gap, he added.

The report noted that Africa is faced with the challenge of a huge infrastructure deficit, which is a key limiting factor to the regional integration initiatives being undertaken among the various economic blocs. It added that improving continental infrastructure is foundational as it is the basis upon which Africa's development rests. The report warns that without sound and well-maintained infrastructure, national economic development would remain a far off dream. "Infrastructure has been responsible for more than half of Africa's recent improved performance, and has the potential to contribute even more in the future," it said, adding that the flipside is that inadequate infrastructure would continue to hold back faster growth in Africa. Longhorn could not agree with more.

"Together we can realise the vision of developing Africa's regional and continental infrastructure and promote socio-economic development and poverty reduction across the continent," he said.

New energy generation hubs are being forged. Transport corridors are being built with a view to better integrate regional trade and basic water infrastructure is being invested in. In addition, telecommunications connections are being strengthened and expanded and development is beginning to touch the commercial property sector. Exhibiting six of the ten fastest growing economies in the world, African construction activity over the past years has ushered in a growth era. The benefits of such high growth can, however only be sealed once projects are commissioned and consistently maintained.

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