Infrastructure deficit could derail Africa’s growth

There is increasing foreign investment in African infrastructure and construction projects, mostly by European, United States and Chinese companies respectively. Yet there remains a major infrastructure deficit on the continent, which could derail positive projections for Africa’s economic growth. This was the main message from Carla Rooseboom, infrastructure and capital projects specialist at Deloitte, speaking at the Breakbulk Africa 2014 Conference in Johannesburg last month. She said six of the world’s ten fastest growing economies were on the African continent and over 322 different construction projects were currently under way in Africa, amounting to more than US$222 767 million, according to Deloitte’s African Construction Trends Report 2013. Of that amount 38%, or R83 199 million, is earmarked for southern Africa, with three of the biggest construction projects currently under way in the region, said Rooseboom. “Of this, 19% of the developments are in the mining sector and 18% is reserved for transport. Energy and power developments take the lion’s share with 31%,” she noted. Yet the World Bank highlights that Africa has a US$90 billion annual deficit in infrastructure spend, said Rooseboom. Of that infrastructure deficit, there is a US$18.2 billion deficit in road infrastructure and a $40bn energy and power shortfall. “Only 19% of Africa’s road infrastructure is paved and 7 000 megawatts of electricity is needed on the continent,” said Rooseboom. She said Standard Chartered Bank predicted that Africa’s economy would grow by 7% per annum over the next 20 years and that there were “incredible opportunities” for development on the continent, including funding by foreign companies. But while there was adequate funding available for bankable projects, there was a distinct shortage of bankable projects. INSERT The World Bank highlights that Africa has a US$90bn annual deficit in infrastructure spend. CHALLENGES ■ A lack of understanding and knowledge of the legal and regulatory framework of the respective countries ■ There is a lack of long-term strategic planning around infrastructure projects ■ Inefficiency from service providers, particularly stateowned or managed ones ■ An absence of incentive mechanisms such as government grants, tax incentives and more ■ A lack of road and rail standardisation across the continent ■ Shortage of skills, particularly engineering skills ■ A reticence by governments to move projects forward. SOLUTIONS ■ Governments need to ensure stable and transparent deal pipelines ■ More private and public sector partnerships need to be forged and close relationships need to be fostered ■ Governments need to provide comfort by enabling long-term policy stability ■ Governments need to have aggressive upskilling plans ■ They need to provide close financial governance and monitoring ■ Senior management needs to be involved in project planning as well as. implementation. AFRICA'S GROWTH DRIVERS º Top sectors in African infrastructure development rated by investment value are: Power and energy Transport Mining Real estate Water Oil and gas º 60% of the world’s unexploited arable land is in Africa, particularly in countries such as the Sudan, Democratic Republic of Congo , Zambia, Mali, Mozambique and Angola º Africa’s deepening financial sector and resurgent partnerships with emerging economies and markets º The continent’s large share of unexploited industrial commodities including: 25% Bauxite 60% Diamonds 50% Cobalt 80% Phosphate 90% Platinum group metals º Geographic hotspots for mining as well as oil and gas in southern, east and west Africa º Huge intra-Africa trade opportunities – currently only 10% of trade takes place between African countries. MAJOR PROJECTS Kusile Power Station ($20 397 million) – based in Mpumalanga, it will be one of the largest coal-fired power stations in the world ● Medupi Power Station ($10 843 million) – located near Lephalale in Limpopo province, it will be the fourth largest coalfired power plant and the biggest dry-cooled power station in the world ● Project Mthombo fuel refinery ($ 8 981 million) – PetroSA’s planned 300 000 barrels-per-day crude refinery will meet a large part of the projected 400 000 bbl/d forecast demand for transportation fuels by 2020 ● Transnet’s new multi products pipeline ($3 035 million) – approximately three million litres of petrol, diesel, jet fuel and gas will f low between Durban and Johannesburg on a weekly basis once the pipeline is fully operational ● Venetia underground mine ($2 000) – the new underground mine in the Limpopo province will extend the life of the pit until 2042.