Infrastructure spend a hard sell in low commodity cycle

Africa needs infrastructure if it

wants to achieve its targeted

growth but the significant

capital expenditure required

in the current low commodity

environment is not drawing the

much-needed investments.

It’s simply not worth it in the

current environment, says Paul

Runge, managing director of

Africa Project Access.

“Most companies are dealing

with the price drop in revenues

by reducing their operational

expenditure – and across the

continent there are examples

of that,” he says. “The capital

expenditure required to invest in

infrastructure is not really worth

it.”

Rail and ports in particular

need upgrading and investment.

In Botswana and Namibia the

Trans Kalahari railway project

is testimony to the current

environment. Despite feasibility

studies being concluded in 2011

and firm commitments from the

governments of both countries,

funders have been few and far

between.

“And African governments need

private companies to help with

these investments. They just do

not have the capacity to build the

infrastructure out of their fiscus.”

Gas infrastructure, says Runge,

is however slightly different as

the price is determined by the off

takers.

“It all depends who you are

selling it to.

Across Africa

there is a strong

phenomenon of

gas to power and

so there are several

gas projects that are

exciting and getting a

lot of interest from the

projects and logistics

sectors.”

He said Tanzania for

example had developed

a policy to

adopt gas for

power while

Mozambique

was

developing

plans to

liquefy gas

for export.

“The gas

story can

still happen

in Africa and is

worth watching with a close

eye,” he says. “We definitely expect

some activity in Tanzania and

Mozambique in the next few years.

Although it is being impacted by

the low oil prices, nevertheless

there is movement in this sector.”

But, said Runge, there were still

some big questions that needed

to be answered around what was

going to happen with the Ravuma

Basin gas finds.

“There is also talk of South

Africa tapping into it for

its own power needs.

Gas remains relatively

cheap, not difficult to

use to generate power

and is environmentally

friendly.”