Deloitte on Africa - Breakbulk Events & MediaKeynote… · • Recent oil and gas finds in East...
Transcript of Deloitte on Africa - Breakbulk Events & MediaKeynote… · • Recent oil and gas finds in East...
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Deloitte on Africa
African Construction Trends Report 2013
January 2014
Deloitte | South Africa
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Infrastructure Requirements in Africa
Sources: African Development
Bank, Public-Private Infrastructure
Advisory Facility, World Bank,
International Energy Agency,
GSMA, World Bank, Africa’s
infrastructure: A time for
transformation
Implementing
regional backbone
infrastructure
across Africa by
2040 =
$360 bn
Water and Sanitation
Most successful sector,
attracting 76 % of
regional investment
or $60 billion
700m active mobile
phone subscriptions
84m Internet-enabled
mobiles
ICT
$41bn a year deficit
Electricity
Less than 40% of the
continent has access
Requires 7 000 megawatts
of new capacity each year
Only spends1/4 ($11.6
billion) of what is needed a
year
62 % have access
to safe water
60% have access to adequate
sanitation
The lowest rates
in the world
Lose over
$5.5bn a year
Transport
Costs in landlocked countries
= 70% of the value of
exported goods due to the
lack of infrastructure
Only 19% of roads are paved
$18.2bn a year deficit
$9bn a year deficit
$21.9bn a year
deficit
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This is the 1st edition of
the Deloitte on Africa,
African Construction
Trends Report
This is the 2nd edition of
the Deloitte on Africa,
African Construction
Trends Report
Methodology used in the
2013 report
Background
What were the findings
• A total of 322 projects qualified for inclusion
• Categorisation of regions follows that of the
African Development Bank and data
collected was limited to publicly available
information
• Identified who owns, builds and funds
African construction projects
• It is produced annually by Deloitte
Southern Africa
• In collaboration with Deloitte
African member firms
• Projects with a value > USD50m
• Projects that had broken ground as at
1st June 2013, but are not yet
operational
Approach followed in study
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African Opportunity
• Africa’s economy is forecast to grow by 7% over next 20 years (Standard
Chartered)
• Between 2001 and 2010 the continent housed six of the ten fastest
growing economies globally (IMF)
• Growing middle class = increased consumer spending
• Urbanisation is creating increasing demand for infrastructure (Africa had
51 cities > 1 million in 2010, 2040 = 100 cities)
• Unexploited resources (25% of bauxite, over 60% of diamonds, 50% of
cobalt, 80% of phosphate and more than 90% of platinum group metals)
• Recent oil and gas finds in East Africa
• Recent start of oil production in Ghana
• Africa has 60% of the world’s unexploited arable land (Sudan, DRC, Mali,
Zambia, Tanzania, Mozambique and Angola)
• Only 10% of trade currently takes place between African countries.
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North Africa
West Africa
Central Africa
Southern Africa
Over $222.8 billion in
construction projects
underway
$
Southern Africa
Southern Africa had the highest number
of projects followed by East Africa and
West Africa
East Africa
29%
$67.7bn
Over 322 different collected construction projects are
underway
Southern Africa
38%
$83.2bn
North Africa
7%
$6. 7bn
West Africa
21%
$49.9bn
Central Africa
5%
$15.3bn
Regional analysis
54 countries #
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Energy/Power, 38, 31%
Mining, 24, 19%
Transport, 22, 18%
Real Estate, 21, 17%
Water, 11, 9%
Health Care, 2, 1%
Education, 2, 2% Agriculture,
1, 1%
Construction, 1, 1%
Oil&Gas, 1
Sector analysis – Southern Africa
124
Projects
• The Southern Africa region leads development
with 124 projects underway
• South Africa has three of the largest projects
under construction (by value) in Africa (Medupi,
Kusile, Mthombo refinery)
• Mozambique is set to benefit from significant
investment in port, rail and road infrastructure.
• National governments own most of the projects
• European and USA companies seem to be
doing most of the construction.
• Private domestic companies (followed by
African DFI’s) are funding most of the projects.
• Involvement of South African construction
companies may be understated (48 projects
silent on construction partner)
• The industries seeing the most activity are the
Energy and Power sector as well as the Mining
sector
Number of projects by sector
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Transport, 39, 42%
Energy/Power, 35, 37%
Water, 7, 8%
Real Estate, 4, 4%
Telecoms, 3, 3%
Mining, 2, 2% Health
Care, 2, 2%
Education, 1, 1%
Shipping and Ports,
1, 1%
Sector analysis – East Africa
93
Projects
• The region is becoming a strategic
hub for continental growth.
• National governments own most of
the projects.
• European and USA companies are
responsible for most of the
construction
• International DFI’s seem to be
funding most of the projects followed
by the Chinese
• Angola’s projects are predominantly
being funded by government
• The industry seeing the most activity
is the Transport sector whilst the port
sector is surprisingly small at present
Number of projects by sector
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Sector Analysis – West Africa
Energy/Power, 16,
24%
Transport, 15, 23%
Mining, 13, 20%
Oil&Gas, 8, 12%
Social Development, 4, 6%
Water, 3, 4%
Real Estate, 3,
5%
Health Care, 3, 5%
Shipping and Ports,
1, 1%
Number of projects by sector
66
Projects
• Nigeria and Ghana are primary
infrastructure development hot
spots in West Africa.
• Infrastructure construction
includes Ghana’s harnessing of
natural gas resources
• 5 of the 10 largest projects are
in Nigeria and 3 in Ghana
• National governments own
most of the projects
• Europe/US based stakeholders
seem to be doing most of the
building and the funding
• The industries seeing the most
activity are the Energy and
Power sector as well as the
Transport sector
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Energy/Power, 10, 45%
Real estate, 3, 14%
Transport, 3, 14%
Oil & Gas, 3, 14%
Water Infrastructur
e, 2, 9% Mining, 1,
4%
North Africa
Sector Analysis – North Africa
22
Projects
• The energy/power sector
accounted for almost half of
projects
• National governments own
most of the projects
• European and USA companies
seem to be doing most of the
construction
• Private domestic firms appear
to be doing most of the funding
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Energy/Power, 5, 29%
Mining, 5, 29%
Transport, 3, 18%
Real estate, 2,
12%
Oil & Gas, 1, 6%
Water Infrastructure, 1, 6%
Central Africa
Sector Analysis – Northern and Central Africa
17
Projects
• National governments own
most of the projects,
• Combination of European, US
and Private Domestic
companies seem to be doing
most of the construction.
• DFI’s and Chinese banks seem
to be funding most of the
projects
• The industries seeing the most
activity are the Energy/Power
sector as well as the Mining
sector (29%)
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Deloitte 11
97
82
45
33 24 21 20
0
20
40
60
80
100
120
Energy/Power Transport Mining Real Estate WaterInfrastructure
Other Oil & Gas
Sector analysis – across 54 countries
• Energy/Power sector had the most collected projects followed by Transport and
Mining
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North Africa
West Africa
Central Africa
Southern Africa
Southern Africa
38%
$83.2bn
Project Equity Ownership
Most of the projects are owned by Government
(i.e. 181/222 or 56%)
European/US investors own 55
projects (i.e.17%)
1st
2nd
Private Domestic Firms own 33
projects (10%)
3rd
• Private investors own 39% of the projects. Of this privately held 39%, European and US
investors own 17% of the projects, with 10% having private domestic ownership
• Remaining 2% is owned by East and Intra African investors
• 4% of total projects collected are jointly owned between governments and Public Private
Partnerships (PPPs).
• There is limited ownership exhibited by BRIC countries
• Chinese owned projects accounted for only 1% of total projects
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DFI versus Government funding
• 36% of all funding on the continent is provided by DFIs
• International DFIs account for 16% and African DFIs for 13%
• About 7% of surveyed projects are co-funded by International
and African DFIs
Other major sources of finance are:
• Domestic governments (8%)
• Europe/US based stakeholders (15%)
• Chinese stakeholders (10%)
• Private domestic investors (11%)
• Foreign institutional investors (7%)
Funding Analysis
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Construction analysis
• European or US contractors are building 37% of
projects
• Chinese construction corporations are building 12%
• The balance of contracts are held by private domestic
companies and contractors from Japan, South Korea,
Brazil and Australia.
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Macro and regional challenges include:
Lack of depth in local debt and debt capital markets to fund projects domestically
Lack of international investor and funder knowledge and comfort in the legal and regulatory
environment lengthens the approval process
Lack of long-term strategic planning & too much focus on four year political terms
o four years is not long enough to bring an infra project to market (eg Prisons PPP)
The prevalence of inefficient, state-owned, monopoly service providers
Shortage of skills within Government:
o Engineering skills and experienced project managers
o Inadequate local expertise to structure long-term project financing
o Result is often a reticence to take decisions to move the project forward (‘sometimes even a bad decision is better
than no decision at all’)
Absence of incentive mechanisms to encourage private infrastructure financing:
o Grants, tax incentives and other concessions for investors and funders
Lack of rail (guage) and road (left hand vs right hand side) standardization
Delays in border access (road and rail)
Practical challenges in getting projects to market
Challenges and Bottlenecks in African Infrastructure
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Many of the challenges can be overcome with the right planning, skills and resources in place.
Some solutions to overcome the challenges:
Partnering with the private sector (additional skills) and private funders (additional cash) is imperative to
resolve the backlog in Infrastructure
Provide comfort wrt long-term policy stability
o Can only be done by example over the long-term. Cases like the Prisons PPP and the GFIP linger in the minds of
investors
o These are long-term projects (20-30 years) and cannot be accomplished in a four year political term, so a long-term
stable strategy is vital
Aggressive recruitment with effective partnering and knowledge transfer to capacitate and up-skill
government departments
o also consider a central PPP unit such as SA has
Maintain a stable and transparent deal-flow pipeline in line with long term strategy
o After the World Cup ramp-up, construction companies redeployed experienced workers offshore or retrenched as the
pipeline dried up
o Takes time and adds cost to upskill again, so remove volatility
There are solutions to the challenges
Challenges and Bottlenecks in African Infrastructure
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There are solutions to the challenges
Challenges and Bottlenecks in African Infrastructure
Many of the challenges can be overcome with the right planning, skills and resources in place.
Some solutions to overcome the challenges:
Spend time and money upfront on proper project selection and pre-feasibility studies
o Use qualified and experienced consultants
o Tender scoring that over-emphasizes lowest cost at the expense of the best skills can be counter-productive in the
long-run
Package the deal attractively for private partners:
o Public Private Partnerships are complex but very effective if well managed
o Share the risk and reward openly and honestly – a PPP does not mean that the private sector partner takes all the
risk for limited reward
o A reasonable expectation from the public sector of the optimal level of service that must be provided by the private
sector
o Understanding of the risk that is assumed by the private sector in return for the perceived profit on the contract
(development risk, maintenance risk, etc)
o Clear implementation timelines that are honoured by Government
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Is lack of funding a reality or a myth?
It is our view that there is adequate funding available for good bankable projects. The issue is a
shortage of bankable projects rather than a shortage of development finance and private capital to
supplement state expenditure for financing projects
The stumbling blocks to projects being bankable lie within:
Project selection & portfolio management - assessing which projects are economically feasible & can
carry private finance vs which are purely social & should be state-financed
Project viability and sustainability - detailed pre-feasibility studies
Project scoping and packaging – making a compelling business case
Policy Stability and Regulatory Environment - Commitment to see projects through once given the green
light (Prisons PPP, Gauteng Freeway Improvement Project)
Public sector capacity – engineering, financial structuring & project management skills and experience
Co-operation - between Public sector, Private sector and funding institutions
Transparency - understanding of the risk-return allocation
Involvement of senior management in project planning and implementation
Post-financial closure governance and monitoring
Challenges and Bottlenecks in African Infrastructure
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Lack of ongoing maintenance is a major issue for African infrastructure:
Maintenance needs to be built into the long-term project finance plan
Maintenance is as important as the initial project
o Maintenance delayed by one year can end up costing 2 – 3 times more the next year (SAICE report card 2011)
Routine proactive maintenance rather than reactive maintenance
It is essential to get properly qualified and experienced contractors
Possible solution to the maintenance issue:
Long-term operating concessions to a private partner with an associated maintenance
contract requirement and maintenance metrics with heavy penalties for non-compliance –
eg N3 toll road, Government Department head office buildings
The issue of maintenance
Challenges and Bottlenecks in African Infrastructure
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Concluding remarks
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