Deloitte on Africa African Construction Trends Report 2013

Transcription

1 on Africa African Construction Trends Report 2013 January 2014 South Africa

2 Infrastructure Requirements in Africa Electricity ICT Most successful sector, attracting 76 % of regional investment or $60 billion 700m active mobile phone subscriptions 84m Internet-enabled mobiles $9bn a year deficit Less than 40% of the continent has access Requires megawatts of new capacity each year Only spends1/4 ($11.6 billion) of what is needed a year $41bn a year deficit Implementing regional backbone infrastructure across Africa by 2040 = $360 bn Sources: African Development Bank, Public-Private Infrastructure Advisory Facility, World Bank, International Energy Agency, GSMA, World Bank, Africa s infrastructure: A time for transformation 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 Water and Sanitation 62 % have access to safe water 60% have access to adequate sanitation The lowest rates in the world Lose over $5.5bn a year $21.9bn a year deficit 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

3 Approach followed in study This is the 1 st edition of the on Africa, African Construction Trends Report This is the 2 nd edition of the on Africa, African Construction Trends Report Methodology used in the 2013 report Projects with a value > USD50m Projects that had broken ground as at 1st June 2013, but are not yet operational Background It is produced annually by Southern Africa In collaboration with African member firms 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 3

4 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. 4

5 Regional analysis North Africa 7% $6. 7bn Over 322 different collected construction projects are underway North Africa $ Over $222.8 billion in construction projects underway West Africa West Africa 21% $49.9bn Central Africa East Africa 29% $67.7bn Central Africa 5% $15.3bn # 54 countries Southern Africa had the highest number of projects followed by East Africa and West Africa Southern Africa Southern Africa 38% $83.2bn Southern Africa 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

6 Sector analysis Southern Africa Real Estate, 21, 17% Number of projects by sector Education, 2, 2% Agriculture, 1, 1% Health Care, 2, 1% Water, 11, 9% 124 Projects Constructio n, 1, 1% Oil&Gas, 1 Energy/Pow er, 38, 31% 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. Transport, 22, 18% Mining, 24, 19% 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 6

7 Sector analysis East Africa Number of projects by sector The region is becoming a strategic hub for continental growth. Mining, 2, 2% Real Estate, 4, 4% Telecoms, 3, 3% Health Care, 2, 2% Shipping and Ports, 1, 1% Education, 1, 1% National governments own most of the projects. European and USA companies are responsible for most of the construction Water, 7, 8% 93 Projects International DFI s seem to be funding most of the projects followed by the Chinese Energy/Pow er, 35, 37% Transport, 39, 42% 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 7

8 Sector Analysis West Africa Number of projects by sector Nigeria and Ghana are primary infrastructure development hot spots in West Africa. Real Estate, 3, 5% Health Care, 3, 5% Shipping and Ports, 1, 1% Infrastructure construction includes Ghana s harnessing of natural gas resources Water, 3, 4% Social Developme nt, 4, 6% Oil&Gas, 8, 12% Mining, 13, 20% 66 Projects Energy/Po wer, 16, 24% Transport, 15, 23% 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 8

9 Sector Analysis North Africa Water Infrastructur e, 2, 9% Oil & Gas, 3, 14% North Africa Mining, 1, 4% 22 Projects Energy/Pow er, 10, 45% 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 Transport, 3, 14% Real estate, 3, 14% 9

10 Sector Analysis Northern and Central Africa Central Africa National governments own most of the projects, Real estate, 2, 12% Oil & Gas, 1, 6% Water Infrastructu re, 1, 6% 17 Projects Energy/Po wer, 5, 29% 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 Transport, 3, 18% Mining, 5, 29% The industries seeing the most activity are the Energy/Power sector as well as the Mining sector (29%) 10

11 Sector analysis across 54 countries Energy/Power Transport Mining Real Estate Water Infrastructure Other Oil & Gas Energy/Power sector had the most collected projects followed by Transport and Mining 11

12 Project Equity Ownership 1 st Most of the projects are owned by Government (i.e. 181/222 or 56%) North Africa West Africa 2 nd 3 rd Private Domestic Firms own 33 projects (10%) Central Africa European/US investors own 55 projects (i.e.17%) Southern Africa 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 Southern Africa Remaining 2% is owned by East and Intra African investors 38% 4% of total projects collected are jointly owned between governments and $83.2bn Public Private Partnerships (PPPs). There is limited ownership exhibited by BRIC countries Chinese owned projects accounted for only 1% of total projects 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

13 Funding Analysis 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%) 13

14 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. 14

15 Challenges and Bottlenecks in African Infrastructure Practical challenges in getting projects to market 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) 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

16 Challenges and Bottlenecks in African Infrastructure There are solutions to the challenges 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 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

17 Challenges and Bottlenecks in African Infrastructure There are solutions to the challenges 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 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

18 Challenges and Bottlenecks in African Infrastructure 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 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

19 Challenges and Bottlenecks in African Infrastructure The issue of maintenance 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 2013 Touche Tohmatsu 2012 Limited. Touche All Tohmatsu rights reserved. Limited

20 Concluding remarks 20

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