PwC Survey: Optimism and opportunities abound in Africa’s Infrastructure space

Lagos, Nigeria (Capital Markets in Africa) — Dealing with Africa’s infrastructure backlog and its future demand is high on the agenda of leaders and civil society on the continent and abroad. While the continents infrastructure currently lags well behind that of the rest of the world with some 30% in a dilapidated condition, there is widespread recognition that there are vast business opportunities on the continent as a growing consumer market continues to develop as well as a large number of key opportunities for infrastructure investment and development. According to PwC’s ‘Capital Projects & infrastructure in East Africa, Southern Africa and West Africa: Trends, Challenges and Future Outlook’ report issued at a media parley in Lagos today, infrastructure spends in the region is estimated to grow from US$ 70 billion in 2014 to US$180 billion per annum by 2025.

The report which presented the findings of a 2014 survey of key players in the infrastructure sector, including donor funds, financiers, government organisations and private companies across East, West and Southern Africa, indicated an opportunity-filled future for infrastructure development in sub-Saharan Africa. The sectors surveyed included water, transport and logistics, energy, mining, telecoms, and real estate, with the main focus being on economic infrastructure.

Highlighting the different stages of development and uniqueness of each country, the report provides insights into the world of infrastructure delivery across African countries and regions in sub-Saharan Africa (SSA). It showcases the drivers for success, the current thinking and challenges stakeholders are experiencing within the region.

More than half of respondents indicated that their planned spending on infrastructure – both new projects and refurbishment of assets – would increase by more than 25% from the previous year. They said much of their spending would be focused on new development, with 51% of all respondents planning to spend more than half of their budgets on new assets.

Jonathan Cawood, Capital Projects & Infrastructure (CP&I) Leader for PwC Africa, says:

“The shallow economic recovery in most developed markets has shifted the focus to faster-growing regions. This is also true for the infrastructure development sector. With an abundance of natural resources and recent mineral, oil and gas discoveries, demographic and political shifts and a more investor-friendly environment, the investor spotlight shines brightly on Africa.

While the recent shifts in oil price, currency and internal security challenges may impact in the short term, the fundamentals for growth haven’t changed. Hence we believe the outlook for infrastructure development and economic growth remains positive. A peaceful transition to a new ruling party in the recent elections has injected further optimism and confidence.”

Respondents from West Africa were especially bullish, with 58% planning an increase of more than 25% in spending, followed by those in East Africa (53%) and Southern Africa (40%). Speaking on the report Ian Aruofor, PwC CP&I West Market leader noted that:

“West Africa is one of the most attractive destinations for investors in infrastructure. The region’s growing population and its wealth of natural resources are the foundation for sustainable economic growth. It is clearly evident that sustaining West Africa’s impressive economic growth profile requires vast investment in enabling infrastructure. Improving governance, institutional reforms, trade, technology and an empowered workforce lend credibility to West Africa’s growth story.”

South Africa and Nigeria according to the report have the most ambitious infrastructure programmes and together make up almost 60% of the spend across sub-Saharan Africa. Kenya follows as the third largest in planned spend. As with most of sub-Saharan Africa, energy is a focal area for investments in West Africa, as the region remains in the grip of a prolonged power crisis.

While respondents were generally optimistic about infrastructural development in the region, they recognised numerous challenges in the execution of capital projects in the region which require urgent attention. Among these, availability of funding, political risk and government interference both with (59%) were seen as the main challenges to delivering projects. Consistent with the observations of survey respondents with operations in East Africa and Southern Africa, the regulatory and policy environment was also foremost on the list of challenges frequently encountered (37%).

“Resolving these identified challenges quickly and creatively will not only positively affect the outcome of current projects, but more importantly, will attract other project developers, owners and investors to enter the African market. It will also reduce the number of delays and the size of cost overruns, providing an example to other project owners and investors that African infrastructure can truly be developed efficiently and profitably.” says Aruofor

While all projects are susceptible to going off track and experiencing costly delays, some are more vulnerable, such as those involving new technologies, dependent on regulatory and environmental approvals and those in remote or politically unstable regions or where skills are in short supply. Nearly half (47%) of survey respondents said they experienced delays of more than six months on capital projects. Those in East Africa suffered the most delays of greater than six months, while those in Southern Africa said the largest number of delays were between one and six months. There are many examples in the world and indeed in Nigeria where projects have come in more than two years late and more than double original budget estimates.

Cawood concludes:

“Infrastructure plays a key role in economic growth and reducing poverty having a 5-25% per annum return on investment as an economic multiplier. Those countries that have been most successful in developing and maintaining infrastructure have established programmes of prioritised investment opportunities with a number of features, including clear political support, a proper legal and regulatory structure, a procurement framework that can be understood by both procurers and bidders, and credible project timetables. These country programmes eliminate key frictions such as long project lead times, clarity around funding and procurement strategies and to some extent reduce the risks of political term of office changes.

There appears to be a renewed enthusiasm among leaders and civil society on the continent to improve the situation. The success of the ambition to expand industrialization and regional trade to drive inclusive growth depends largely on infrastructure. This presents tremendous opportunities for businesses. With expectations, optimism and willingness among stakeholders to embrace new ideas and partners at a high point, the investment climate is positive.”

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