Sector Report

Construction &
Infrastructure
kpmg.com/africa

The series has the following reports:

Banking in Africa
Private Equity in Africa
Insurance in Africa
Power in Africa
Healthcare in Africa
Oil and Gas in Africa
Manufacturing in Africa
Fast-Moving Consumer Goods in Africa
Luxury Goods in Africa
The African Consumer and Retail
White Goods in Africa
Agriculture in Africa

Table of Contents
Introduction 1
Emerging trends that will change the world of infrastructure
The African Context 2
Building Time and Costs 3
Countries with Significant Construction / Infrastructure Opportunities

Angola 5
Ethiopia 6
Ghana 6
Ivory Coast 7
Kenya 7
Mozambique 8
Namibia 8
Nigeria 9
Company Focus: Dangote Cement

South Africa 11
Tanzania 12
Uganda 12
Zambia 13
Recent Infrastructure Developments 14
Final Thoughts 15
Key Infrastructure Indicators 16
Sources of Information 17
Contact Details 17

1 | Construction & Infrastructure

Introduction

African Development Bank (AfDB) President

Donald Kareruka said during September 2014
that sustainable economic growth on the African
continent is dependent on three factors: regional
integration, the development of institutions
(e.g. property rights and rule of law), as well as
infrastructure. What is the effect of insufficient
infrastructure on the African economy? The
Infrastructure Consortium of Africa (ICA), for
example, believes that 40 billion potential work
hours are lost each year owing to people being
unable to open a tap in their homes for water
and instead needing to fetch water from another
source. From the perspective of land transport,
roads account for 80% of goods and 90% of
passenger transport on the continent.

However, a minority of Africas roads are paved,

and less than half of rural Africans have access to
an all-season road. Land transport is considered
so important to the continent that the African
Union (AU) signed an agreement with China during
January 2015 aimed at increasing direct road and
railway transport between major African cities.
The memorandum of understanding is the first
continent-wide deal between China and the AU
and the document of the century is the most
substantive project the AU has ever signed with a
partner, according to AU Commission Chairperson
Nkosazana Dlamini-Zuma. China is already heavily
invested in African transport projects, and around
a quarter of the Asian giants investment on the
continent is in the area of transport.

There are many approximations on the

amount of infrastructure investment that the
continent needs: a rough estimate is US$100bn
per annum of which only half currently has
financing. African governments have historically
relied on donor aid and external borrowing to
finance their fiscal deficits. At the same time,
many states have financed infrastructure
spending out of their fiscal budgets, resulting
in fixed capital growth being dependent on
available government finances. Contemporary
financing options include:

Private equity, for example, is playing an increasing

role in Africas infrastructure landscape, according
to the South African Venture Capital and Private
Equity Association (SAVCA). Infrastructure gives
private equity investors access to the strong
African growth story, an exceptional theme in
a structurally low-growth world, commented
SAVCA CEO Erika van der Merwe. The organisation
added that international investors would like to
buy into the Africa growth story but that this will
not materialise without the rollout of sufficient
infrastructure. The multiplier effects created by
infrastructural investments are powerful tools for
uplifting people and growing economies and
make infrastructure-focused private equity funds
an ideal vehicle for fulfilling an impact investing
mandate, commented SAVCA Chairman Emile du
Toit. Infrastructure investment and private equity
are ideal partners, with both focused on long-term
success rather than short-term gains.

Domestic capital markets (where available and

developed enough);
Eurobonds sold on the international market;
Public-Private Partnerships (PPPs);
Private equity investment funds;
Sovereign Wealth Funds (SWFs);
Shariah-compliant Sukuk debt;
Funding from multilateral organisations; and
Dedicated infrastructure bonds.

Construction & Infrastructure | 2

Emerging trends that will change the world

of Infrastructure The African Context
A January 2015 special edition of KPMGs FORESIGHT
publication discussed 10 Emerging Trends for 2015:
Trends that will change the world of infrastructure over
the next 5 years. Below are some comments from an
African perspective related to these 10 factors:
Governments take action to unclog the pipeline
National and local governments have become more
interventionist in the area of infrastructure financing
due to a desire to accelerate public service delivery. The
majority of Eurobonds issued by African sovereigns
(e.g. Kenya, Rwanda and Zambia) over the past four
years have been specifically sold to raise funds towards
infrastructure spending. This was, until recently,
not a traditional avenue on the continent for funding
infrastructure.
Political and regulatory risks rise up the agenda The
Arab Spring that swept North Africa during 2011-12
caught many onlookers by surprise. Unlike the open
conflict seen in many of Africas troubled states, the
simmering tensions in Egypt and Libya were for too
long seen as non-threatening to national stability.
The aftermath of the political changes inspired by
the Jasmine Revolution has forced stakeholders in
many African countries to consider more acutely the
underlying and sometimes not-so-visible political
challenges in Africa.
Market reforms: status quo is not fit for purpose
The deregulation of several large public utility sectors has
widened the scope for investment in delivering previously
monopolised private goods. The Nigerian electricity
industry, for example, has been unbundled into generation
and distribution companies and a single transmission
company the state holds the transmission rights while
generation and distribution are fully privatised.
The shifting role of multilaterals and development
banks Regional development banks have a role to play
in shaping infrastructure markets from the planning
stages to the ribbon cutting ceremony. The BRICS
(Brazil, Russia, India, China and South Africa) grouping
launched its New Development Bank (NDB) during July
2014 as a vehicle to support infrastructure investment and
promote sustainable economic development in countries
with financial constraints not catered for by e.g. the
World Bank and International Monetary Fund (IMF).
Big complexities start to impede big projects Moving
megaprojects from the drawing board to the ground
is challenging for a multitude of reasons with skills
challenges at the project management level a key issue.
While global construction firms have internationally
experienced project managers at their disposal their
on-the-ground knowledge of African conditions might be
limited. Even in South Africa, with its construction giants
venturing ever deeper north into the continent, skills
development remains a pressing concern.

Striking the right balance between necessity and

opportunity More and more countries are introducing
infrastructure-specific development plans though
with varying focus points some are too concerned
with economic infrastructure compared to social
infrastructure. The World Bank has pledged US$1.2bn
to members of the five-nation East African Community
(EAC) towards improving inland waterways and sea port
facilities as part of an effort to boost regional integration.
In a 2015-25 strategy paper, the bloc stated that it needs
as much as US$100bn over the next decade to develop
roads, ports, railways, transmission lines and oil & gas
infrastructure.
Striving for better asset performance The privatisation
(or part sale) of state assets as attractive for
governments with troubled service delivery records as
the sale of public holdings could see a cash injection for
the fiscus and also see public entities perform better
with the involvement of private enterprise. Botswana,
for example, launched a broad privatisation drive in 2000,
and most recently the Botswana Telecommunications
Corporation Limited (BTCL) was set be floated on the
local stock market during H1 of 2015.
Resource scarcity drives investment The management
of scarce resources such as water is receiving
reinvigorated attention due to the greater awareness
of climate change globally. Investment in water
infrastructure is gaining interest in not only arid nations
but also those states with more abundant resources that
could be commoditised into export revenues (in Lesotho,
for example). Elsewhere, innovative technology is being
used to reduce water usage in e.g. household toilets.
Infrastructure players go global Infrastructure
development in a globalised world has become a
multinational affair, attracting interest from global
developers. In Africa, cross-national interest is booming,
and not only from the previously dominant South
African companies. Of the continents 10 largest
listed companies involved in construction and building
materials only one Pretoria Portland Cement (PPC) is
from South Africa. Other major cross-national players
include Nigerias Dangote Cement, Lafarge operations in
Morocco and Zambia, and Egypts Suez Cement.
Cities sharpen their focus on urban mobility Increased
mobility in urban areas supports the flow of goods,
capital and people, and for the worlds poor offers a
crucial link to access employment, social services and
education. Half of Africans will in the near future live in
cities where the number of available vehicle seats is way
below the global average. Innovative solutions already
implemented on the continent include inner-city water
transport in Lagos, Nigeria and urban planning towards
increased walkability of cities in Ethiopia and Kenya.