A new report released by Deloitte has indicated that there has been a significant increase in money being invested in mega infrastructure projects across Africa from US$222bn in 2013 to $326bn in 2014. The third edition of the annual Deloitte African Construction Trends Report 2014 was released on March 10 and focused on mega infrastructure projects that have been implemented in Africa, more specifically Kenya and East Africa.
For the report, Deloitte studied mega construction projects that had more than $50m in investment; there were 257 projects that qualified for the criteria, in comparison to the 322 projects that were collected in 2013. Despite the marked 55 percent decline in large infrastructure projects in the East African region, there are several large projects underway like the LAPPSET project that will contribute positively in the infrastructure development effort.
According to the report, huge capital infrastructure projects in East Africa dropped from 93 projects in 2013 which totaled $67bn to 51 projects this year which amounted to $61bn. Nevertheless, despite this decrease, the value of investment per project went up by around 50 per cent. In the previous year, the average investment for a single project was around $680m, however this figure went up, this year investment was around $1.27bn per project. In addition, ten percent of projects were funded by Public Private Partnerships (PPP), which is an increase from the four percent that was recorded last year.
“We are talking about very significant investments in very focused projects that are going to drive the kind of economic growth we have seen over the last couple of years and what we will continue to see over the next five to seven years,” explained Dr. Mark Smith, the head of Infrastructure & Capital Projects at Deloitte East Africa.
In East Africa, transport and energy related projects constituted of 96 percent of all the construction projects that were undertaken, higher than anywhere in Africa. The transport sector dominated projects share accounting for 59 percent of all project, a 17 percent growth from 2013. Some of these key transport projects included the Nairobi to Mombasa rail projects, Tanzania restoration of the Dar es Salaam to Issaka link and many more. On the other hand, the energy and power projects accounted for 37% of the projects.
“We know we have some energy shortages here in East Africa, particularly here in Kenya, but we saw some very significant energy projects starting to happen, especially in something we call the high technology space around wind generation projects, geothermal projects. These are all very unique investments that are happening now in Kenya,” noted Dr. Mark Smith.
Kenya commissioned the largest geothermal plant in the world in 2014, while Ethiopia is a developing power sector story that includes a large hydro power plant as well as a gas power plant.
Meanwhile, the amount of investment in the oil and gas sector in East Africa was still quite low, only about 2 percent of the big infrastructure project was invested in this sector. Still, according to Dr. Mark Smith, it is quite likely that there will be a growth in investment in oil and gas either in off-shore space in Tanzania or on-shore space in Kenya or Uganda. However, significant investment will not likely take place in 2015 or 2017, but planning and development in this sector are underway in East Africa. In fact, very significant companies like Total have decided to invest quite heavily in Kenya’s oil and gas sector.
Even though there was an increase in the proportion of projects implemented as PPPs, the government still owned 59 percent of the projects in the East African region. In 2013, government funding was at 4 percent, but this year the figure stood at 17 percent. Furthermore, the report showed China was still the number one foreign investor as it funded 16 percent of the projects this year with most of the projects focused on basic infrastructure. According to the report, new players such as the United Arab Emirates, India and the International DFIs emerged as new project owners and the Japanese and Koreans as new builders. However, other foreign institutions showed reduced interest in funding this year, with a 9 percent drop in the investor category. Nonetheless, Dr. Mark Smith added that the USA and EU were looking to play catch-up with china, and will likely start to invest in technological projects in 2016 and 2017.
Overall the African Construction Trends report showed that the South African region contributed the biggest share of the projects accounting for 46 percent of all projects, followed by West Africa, East Africa, Central Africa and North Africa. On the other hand, Kenya contributed to the bulk of large capital infrastructure projects executed in East Africa in 2014, followed by Uganda, Ethiopia and Rwanda.
“The international community is now looking at East Africa, in particular Kenya, as a very attractive place to invest in terms of [infrastructure] projects,” said Dr. Mark Smith.