Out-Law News | 16 Jan 2014 | 2:06 pm | 2 min. read
Akshai Fofaria of Pinsent Masons, the law firm behind Out-Law.com, said that professional services firm Deloitte was quite right to highlight investment prospects in its recently-published African Construction Trends report (28-page / 2.3MB PDF). However, he said that prevailing national procurement practices and development capacity of some governments and the need for an adequate 'pipeline' of projects, presented challenges to investment in the region for both governments and developers.
"Africa is at a critical point in its infrastructure development," he said. "Whilst vast pools of capital are ready and waiting to develop it, the full benefits will be felt by the local populations when bidders are comfortable that projects are properly and fairly procured."
"Sustainable projects, capitalising on growth, can be achieved if the bidding process is transparent and attracts and encourages international and local competition and excludes under-qualified bidders" he said.
He said that the "heterogeneity" of national legal and tax systems, regional community laws, industry norms, emerging local content requirements and rules governing the way in which international development funding should be advanced meant that prospective developers had to know how to "navigate the minefield" in order to take advantage of the "enormous" opportunities that the continent, seen as the "next big thing" by many in the infrastructure sector, had to offer.
According to Deloitte, 322 large infrastructure projects are currently underway across Africa, with a combined value of $222.7 billion. Of these, 38% of the projects are in southern Africa, which includes South Africa, the continent's biggest economy by GDP; while 29% are in East Africa, which contains many of the continent's developing economies; and 21% in West Africa, which includes second biggest economy Nigeria, which has traditionally been a major producer of oil.
The report noted forecasts by Standard Chartered Bank that African economies would grow by 7% a year over the next 20 years – slightly faster than China. The continent's growing middle class, with its increased consumer spending power and demand for rapid urbanisation, has resulted in the creation of entire new cities such as Tatu City and Konza City, Kenya, the City of Light, Accra and King City, Takoradi, and is one of the fastest drivers of economic growth. In addition, the continent's growing financial sector and attraction of its unexploited mineral and commodity reserves are providing significant attractions to investors.
Recent finds of natural oil and gas in East Africa, as well as existing reserves in southern Africa and along the West African coastline, are also acting as significant drivers of growth given the reduction of the levels of these finite resources elsewhere, according to Deloitte. In order to exploit many of these resources, as well as the continent's considerable reserves of unexploited arable land, better infrastructure such as dams and irrigation schemes and integrated transport corridors would be needed, it said. There would also be development opportunities for regional transport and port links in order to boost Africa's role as an international trading partner, it said.
European and US investors are funding 15% of the projects tracked by Deloitte, and Chinese investors are funding a further 10%. Private domestic investors, national governments and foreign institutional investors currently account for 7-8% of funding each, while development finance institutions currently account for the largest proportion of funding across the continent.
Some of the biggest opportunities on the continent are available to contractors. The figures show that European and US contractors are currently building 37% of these projects, the majority of which are in the energy, transport and mining subsectors. Chinese contractors are building 12% of the projects; and contractors from Japan, South Korea, Brazil and Australia are also active in Africa.