By Francis Kokutse
A recent upsurge in infrastructural developments across Africa might well turn out to be a boon for Indian companies.
A new report by the international accounting firm, Pricewaterhouse Coopers (PwC) has confirmed that infrastructure spending in sub-Saharan Africa will exceed $180 billion by 2025, and this seems to fit into the Exim Bank of India’s plans to boost Indian project exports from the current levels of $27 billion to over $50 billion over a five-year period.
PwC said infrastructure plays a key role in economic growth and poverty reduction, while a lack of infrastructure affects productivity and raises production and transaction costs.
“This reduces the competitiveness of businesses and the ability of governments to pursue economic and social development policies,” it stated, adding that in Africa, one of the most frequently cited barriers to entry and economic growth is physical infrastructure.
Yaduvendra Mathur, Exim Bank’s managing director, said last year that the bank intended to achieve its target through innovative initiatives and by leveraging the increasing opportunities in Asia, and Africa, adding that the Indian government’s support would be “critical” to achieve this target.
With a number of Indian companies already engaged in infrastructure development across Africa, any support by the Indian government is likely to provide the impetus for more companies to enter this emerging market.
PwC says “major infrastructure investment programmes in Nigeria and South Africa have been followed by significant projects in countries such as Ghana, Kenya, Mozambique and Tanzania”. Against this background, Indian companies may be able to tap into this growing market if they show interest.
Exim Bank has been playing the crucial role of a coordinator and facilitator for the promotion of project exports covering overseas industrial turnkey projects, civil construction contracts, supplies as well as technical and consultancy service contracts out of India.
In collaboration with the African Development Bank (AfDB), Exim Bank says it is also setting up a Project Development Company (PDC) in Africa to identify and develop infrastructure projects with the objective of providing the Indian private sector an opportunity to invest in and implement such projects in Africa.
“The PDC is expected to provide specialist project development expertise to take the infrastructure project from concept to commissioning,” Exim Bank said, adding that, “the PDC shall focus on infrastructure projects that have specific strategic interest to India”. In addition, the PDC is expected to provide an entire gamut of project development expertise to identified projects.
Exim Bank’s role in Africa is going to be significant because, PwC says, there is a huge shortfall in government funding in the region to create opportunities for private investors to support this development need through direct investment and public private partnership agreements.
“It is evident that there is still a wall of capital targeting real estate in many markets and that it is performing strongly against other asset classes,” PwC said, adding that, “investors must strike a fine balance between the need to deploy capital and the ability to achieve adequate returns when there is such a wide variance in underlying fundamentals and economic conditions across the globe”.
PwC, however, said that growth prospects in most of the region’s economies looked bright, noting that this was “because they weren’t affected as much by the global economic crisis as other regions and because the policy environment for growth has been improving across the continent”.
“Overall, Nigeria and South Africa dominate the capital project and infrastructure market in the region. Nigeria’s share is expected to grow substantially over the next decade because of better government finances and the fastest rate of urbanisation on the continent.”
PwC said infrastructure spending in Sub-Saharan Africa would grow on average 10 percent a year over the next decade, exceeding $180 billion by 2025 and added that investors and developers were increasingly targeting African real estate as one of the key emerging markets, drawn by the prospect of 20 percent-plus returns across many territories.
It said in almost all of Africa’s markets, demand for high-quality retail, office and industrial accommodation outstripped supply as international and local occupiers respond to the improving economic outlook.
“Demographic shifts and changes in consumer behaviour have been the underlying drivers of demand here,” it said.
The firm mentioned South Africa as one country that continued to dominate activity as the continent’s most mature, regulated and transparent real estate market. Citing Real Capital Analytics (RCA), PwC said, “sales of large lot-size property across Africa topped U$2.17 billion in 2014, and South Africa accounted for over $2 billion of that total”.
“In its analysis, Johannesburg is the only non-European city market to make RCA’s top 30 EMEA markets — and only just scrapes in at number 29, ahead of Bremen — with $1.55bn of transactions, a 13 percent increase in volumes on the previous year,” PwC added.
It said RCA suggested the low $173.49 million total for the rest of Africa could be attributable to these markets being less transparent than South Africa with their data.
“It is also the case that RCA’s figures are based on sales of properties and portfolios of at least $10m, which would exclude a large number of transactions routinely carried out in sub-Saharan Africa as well as the capital deployed for development,” PwC added.
The overall volume of direct property investment across Africa in 2014 was slightly down on the previous year and barely a third of the peak in 2011 although the RCA figures do not cover the flow of capital into South Africa’s listed property company sector.
PwC said project bankability/viability and access to funding were the most common challenges it identified and said, “to address this issue, African countries must overcome the obstacles of inadequate regulatory frameworks, internal capacity limitations, political instability, policy incoherence, reported corruption and a debilitating shortage of capacity and skills”.
The company said its research confirmed the tremendous possibilities that lie ahead and the general sentiment was one of positive expectations, optimism and willingness to embrace new ideas and partners, while acknowledging there were challenges and obstacles which needed to be overcome to achieve growth.