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Nkosana Moyo: Africa needs its own version of the Airbus project

altIn private equity, as is indeed true in virtually all other areas of human endeavour, if you want to optimise cooperation between individual entities you have to create a maximal alignment between the intended participants' interests.

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Ethiopia upgrades Africa's biggest dam

Map of EthiopiaEthiopia on Monday said it plans to upgrade the electricity generating capacity of Africa's biggest dam project after revising designs.

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Ghana, Burkina Faso and Togo get fibre optic connectivity

photo/reutersWork on a 120 kilometre fibre cable project, that will offer automatic broadband Internet connectivity between Ghana, Burkina Faso and Togo begins on Tuesday at Bolgatanga, north of Ghana.

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Jatropha: Oil from the soil

JatrophaProjects producing biodiesel that use oil from the jatropha plant are intensifying across Africa

 

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No time for the builders to clock off

Commercial lenders have been withdrawing their support from key projects, increasing the pressure on the development banks and donor governments to keep up the spending

 

African governments are trying to save essential infrastructure investment from the worst ravages of the ongoing economic downturn. And, responding to concerted international pressure, major donor agencies are preparing to back projects where private funding has turned out to be as fickle as the financial markets themselves.?

 

Around the world, private investment in infrastructure was on an upward trend before the financial crisis broke last September. Now that the surge has given way to slump, Africa can hardly avoid a further widening in its expenditure shortfall. Already lagging behind other regions in infrastructure, international experts calculate Africa’s spending deficit in this area to be at least $40bn a year. ?

 

With the financial-sector freeze causing collateral damage, there are frequent reports of new delays in projects where private finance, sought through syndicated loans or bond issues, has failed to materialise. Among the latest victims are a large hydroelectric project in Ethiopia from which a major bank withdrew, oil refineries in Algeria and Côte d’Ivoire, and new toll roads in Kenya and Senegal. The International Finance Corporation says it has been trying to help out in at least two cases where large financing shortfalls have became apparent: a Nigerian telecoms scheme for which $200m is needed, and a gas-to-power project in Cameroon, where the gap is estimated at $280m.?

 

Follow the leader?

 

“It is critically important that we keep the infrastructure projects on track,” African Development Bank (AfDB) President Donald Kaberuka told The Africa Report during April’s G20 conference in London. He noted that the AfDB has taken a lead with recent loans to fund road schemes in West Africa, a large hydroelectric project in South Africa and an airport in Tunisia, amongst others. But he added that the available capital is “under pressure”.?

 

Following promptings from the AfDB, the AU and the New Partnership for Africa’s Development, the main donor agencies are taking a renewed interest in funding power, water, roads and railways. Some now admit their earlier belief that private investors would plug the gaps was misplaced. ?

 

Opening corridors from north to south

 

Roads, railways and power capacity are
being upgraded across Southern Africa.
Read more. 


A paradigm for smart infrastructure investment was paraded by the East African Community secretary general Juma Mwapachu at a conference on the transnational North-South Corridor held in Lusaka, Zambia, in early April, at which donors pledged to spend $1.2bn to help upgrade roads, rail, ports and energy infrastructure (see box). ?

 

One way the public sector can make a difference is to fund necessary engineering and environmental impact studies, as well as procurement and financing plans. Once these are completed, the private sector can be invited to participate, often in a public/private partnership arrangement. It is an approach taken by the donor-funded and London-based InfraCo.?

 

InfraCo’s latest agreement, with Kenya Railways Corporation, envisages development of a commuter railway linking Nairobi to various suburbs and the international airport. With an investment of $5m, the company hopes to prepare a project costing in the region of $200m. “We will strive to get a bankable project in 18 months, bring in private-sector operators and exit at month 24,” InfraCo partner Gad Cohen told The Africa Report. The company has already been involved in dozens of projects across Africa, including water provision in Kampala, Uganda, and a wind-power scheme in Cape Verde.?

 

The best-managed public companies will certainly be the first in line to win strong donor support. Thus South Africa’s Transnet managed to raise R4bn ($468.7m) in late March from the Japan Bank for International Cooperation (JBIC), a state-owned financial institution, for the widening and deepening of the entrance to Durban harbour, complementing the North-South Corridor project.?

 

Mitigating the risks

 

?More public-sector involvement in the development of infrastructure projects has won the support of the Infrastructure Consortium for Africa (ICA), a donor-coordination group. “In the context of the crisis, there will be greater demand for risk mitigation instruments,” the ICA has declared, welcoming an Italian-inspired scheme that is intended to increase the flow and quality of projects “to match the level of risk acceptance by the private sector”.

 

?The ICA has also welcomed the AU’s new Programme for Infrastructure Development in Africa, a continent-wide policy framework. The AU commissioner for infrastructure, Elham Mahmoud Ibrahim, wants this to become a strategic framework to prepare a priority action plan.

 

 

Finding value in land and crops

 

Agribiz private equityPrivate equity firms which used to stay away from anything to do with agriculture, are flocking to buy land and add value to agricultural output.

 

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Green and Gold Standards

 

Carbon in Numbers
$330.8m size of voluntary
carbon credit market
$63.7bn size of regulatory
market
2% Africa's share of the
global carbon market

Accusations of illegitimacy are one of the biggest challenges to Africa’s voluntary carbon market. Nhambita, a project in Mozambique run by Envirotrade, a British company owned by socialite Robin Birley, came under scrutiny this year for selling offsets before they were verified. But John Grace, professor of environmental biology at the University of Edinburgh and the project’s scientific advisor, explained that getting money up-front – selling emissions before they have gone through lengthy certification processes – is the only way to get projects started. In fact, Nhambita is certified by Plan Vivo – the oldest carbon-offset scheme – and verification is scheduled from another scheme, SmartWood.?

 

Part of the problem is the variety of voluntary standards, each with a different structure, methodology and focus. They include the Voluntary Carbon Standard, the Climate, Community and Biodversity Standard, and the Gold Standard, which, as its name suggests, is considered the industry’s best. ?

 

Stepping up confidence could help smaller projects access carbon markets. A new initiative in Kenya plans to sell carbon microcredits, whereby people are rewarded for using a Gold Standard-certified stove through a weekly payment sent to their mobile phones. 

 

Back to Carbon Credits, Voluntary solutions for climate change

 

Carbon Credits: Voluntary solutions for climate change

 

There is growing momentum to involve Africa in the carbon-credit trade, now worth some $64bn a year, but strict regulations may keep it away from certified global markets

 

Anew project to protect some 425,000 hectares of rainforest in Madagascar’s Andasibe-Mantadia corridor might seem a win-win proposition for the local population – which can benefit by selling non-timber products like fruits, vegetables and fibres – as well as for the rare lemurs that live there. But many African projects like this one have been left out of the lucrative regulated market in carbon credits that has been growing rapidly worldwide.?

 

Africa is now taking the matter into its own hands and developing the conditions for more carbon-credit trade and for more direct benefits on the ground. Last December saw the launch of the Africa Climate Solution, an initiative led by the Common Market for Eastern and Southern Africa (COMESA), which is also lobbying for the inclusion of projects such as ‘avoided deforestation’, the ‘re-vegetation’ of degraded land, as well as agro-forestry and sustainable agriculture schemes that can operate within regulated global carbon markets. “If they are included, we can take the pressure off our existing forests and use the carbon market to help lift poor farmers out of poverty,” said Sindiso Ngwenya, COMESA’s general secretary.?

Green and gold standards

 

There is a wide variety of
voluntary carbon schemes.
Read more. 

 

Africa still only makes up only 2% of the world carbon-credit market, whether of the regulatory kind – through the Kyoto Protocol’s Clean Development Mechanism (CDM), whereby industrialised countries can offset their own emissions by investing in low-carbon projects in developing countries – or in the sprawling voluntary market, which is certified mainly by independent alliances or NGOs. ?

 

The CDM market for certified emission reductions (CERs) has complex and rigid regulation mechanisms. Only projects from a number of pre-selected (mostly heavy, polluting and large-scale) industries qualify. Those industries get carbon credits through adopting new, more environmentally-friendly technology.

 

?In Africa, 46% of the current carbon projects are forestry-based, but forestry has so far been largely excluded from the regulatory market. Only one out of the 1,383 registered CDM projects worldwide is forestry-related, and it is in China.?

 

Take-off will be delayed?

 

Because CDM registration can take several years, there are long time-lags between initial investment and the first revenue from a project. Green Resources, a Norwegian forestry company that has been planting trees in East Africa since 1997, has yet to sell emission reductions, which is a “terrible frustration”, according to its managing director Mads Asprem. The company’s first project in Tanzania fell foul of CDM criteria because it began before the CDM starting point in 2000. Other, more recent, projects in Tanzania and Uganda have been in the pipeline for months and are still not registered.?

 

The chairman of the Uganda Carbon Bureau, Bill Farmer, who advises entrepreneurs interested in venturing into the carbon market, warns of the difficulties for companies with little financial clout operating in African economies that lack the infrastructure and business environment to facilitate project development. ?

 

The alternative for the smaller projects is the voluntary market. Although the lack of regulation and liability to scams have given the market a bad name, a number of new voluntary standards have emerged, and some of these are backed by methodologies just as rigorous as the CDM process.?

 Registered CDM projects

The result is a new-found legitimacy. The voluntary market is “more adapted to our project types and sizes”, says Farmer. “It’s also, in many cases, a learning experience before coming head-on with the CDM.”?

 

The price of voluntary credits, unlike the market-driven CERs, can vary hugely depending on the size of the project and the type of verification. Forestry and renewable offsets tend to be the dearest on the market, with Africa proving the most expensive at $13.70 per credit, compared to $5.80 in Asia.?

 

Still, while the price of CERs has gone down, the price of Voluntary Emission Reductions (VERs) has gone up. “The price difference between CERs and VERs is much smaller – €10 for CER, €7-8 for VER – and for the extra inconvenience the CDM involves, project developers may well be more inclined to opt for VER,” said Edward Hanrahan, head of voluntary sales at J.P. Morgan, which last year acquired Climate Care, one of the UK’s biggest sellers of carbon offsets.?

 

Baby steps?

 

The Uganda Carbon Bureau’s Bill Farmer points out that conventional financial institutions are not flexible enough for a market that is still in its infancy, which is why he has been trying to create a local carbon market of companies keen to become carbon neutral, a market that is less risk-averse and more tolerant of relaxed standards.?

 

Information provider Ecosystem Marketplace produces an annual “State of the Carbon Markets” report. Its managing director, Katherine Hamilton, says new standards have raised the bar and many projects that would have started trading credits during the CDM-registration phase are now waiting for the standard’s approval.?

 

Such was the experience of Norway’s Green Resources. The company estimates it has produced 500,000 tonnes of CO2-equivalent carbon credits since it began operating – half of which has been independently verified by the Swiss company SGS – but refuses to sell them until they are certified to the highest standards available. “If we sold them now, they wouldn’t have the same value,” says Green Resources’ Asprem.?

 

Despite these different approaches, experts agree that Africa has huge potential in trading carbon credits, particularly if ‘avoided deforestation’ and land-use projects are included in climate-change-mitigation efforts. Asprem says that such projects would also help the most destitute in Africa: “If you plant trees where there is no economic activity, with no other employment, it makes a huge difference, socially and economically.”

 

?The World Bank is investing actively in Africa’s fledgling carbon market: 22% of its carbon projects are in Africa, and the continent accounts for a third of projects from its BioCarbon Fund, a $91m facility dedicated to ‘carbon sequestration’ initiatives through forests and agro-ecosystems. It has also helped fund Madgascar’s Andasibe-Mantadia project, which is now well under way.

 

The UN Framework Convention on Climate Change, which runs the CDM and is organising a major conference in Copenhagen in December 2009 that will draw a post-Kyoto road-map, accepts that Africa has mostly missed out on the regulatory market. But this is slowly beginning to change. While there are currently only 29 registered projects in Africa, mainly in Northern and Southern Africa, 94 more are in the pipeline. 

 

Power: Miracle gas to generate hope

 

By processing methane from the ultra-deep waters of Lake Kivu, Rwanda ?may have found a revolutionary source of power for the future

 

In its race for economic progress, as it puts behind it the bitter memories of the 1994 genocide, Rwanda is building glitzy new offices in Kigali as international donors fund road projects across the country. But progress requires energy and energy requires a source. A novel answer to Rwanda’s energy needs has been found in the deep blue waters of Lake Kivu.

 

?Straddling an active volcanic fault system, Lake Kivu has a methane gas content of around 55bn cubic metres with an annual regeneration capacity of 100 MW, which is almost double Rwanda’s electrical peak load.?

 

Muhire Hodari, chief operating officer of the government’s Kibuye Power 1 (KP-1) pilot gas platform, is a humble young man with a big job. In a quiet voice he explains what might well be a key to his country’s development aspirations: “As a first in the world, we have now generated an initial 1.5 MW of electricity from methane gas exploitation. Our extraction technology works and we can now focus on increasing output.” The KP-1 project, managed by the infrastructure ministry, has become a showcase for the transformation of the ‘Land of a Thousand Hills’ and the wider region.

Hopes rise for renewed
economic integration

 

Shared resources could spark better
neighbourly relations. Read more. 

 

Rwanda’s future demand for power will grow and outstrip the current electricity peak load of 55 MW. Erik Fernstrom, energy specialist at the World Bank’s country office in Kigali, says: “There is a lot of suppressed and unserved demand. A realistic target is a peak load of at least 130 MW by 2015.”?

 

A new heavy-fuel-oil plant in Jabana will generate 20 MW to alleviate immediate shortages, while small hydro-electric power plants are also going up. Rukarara dam, built by Sri Lanka-based Ecopower, should start producing 9.5 MW next year, but the 27.5 MW Nyabarongo project, being built by India’s Bharat Heavy Electricals and Angelique International, will only be ready in 2012. A further planned dam at Rusumo could generate between 60-80 MW, to be split between Rwanda, Burundi and Tanzania.?

 

Fuel for the fire?

 

Experts see the methane as critical to serve Rwanda’s future energy needs, and the pilot project shows that Lake Kivu can both produce power and bring in the investors. Energy minister Albert Butare confirms that at least two firms have shown interest in harnessing it. ?

 

The Rwanda Energy Company (REC), a subsidiary of local holding company Rwanda Investment Group, is one of them. “We have set up a [separate] test plant on Lake Kivu to refine our extraction technology to not only produce electricity from the gas but to simultaneously produce fertilisers, diesel, kerosene and naphtha,” explained Ivan Twagirashema, REC’s chief operating officer.?

 

US-based Contour Global is also in contract negotiations with the government for the installation of four gas platforms that should eventually generate 100 MW. On the cards are a gas concession and a long-term power-purchasing agreement with Contour, whose CEO Joseph Brandt told The Africa Report of his firm’s plans to invest $75m to install capacity for 25 MW in the first two years, followed by 75 MW thereafter.?

 

Technical innovations?

 

Extracting methane from the lake poses tricky technical challenges but, with the help of Houston-based Antares, Contour has spent 18 months developing the design of the gas-gathering system. “We will have to extract the gas with sufficient pressure to separate the gas from the water,” said Brandt. “But we are both optimistic and humble… We are doing something novel.”?

 

Analysts say the gas reserves will do much to advance sustainable development in Rwanda and may also bring regional benefits. “The gas allows for the development of local industry, as the emergence of endeavours to bottle gas will lower the cost of fuel to the benefit of householders and small businesses,” says Estelle Levin, sustainability consultant at London-based Resource Consulting Services. ?

 

The government hopes the power generation will also help Rwanda to add value to primary exports. “The new energy source promises benefits to tea and coffee manufacturers and may open up major opportunities for value-addition in Rwanda’s mining sector, where the need for energy is great,” said environment and mines minister Vincent Karega. ?

 

The private sector is equally excited about the project. “The news that the pilot plant on Lake Kivu is successfully producing electricity is enormous,” says Bruce Stride, operations director at Kivu Resources, a company planning to build a tin smelter in Gisenyi and to use both the gas and the electricity generated from the gas to produce in excess of 2,500 tonnes per year of refined tin. Rwanda is developing its own tin mining sector, which produced 1,140 tonnes of tin ore in 2007, while tin output from neighbouring North Kivu Province of Democratic Republic of Congo has been estimated at 2,000 tonnes of ore per month. ?

 

A high concentration of dissolved gases in lakes constitutes a risk, as was demonstrated by the deadly carbon dioxide (CO2) outburst at Lake Nyos in Cameroon in 1986, which killed 1,800 people. Lake Kivu not only contains methane, but 250bn cubic metres of CO2. The KP-1 project’s Hodari says: “We have also found significant amounts of toxic hydrogen sulfide, which we currently pump back into the lake because we do not have the technology to use it for energy generation yet.” A report written for the European Community’s humanitarian office states: “Large-scale exploitation of the Lake Kivu gas, if carried out in the right way, would…by reducing the gas-saturation of the lake water…considerably enhance the safety of the region.”

 

Tourism, reviving the romance

Mozambique tourismThanks mainly to its remarkable coastline and protected wildlife, tourism has a promising future as a major contributor ?to the economy


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Nigeria/China: Satellite upsets a friendship made in heaven

 

After an over-enthusiastic first fling China’s commercial overtures ?to Africa’s rising economic giant are running into difficulties in many sectors

 

Two showpiece contracts of the Nigerian-Chinese relationship have gone spectacularly awry in the last few months but, in time, no doubt these will be put down to teething problems of a new trading partnership that has taken firm root and is beginning to blossom.

 

?The first bombshell came in October when the Nigerian government suspended and then terminated an $8.3bn contract with the China Railway Construction Company (CRCC) for the modernisation of Nigeria’s dilapidated North-South railway system.

 

?Fate then intervened on 10 November, when Nigeria’s first-ever communications satellite, NigComSat-1 – which had been launched with much fanfare by China in May 2007 at a cost of $257m – suffered a sudden solar panel failure and electrical breakdown.

 

Out of orbit

 

?Nigeria’s prestige and national pride are at stake in the satellite project and so the government of President Umaru Yar’Adua could yet be persuaded to move ahead with the planned launch of two more satellites at a cost of a further $500m. But, cautious as ever, the government has not rushed to approve the disbursing of the appropriate concessionary loan from China Exim Bank.?

 

The Yar’Adua administration’s wariness of taking on large debts to China is understandable given its concern that the cancelled rail project – which had been forced through by the government of ex-President Olusegun Obasanjo days before the November 2006 China-Africa Summit in Beijing – did not meet basic standards of due diligence.?

 

The sheer haste with which the rail contract was awarded illustrates the extent to which some Chinese firms – convinced that they had the sustained support of both governments – were ready to risk getting their fingers burned. In earlier negotiations with international finance institutions over the railway project, the IMF is said to have asked for documents the size of a New York telephone directory. But when the CRCC came in, within a fortnight it had negotiated the very same project in its entirety.?

 

With Nigeria’s banks rather than its government now putting out the welcome mat, the Chinese are busier than ever. Leading the way on the Nigerian side, First Bank has signed a $2.4bn joint venture with China’s Shenzhen Energy Group (CSEG) to build a 3,000 MW power plant and an agreement on a $500m free trade zone in Ogun State. First Bank also has deals with textile manufacturer Yuemei Group and China Construction Bank. Another leading Nigerian bank recently advertised for Mandarin-speaking marketeers to target more Chinese businesses.?

 

Tricks of the trade

 

?Ngozi Okonjo-Iweala, the former Nigerian finance minister now at the World Bank, thinks Nigeria can learn some tricks from Chinese businesses. She said: “China knows poverty first hand and has evolved a successful wealth-creation formula that it is willing to share with African nations, Nigeria included.”

 

?With over 40 companies now wholly-owned or in partnership with Nigerians, China’s business expansion in Nigeria has been spectacular. Its firms have built the multi-billion dollar Sportsmen Hostel of the National Stadium in Abuja, the Nigerian Telecommunications Commission headquarters, an important link road in Lagos and have the contract to repair the Apapa-Oshodi Expressway. China Exim Bank has been involved in financing Nigerian power stations like Omotosho and Geregu. China National Offshore Oil Company has an offshore oil production stake valued at $2.3bn.?

 

One of the rites of passage for foreign investors in Nigeria is having their expatriates kidnapped. After Chinese construction workers were hijacked recently in Anambra State, analyst Jegede Kayode, told The Africa Report: “The kidnapping doesn’t signify a backlash against Chinese interests; expats are generally being kidnapped daily in that region of Nigeria.” Kayode runs Afrobridge Consulting, which brokers business between Nigeria and China. “In 18 months I have doubled my staff strength both in Nigeria and in Beijing,” he said.?

 2008 headline Chinese deals

Sinoma International Engineering ?
Amount: $1.6bn MOU

?Nigeria’s Dangote Group and China’s Sinoma International
Engineering signed a $1.6bn memorandum of understanding
to install ultra-modern cement manufacturing plants to raise
Dangote’s cement output in Nigeria to 26.5m tonnes a year.
However, in December 2008, the size of the deal was cut back
to $690m, while plans to build new plants elsewhere in Africa
were also temporarily suspended.

Shenzhen Energy Group ?Amount: $2.4bn?
A $2.4bn joint venture between China’s Shenzhen Energy Group
(CSEG) and First Bank to build a 3,000 MW gas-fired power plant.
The location has not been specified.?
Guangdong Xinguang International China-Africa Investment ?
Amount: $500m?

Ogun State Free Trade Zone, a $500m agreement between First Bank
and Guangdong Xinguang International China-Africa Investment.
Chinese firms are also constructing the Lekki Free Trade Zone in
Lagos State.

 

One of the most high-profile Chinese entrepreneurs in Nigeria is Pamela Wu, who has fully accepted Nigeria’s ‘bring your own infrastructure’ business environment and has thrived in a difficult climate to build up Big Treat Plc, Nigeria’s largest confectionery group. She combines business with rounds of golf at the prestigious Ikeja Golf Club.

 

?The numbers of Chinese resident in Nigeria are a matter of conjecture, but are thought by analysts to have risen from only 6,000 in 1992 to at least 75,000 now. An official at Nigerian Immigration Services told The Africa Report: “We have heard stories of some Chinese illegals living inside their factories and never coming out, but we are on alert.” And the illegal immigration flows both ways. Guo Kun, China’s consul-general in Lagos recently said his visa section was having a tough time verifying documents because “Nigerian businessmen put forward bogus letters of invitation for business” in China.?

 

From pak choi ?to pullovers?

 

Chinese are heavily represented in the retail sector. Etudor Akpan, a manager at a Chinese restaurant in Apapa, Lagos, said: “In the last six months I have sourced workers for at least four new Chinese restaurants opening in Apapa alone. These people mean business here in Nigeria.” At Gatankowa Fairly Used Goods Market in Abule-Egba, a few kilometres outside Lagos, Chinese traders sell used textiles on the road. In the Ojota area of Lagos, there is a Chinatown market built in the traditional Chinese style; it was shut down last year because Nigerian custom officials alleged that the Chinese were smuggling goods into the country, but this was resolved amicably and more such sites are planned across the country.

 

?At a factory in the Adeniyi-Jones area of Ikeja industrial estate in Lagos, a Chinese manufacturing firm, Amigo Hair Attachment Products, was found to have employed hundreds of Nigerian under-age children in a new sweatshop labour racket. And the Nigerian National Agency for Food and Drug Administration Control recently sealed up a Chinese dairy company in Lagos which had imported the unsafe baby milk that had killed babies in China.

 

Djibouti's dream of a bridge

 

Twin ‘Cities of Light’ are to be built on opposing shores of the Red Sea in Djibouti and Yemen, linked by a 28km suspension bridge. The brainchild of Sheikh Tarek Bin Laden (the estranged brother of Osama), this $25bn ‘Bridge of the Horns’ will directly link Africa with the Middle East, and hopefully spur much more trade between the two regions.

 

?The dream is one of generating wealth. Bin Laden and his project team, Al Noor Holdings, plan cities that will house tax-free businesses and industries providing hundreds of thousands of jobs and a plethora of tourist attractions. And all for a price tag of $300bn – something of a tricky proposition, as neither Yemen nor Djibouti could contribute much from their own coffers. And so everything depends on major Arab investors getting involved.?

 

Construction project teams are on standby for confirmation of construction of the bridge, which could begin by the end of 2009 if the green light is given. The project team, led by US firm DCK Worldwide, could provide construction jobs for as many as 300,000 workers from all corners of Africa and Asia.

 

Back to Infrastructure, Sustaining the momentum for modernisation

 

Infrastructure: Maintaining the momentum for modernisation

 

All kinds of infrastructure are clearly needed if African economies are to modernise successfully; and there is now an emerging consensus on how to go about it

 

Some of Africa’s milestone transportation projects, like the Gautrain commuter line in South Africa’s Gauteng Province and the new Algiers Metro, are setting the pace for better transit management for major cities, but huge challenges lie ahead in achieving efficient transport and other infrastructure coordination in this continent of 53 countries, of which many are landlocked.?

 

On the continental level, the good news is that national and international agencies are beginning to work together as never before and that public and private sources of finance are finding common cause in opening up the continent’s enormous economic opportunities. Even in these difficult times for the world economy, Africa’s frontier markets provide attractions for private finance.?

 

The momentum of expansion has been positive and unprecedented. Total commitments by bilateral and multilateral members of the Infrastructure Consortium for Africa (ICA) reached $12.4bn in 2007, an increase of 61% over the $7.5bn committed in 2006. Also in 2007, China made commitments of $4.5bn, while Arab countries and India committed $2.6bn and $700m respectively.?

 

Outperforming all of these predictable sources of finance was the private sector, which came up with investments in excess of $20bn in 2007. The ICA noted that around 50% of these investments will have been in North Africa, and many more in South Africa, but concluded that “the trend for the continent is positive”.?

 

ICA coordinator Alex Rugamba is confident that “in the short term, Africa is to some extent insulated” from recent developments in the world economy, “even if in the medium term they could reduce flows from both public and private sources”. “Overseas development assistance (ODA) is not yet at risk and we hope it won’t be,” he told The Africa Report, “but in any case it is more of a catalyst than a total solution.”?

 

The big-picture evidence is that “private finance for infrastructure in Sub-Saharan Africa (SSA) has come from almost nowhere in the mid-1990s to become a source of finance comparable in magnitude and importance to ODA,” according to the World Bank’s forthcoming Africa Infrastructure Country Diagnostic (AICD), due for publication in early 2009.?

 

“Some areas of infrastructure (mobile telephony, power generation, ports) have been much more successful than others (roads, power and water distribution) at capturing private finance,” the AICD adds.?

 Djibouti's dream of a bridge

 

Drive across the red sea.
Read more. 

 

Several new reports still assess Africa’s infrastructure needs over the coming decades in challenging terms. Policy-makers meeting in Washington in October were told that the financing gap still stands at $35bn a year. The World Bank’s vice-president for Africa, Obiageli Ezekwesili, said: “Africa’s infrastructure deficit is hindering economic growth and sustainable development.”?

 

Demand for everything

 

?A recent economics paper from Goldman Sachs calculates that in a sample of 12 African countries, total infrastructure demand over the next four decades will amount to $1trn, of which Nigeria alone will need $360bn. “Across the range of sectors (mainline telephones, paved roads, mobile telephony, electricity, air travel and internet use), demand for electricity and mobile phones dominates: each averages over 30% of total infrastructure demand from 2020 onwards,” the paper says. What is fresh about the Goldman Sachs approach is that it insists that the increasing urbanisation of Africa will create real demand: an insistence by the population that its needs for water, power and roads be met.?

 

In the changing economic realities, African governments will need to reassess their strategies. The ICA’s Rugamba thinks that the state of the financial markets will make it difficult, though not impossible, for East Africa’s governments to proceed with their recently-floated plans to sell infrastructure bonds. Norman Anderson, CEO of the CG/LA Infrastructure consultancy, says the public sector and the multilaterals will now have to get more involved. “The world will work through this situation with the help of significant infrastructure investment, as it is a way of building for the long term, rather than just for short-term gain,” he told The Africa Report. “Governments will have to do the backstopping.”

 

?For the moment, progress is still a patchwork of different initiatives in different countries and regions, plus emergency responses to obvious backlogs. And even as the world’s financial system plunged into its worst crisis in 80 years, a series of structured financings across a range of sectors in Angola, Democratic Republic of Congo (DRC), Ghana, Kenya, Nigeria and South Africa were still moving ahead.?

 

“In a nutshell, there has been no major slowdown in financing for African projects,” said Ato Gyasi, head of infrastructure at South Africa’s Rand Merchant Bank. “The credit squeeze in Africa is certainly more evident – and banks are seeing some liquidity constraints – but there is still strong appetite for African infrastructure projects, which – due to Africa’s relatively high-risk profile – tend to be economically robust and well-structured assets, when they do come along.”

 

Local partners

 

?South Africa has at least ten public-private partnership (PPP) projects set to come to market for rand-denominated 20-25-year financings in sectors like prisons, hospitals, roads and accommodation, Gyasi said.?

 

External finance fo infrastructure in SSAWhere European and US banks have pulled out, African banks have moved in. Project financing for Nigeria’s 9291m Lekki toll road in Lagos State provides one example. Four tranches of debt are involved, including money from the African Development Bank (AfDB), Standard Bank and leading Nigerian banks, and it has been able to proceed without political risk insurance. “The transaction marks a genuine precedent that has been followed closely by the Nigerian federal government and other Nigerian states,” said Jonathan Wood, head of infrastructure finance at Standard Bank. “It should give Lagos the confidence to do other things with the private sector in areas such as power and transportation.”?

 

“From an infrastructure perspective, the palatable Nigerian options are PPP initiatives, including concessions on sensible terms that make returns attractive enough for investors to be interested,” said Chuka Mordi, head of infrastructure at Nigeria’s First City Monument Bank. “The private sector is needed to ensure efficiency, as the government is too bureaucratic and incompetent for large-scale projects.”?

 

In Kenya, where the recent political violence caused upsets to the system, development finance institutions from France, Germany and the Netherlands have been called upon to provide $90m in 15-year finance for the 90 MW Rabai power project, suggesting that commercial banks have tended to be more cautious. This and a new geothermal project should now be financed before the end of 2008.?

 

Electric power crises in a large number of countries, and especially South Africa, have begun to focus governments on the need to agree commercial power tariffs in order to move vital projects forward. One senior banker has noted new demand for independent power projects in both Ghana and South Africa.?

 

Another major source of stimulus for African infrastructure projects has been the substantial private investment in extracting raw materials, as for example in the copper mines of DRC and Zambia. Major new electric power and railways investments are on the table for both countries. Banks have been ready to arrange finance in the wake of commitments like that made by Australia’s Equinox, which has invested around $600m in the new Lumwana mine in a previously undeveloped region of Zambia.?

 

Oil for roads

 

?Natural resources also provide the fundamental rationale for China’s increasing involvement in developing African infrastructure. China’s Exim Bank, providing loans on concessional terms, is currently supporting around 300 projects in Africa, of which 80% are for infrastructure development. China Development Bank, lending on commercial terms, is also heavily involved and manages the $5bn China-Africa Development Fund.?

 

Most African infrastructure projects are of a national nature and will stand or fall on the level of commitment made by individual African governments. In Nigeria, for example, there is still a long way to go for a succession of ongoing electric power projects to see the light of day, even though investors and contractors are lined up, because the institutional frameworks remain vague. Disputes between the Abuja government and a Chinese engineering company have also prevented progress on an $8bn railway rehabilitation scheme.?

Algiers Metro nearly ready

 

10 stations and 9km of underground
metro are due to open in August 2009.
Read more

 

The prospect of advancing African progress by means of greater cross-border collaboration between governments has, however, captured the imagination of the ICA, the AfDB and certain major donors such as Japan. The Japan International Cooperation Agency (JICA) is working on cross-border roads, power development and regional power linkages. It has helped establish ‘one-stop border posts’ between Kenya and Tanzania and between Zambia and Zimbabwe, and now plans a further 12 such projects. JICA Africa specialist Kazunori Oshiyama told The Africa Report that concessional loans and grant aid will “play a major role through individual projects, including cross-border roads, power development and regional power linkages”.?

 

Change needs power?

 

For the ICA’s Alex Rugamba, there is a need for more joint efforts, as much between donors as between African governments: “The regional projects present great potential for collaboration in project preparations and opportunities for joint working by donors.”

 

?If Africa’s infrastructure revolution is to maintain its newly-discovered momentum, there are still major problems to overcome. The ICA’s latest annual report, for example, laments the slow progress countries are making in setting up regional power markets. A key contributor to the vision of sharing electric power might be the development of the Inga hydro-electric dam project on the River Congo, which has the potential to generate around 40,000 MW. But here again, the ICA notes, “the development of Inga will take some considerable time as the project is fraught with political, security and institutional challenges”. More realistic are less ambitious schemes where national governments have taken a lead and are prepared to negotiate viable and reasonable terms with their neighbours. Such is the case in Ethiopia, where some 3,600 MW of additional power is already planned or even under construction, especially at its Gilgel Gibe hydro-electric projects, and where agreements to sell power to neighbouring Djibouti, Kenya and southern Sudan are considered viable.?

 

Investment in ports falls behind trade growth

 

Port capacity is lagging behind. Read more. 

Most daunting, and much less easily financed, are Africa’s desperate needs for reliable supplies of drinking water (in both urban and rural areas) and for rural roads to help open up the remotest parts of the continent to trade. There is a mountain of work still to be done.

 
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