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Capitalising on upcoming ventures in regional infrastructure means watching the trends
The U.S. Interstate Highway System was described by transportation expert Wendell as “an engine that has driven 40 years of unprecedented prosperity and positioned the United States to remain the world’s preeminent power into the 21st Century.” It seems such a sentiment is shared by international agencies and companies keen to see progress on a continent where 90% of transportation rest on the management of construction of roads.
Two aspects of investment are evident when looking at road developments across the continent. Putting cash in companies within industries set to benefit is one way to profit. Investing the roads themselves is another. Recommendations from the World Bank and the Organisation for Co-Operation and Development (OECD) have released a number of reports indicating governments alone cannot meet the demand to provide road infrastructure across the continent.
As it stands the World Bank is actively involved in infrastructure programs for road on the African continent, with arguably one of the most ambitious projects underway: the Sub-Saharan Africa Transport Policy Program (SSATP), a partnership of 36 African countries across
8 regional economic communities.
The bank argues its part of a broad effort “dedicated to the goal of ensuring that transport plays its full part in achieving the developmental objectives of Sub-Saharan Africa.” They have listed poverty reduction, pro-poor growth, and regional integration as the three listed objectives.
David Wheeler of the World Bank’s Development Research Group, speaking at the U.S.-Africa Infrastructure Conference back in 2007, unveiled a proposal calling for construction of a 100,000-kilometer road network that would link every sub-Saharan capital on the African mainland and 41 other cities with over half a million people with all-weather highways at a total cost, including maintenance and overhead, of about $47 billion over 15 years.
While targets appear less ambitious than Wheeler’s initial pronouncement, the Sub-Saharan Africa Transport Policy (SSTAP) remains tied to the Millennium Development Goals, thus lending an international impetus to its completion, even in the absence of strong will on the part of governments. Those frustrated by slow progress of actual infrastructure should bear in mind that part of the group’s mission is to assist countries in formulating sound policies that lead to safe, reliable, and cost effective transport. Development in the context of a legislative framework is likely to lead to longer-term volatility, especially in the management of roads.
It is estimated that transport investment in Sub-Saharan Africa is less than one third of what is required to meet economic growth targets underlying the Millennium Development Goals. To boost investment in the transport sector, the region cannot but resort to private finance wherever possible, according to FD Amonya, a researcher who made the remarks at the Third International Roads Federation Conference in Durban. That finance will certainly not come solely from traditional trading partners by any means.
Investors in industries reliant on road infrastructure should keep a close eye on China. Trade surpassed $120 billion last year, according to the Economist, who point out that over the past two years that government has given more loans to poor countries, mainly in Africa, than the World Bank. The US-based Heritage Foundation, a prominent policy research organization in Washington, DC, estimates that in 2005-10 about 14% of China’s investment abroad found its way to sub-Saharan Africa. Watching trade relations between China and individual African states is therefore important to the extent that investment in infrastructure, notably roads, strongly correlates with increased Chinese involvement in African economies. However, criticism on the quality of roads provided by China could naturally lead some companies to question long-term dependence on a particular new route as reports of poor quality are surfacing.
For news on potential developments, the China-Africa Development Fund and the Export Import Bank of China are both financial institutions to watch; each are currently signalling their interest in strengthening and deepening relations with Africa and have focused on infrastructure projects in order to achieve international trade and investment objectives.
Where the West is maintaining a clear presence is the North-South Corridor, with Britain putting in £100 million as part of its declared Aid obligations. The end goals is the creation of a network stretching from South Africa in the south to the Democratic Republic of Congo and Tanzania in the north, with spurs running off to ports on the Atlantic and Indian oceans.
More than 5,000 miles of roads need to be rebuilt or improved to make it a reality, at a time when Africa's share of world trade has plummeted by two-thirds since the 1960s, as the Daily Telegraph put it when coverage of British involvement in the project first began last year. Companies operating in or between South Africa, the DRC, Angola, Zambia and Namibia stand to benefit.
Government spending and Extended Public Works Programs (EPWP) in South Africa do provide some insight as to upcoming projects in South Africa, though of course the economic potential may be far less to most industries than what lies in markets beyond the country’s borders.
Minister in the Presidency, Collins Chabane, said the Infrastructure Commission would ensure systematic selection, planning and monitoring of large projects including roads. Rail infrastructure would also be a top target, indicating the government remains of the understanding that rail infrastructure must serve as a priority to alleviate road congestion.
However new road projects within South Africa, while being of particular benefit to easing congestion and reaching rural communities could spell delays due to the increased regulatory burden.
A total of R6.4-billion has been set aside for 2011/12, R7.5-billion for 2012/13 and R8.2-billion for 2013/14, amounting to R22.3-billion over the medium-term. According to South African government officials the programme will create new opportunities for emerging contractors and thousands of jobs across the country, spelling good news for local companies. These jobs are over and above provincial and municipal funding for rural road infrastructure.
Important environmental legislation passed in recent years does require extensive impact assessments that take time. Therefore the variable of strong government will - and even public-private partnership aimed at increasing efficiency - cannot avoid the course of legal compliance.
In other African markets environmental legislation is far less developed and in many cases non-existent. Companies and investors can expect construction in some instances to forge ahead in non-South African markets faster in some instances, even if for now South Africa - on average - appears to have a more stable performance when it comes to construction and maintenance.
