Spending on infrastructure in sub-Saharan Africa is projected to reach $180bn a year by 2025‚ according to PwC’s 2014 report on capital projects and infrastructure for East‚ Southern and West Africa released on Wednesday, 3 December.
This is double the $93bn a year the World Bank says the continent presently needs for infrastructure build‚ which by many accounts it is far from obtaining. The global consultancy said scarce resources‚ a shift in global economic power to emerging markets and urbanization were among the main drivers of growth for infrastructure spend in Africa. But it also said the “funding gap remains a very real issue”. It said the top three challenges in delivering capital projects across Southern Africa were the availability of skills; a lack of state capacity to plan‚ procure‚ manage and implement projects and political risk; and government interference.
The transport and energy – including water – sectors were among the biggest budget allocations for infrastructure. However‚ while 20 African governments reported spending $42bn on infrastructure in 2012‚ the continent comprised only 2% of the global infrastructure market. Mohale Masithela‚ PwC partner in capital projects and infrastructure financing‚ said Kenya needed at least half its gross domestic product (GDP) each year to build infrastructure. The World Bank estimates Kenya’s GDP to have been $44bn last year.
PwC said Africa continued to attract global investors‚ developers and operators searching for growth‚ and that despite some regional concerns‚ “opportunities abound for infrastructure investment and development”. More than half of 95 respondents‚ including development finance institutions‚ private financiers‚ governments and private construction companies across sub-Saharan Africa‚ said their planned spending on infrastructure – both new projects and refurbishments – would increase by more than 25% from last year. Half of all respondents planned to spend more than half of their budgets on new assets. Respondents from West Africa were most bullish‚ followed by those in East and Southern Africa.
Africa’s natural resources‚ including recent oil and gas discoveries and a generally “more investor-friendly environment”‚ was helping to drive this process. The report said despite slow economic growth‚ SA remained the “powerhouse of the sub-Saharan African region”. It also said much of the infrastructure spend to 2025 would happen in Nigeria and SA. “With a number of concessions having been cancelled by governments in the region‚ an improvement in transparency‚ regulation and procurement is needed to help restore the confidence of foreign investors in partnership models‚” Jonathan Cawood‚ capital projects and infrastructure leader for PwC Africa‚ said. Access to funding was also a significant concern‚ along with an “inhibiting” policy and regulatory environment. PwC said many projects across the region had been affected by a lack of or insufficient funding. Funding from sources such as sovereign wealth funds‚ bonds and pension funds was becoming increasingly important. But such investors were “typically” more interested in fully operational projects and tended to “shy away from greenfield projects and their construction risks”. Cawood said that as many African governments and their agencies had reached debt ceilings‚ respondents to the PwC report expected public-private partnerships to become more prevalent on the continent.