Unless you have been living on a desert island, or perhaps you have imposed a sabbatical seclusion of some sort on yourself for the past two years, then you would no doubt have seen many headlines heralding the ‘Africa Rising’ narrative. ‘Africa Rising’ commentators cite factors such as high GDP growth rates, increased foreign direct investments, improved governance and improved political stability as pointers to booming economies and better living standards, and – yes – to expanded business and investment opportunities.
Whether or not you buy into the stories of an emerging African Utopia, the facts show that spending on infrastructure in Africa has been rising exponentially for over a decade. A 2010 McKinsey article reported a compound annual growth rate of 17% - from $3 billion in 1998 to $12 billion in 2008. A recent 2014 PwC report forecasts infrastructure spending in Sub-Saharan Africa to exceed $180 billion by 2025. With several new highways, railways, airports, power projects, and residential / commercial / retail developments under construction or in the works, Africa is clearly in the midst of a major infrastructure ( … and construction) boom.
Discerning investors have been riding the wave of the construction boom. The financial fortune of Aliko Dangote (Africa’s richest man, and the 23rd richest man in the world according to Forbes Magazine) is underpinned by a staple construction material – cement. The expansion of Nigeria’s Dangote Cement into 14 African countries, and the expansion of its Nigerian production plant in Obajana from 5 to 10.25 million tonnes a year (making it possibly the largest cement plant in the world) is a confirmation of the construction boom driving the soaring demand for the material across the continent.
Addis Ababa, the capital of Ethiopia, is currently being described as one huge construction site – with tower cranes dotting the city’s skylines. The construction boom and the resulting surge in demand for construction cranes has led one company, KIG, to set up a crane production facility in Addis Ababa with plans to service local demand and export cranes to other parts of Africa.
As with all business ventures, the business of managing construction projects in Africa has its own unique challenges, and on occasion some out-of-the-box thinking may be required - particularly with logistics. Ask the chaps at Basil Read, the South Africa construction firm constructing a new airport on the isolated island of St. Helena - 2,300 km west of Walvis Bay, Namibia. The island is currently only reachable through a 5 day journey from Cape Town aboard a Royal Mail ship. The project team has described the project as the most complex project ever undertaken by the company, logistically. All construction materials and equipment for the project had to be transferred to the island - which involved Basil Read chartering a 2,500 tonne shipping vessel for the duration of the project. About 18 million litres of diesel; 25,000 tonnes of cement; and 5,000 tonnes of explosives were transported – with each shipment arriving on the island after a 7 day sailing time from the Walvis Bay loading yard, and overall shipping cycles taking about 22 days. Execution of the project required skills ranging from civil construction and road works and building, through to opencast mining and marine works.
Examples of other challenges on construction projects in Africa are highlighted in ConstructAfrica.com’s news story ‘Firms tackle myriad of on-the-ground challenges’, available on our website.
Fortune favours the brave, so the saying goes. Notwithstanding the challenges, investing in construction in Africa can be very profitable, with returns up to “twice as high” as obtained outside the region. Some local African construction firms are cashing in on the boom with cross-border forays into neighbouring countries. Ethiopian contractors like Flintstone Engineering, Alemeyehu Ketema and Tekleberhan Ambaye are undertaking projects in Tanzania, Rwanda and Somaliland. Nigeria’s Costain West Africa is also making inroads in Ghana. South Africa’s Group 5 is expanding into East Africa, West Africa, Southern Africa and Central Africa, with local country representatives already appointed in Ghana and Mozambique. The continent is also extending a warm welcome to foreign firms with sought-after experience in delivering large-scale projects. Chinese construction firms, in particular, have blazed an impressive trail for their counterparts from outside Africa.
McKinsey’s ‘Africa’s path to growth’ report shared a few tips for international construction firms planning to work in Africa:
- Arrive early and take a long-term view. A long-term view is essential to offset short-term currency risks and develop the sustained relationships necessary for success in Africa. Julius Berger, a German construction company, has been in Nigeria since 1965 – its first project being the Eko Bridge in Lagos. Mota-Engil, Portugal’s largest construction company has been present in Angola since 1946 – its first major construction project being the Luanda International Airport. Both companies are now benefiting from the infrastructure booms in these two countries.
- Build relationships. Finding the right local company to partner with gives foreign companies access to excellent political and business relationships, as well as expertise in managing local labor and navigating regulations.
- Diversify your project portfolio. Julius Berger for example, provides construction services for transportation, commercial and residential property, ports, and the oil and gas industries in Nigeria. Odebrecht, a Brazilian company, entered Angola to develop the Capanda hydroelectric dam and has since expanded its operations in the country to residential and commercial construction, mining projects, and a partnership in a diamond exploration venture. Shapoorji Pallonji, an Indian company, focuses mainly on buildings and hotels, and has operating offices in Nigeria and Ghana, and marketing offices in Kenya and Ethiopia with projects in Togo, Sierra Leone, Equatorial Guinea, Burkina Faso, Gambia, Gabon, Mauritius, Mozambique and Kenya.
I would add to these, the obvious: understand and proactively manage your risk by ensuring you have a proper understanding of the challenges and opportunities that the various Africa construction markets present. In particular, note that ‘Africa is not a country’ – there are 48 countries in sub-saharan Africa, and each of these countries has its own unique distinct business environment.
I will like to hear from you. Do you have, or are you part of, an ongoing project in Africa? What are the opportunities you see, or have been able to benefit from recently? Leave your comments below or on our facebook page. Connect with us on Twitter. If you know anyone who you think will benefit from this blog post, you can use any of the share buttons below to share with them.