Governments can only fund about half the expected costs of infrastructure in Africa and private financing is becoming increasingly important, according to a PwC report.
Infrastructure spending is projected to reach $180 billion per year by 2025, according to the PwC’s report, “Capital Projects & Infrastructure in East Africa, Southern Africa and West Africa.”
A PwC survey polled 95 infrastructure owners, public enterprises, funders and construction and operating companies and in sub-Saharan Africa.
More than half the respondents said they plan to increase infrastructure spending by more than 25 percent from the previous year — a trend especially strong in East Africa, Moneyweb reports.
An appetite to take equity in a project and a strong balance sheet give
construction companies moving into Africa a competitive edge, said Mohale Masithela, PwC partner in capital projects & infrastructure financing.
He said all the big construction players in South Africa know it is almost a requirement for participating in such projects through public-private
partnerships, Moneyweb reports.
From Moneyweb. Story by Antoinette Slabbert.
“They do it through the creation of special-purpose vehicles with other equity sponsors that each make an equity contribution,” Masithela told Moneyweb. “The construction company does the construction work and may exit thereafter, selling its stake to private equity companies, or retain it and even get a decent return over a period.”
Masithela said taking equity in aspecial purpose vehicle can be the make-or-break factor to unlock an infrastructure project. Smaller companies that don’t have the balance sheet to support an equity investment may find it harder to participate as other parties will have to increase their stakes accordingly.
Construction companies need different skills and expertise to assess equity investments and manage complex procurement structures like public-private
partnerships, Masithela said.As a rule construction companies are happy to take the construction risk, but they are not financiers. To play a bigger role in the financing they will have to consider other issues like hedging and foreign exchange translations.
“It is not their core business,” he said.
China has been very successful in leveraging funding as a competitive advantage all over the continent, Masithela said. “And we expect that trend to continue.”
While China is the most prominent player from outside Africa, the continent is internationally very attractive, he says. Investors from a variety of countries are actively pursuing opportunities. These include India, the U.S., France and Germany. Often one finds players from different countries together in one special-purpose vehicle, Masithela said.
He said many countries are revising their public-private partnerships frameworks. Kenya, for example, has used the model to procure power from the private sector and is adapting its regulations to fit other sectors like transportation as well. “It is important that these frameworks should not be too complicated to unlock private funding,” Masithela said.
Read more at Moneyweb.
