More than 322 mega construction projects, collectively worth more than $222 billion, are currently underway in Africa - 124 of which are in Southern Africa, valued at $83 billion.
This indicates the start of a construction boom on the continent with increased involvement of construction companies from the Brics countries, the second annual Deloitte report on African construction trends shows.
Companies from Europe and the US however still execute 37% of these projects, in many cases capitalising on former colonial ties. Chinese companies have a surprising low market share of 12% of the projects, although these are of higher value.
South African construction companies will find it hard to get a proper slice of the pie, because the competition is fierce and local mega public sector projects are draining their cash.
This comment by Sheldon Morris, Deloitte head of capital projects advisory, comes while most listed SA construction groups are moving into Africa in a bid to balance a tight domestic market.
In its second report of its kind, Deloitte analysed projects worth more than $50 million each that have broken ground but had not been completed by June 1 2013. Andre Pottas, Deloitte Africa and Southern Africa Infrastructure and Capital Projects leader said in the year under review energy/power is the sector that contributed most with 36% of the projects, followed by transport with 25%.
Whre are these projects, and who owns them?
Pottas said 56% of the projects are publicly owned, which indicate a focus on infrastructure development. This bodes well for the removal of economic blockages and future economic growth on the continent. He says in colonial times infrastructure development was focused on exports and entailed mostly transport corridors to ports. Intra-continental trade was underdeveloped. The current trend might go some distance in reversing this.
East Africa follows Southern Africa with the second most projects, while political instability is most probably the blockage in North and Central Africa where construction activity is comparatively muted.
Domestic governments fund only 8% of the projects, investing $17.3 billion. That’s less than the stake funded by Chinese stakeholders (10%) and European and US funders (19%). Private domestic investors fund 11% of the projects and institutional funders 7%. The biggest role players on the funding scene are development finance institutions (DFIs) with a 36% market share.
The three biggest infrastructure projects on the continent are Eskom’s Kusile power station being built in Mpumalanga and listed as funded to the tune of $20.3 billion; Medupi with $ 10.8 billion funding and PetroSA’s Project Mthombo, a refinery with $9 billion funding.
Morris said South African construction companies win civil tenders in Africa at margins of 16%, but generally only realise 9%. That’s still handsome in comparison with domestic margins. He criticised the way local projects are structured with insufficient design detail an inappropriate risk distribution. He said on the rest of the continent clients don’t insist on controlling detail and rather specify outcomes.
Local industry leaders have often expressed frustration with the lack of design detail in the early stages of especially government projects and criticised a method of design-as-you-go. This leads to a large number of extensions and variations that have to be funded through lengthy claims process that put a drain on contractors’ cash flow. The Medupi project has been cited as a good example of this.
