Owing to various African countries having secured sovereign funding for construction projects that are being planned or in the process of implementation, these countries have the potential to promote rapid gross domestic product (GDP) growth, says consultancy firm WSP.
WSP transportation and infrastructure divisional director Vishaal Lutchman says, in the past year, international finance corporations have been funding and capitalising sovereign banks in countries such as Ghana and Ethiopia, where construction of megaprojects include airports, five-star hotels, office towers and rail networks.
“Previously, this approach to secure sovereign funding was not possible in many African countries and we are generally cautious to work in African countries, owing to the stigma of their not being able pay off raised debts, corruption and uncertainties as to where the funding would come from.”
Lutchman adds that another prominent trend is African countries using the model of government-to-government deals, “that the Chinese seem to have perfected, which remains to be well received in South Africa, owing to overlegislation on government’s part. South Africa having one of the lowest forecast GDP growth rates on the continent has yet to explore aggressive development models to bring about much needed GDP growth”.
He avers that there remains a willingness for African governments to enter into government-to-government deals with China, for example, to execute megaprojects, citing such arrangements as being “a closed cycle, with it being a complete solution – including, funding, engineering, construction and offtake”.
However, the challenge of this closed cycle is the lack of inclusivity, as outsourcing the construction process and engineering limits the local development agenda, because expatriates are employed on the projects instead of locals. It is tradition that such deals do not provide for local supplier development.
These models are thus fast becoming unpopular and a cause of local turbulence. Lutchman notes that there is a growing realisation by African governments and China, that, for example, more local participation in projects is necessary, compared with the “take it or leave it” approach followed previously to secure funding that excluded a much-needed local development agenda.
This ensures that government can enter into government-to-government deals with a clearer conscience, ensuring local employment, small business development and community inclusivity.
Lutchman avers that, although South Africa is perhaps over legislated regarding construction and impact assessments required beforehand, some African countries are more loosely regulated, therefore allowing for greater flexibility and agility to move ahead with project development. “It reduces the time taken to have assets on the ground for beneficial occupation and earlier revenues. What remains prohibitive is the expatriation of revenues in hard currency, which suggests a lack of maturity in many African countries’ financial systems.”
Lutchman remains confident that the financial services sector will mature in the years to come.
Nonetheless, he says the international community currently seems to be a lot more bullish about the African development agenda than the South African development agenda “It is comforting to see European funding agencies funding projects in Ghana, Côte d’Ivoire and Rwanda.”
Lutchman adds that these countries are all currently showing signs of positive leadership, competence, knowledge, capability and willingness to look at business models differently, while being aggressive in the development agenda.
“This kind of leadership is forward-thinking – to work constructively in creating an inclusive environment, while not being pro-self-enrichment, but rather pro-growth. It will unlock a lot of growth opportunities on the continent.”
WSP transportation and infrastructure Africa engineer Kyle Nesbitt confirms that the company is currently involved with a number of public, private and aid or donor agency-driven projects across the continent. “These projects are all in different phases – from initial feasibility studies to some coming to construction completion, where most of these projects are infrastructure based – including roads, air strips, ports and power stations.”
Lutchman mentions that projects, especially megaprojects, have become complex in the last 15 years. “There is a lot more awareness around projects and legislation, and people are more vocal about the impacts of development projects on their circumstances.”
Before constructing an asset, extensive planning has to be done to determine how a megaproject affects the societal system – employers, environment and the community – which requires developers to consider inclusivity for project success, he explains.
“Megaprojects have far-reaching effects on people and communities. Our ability to articulate and interpret that complexity with due regard involves processes to determine issues, canvas and sell a project well before investment decisions are made and before construction.”
He adds that South Africa’s record for the past ten years of delivering megaprojects, such as power stations or stadiums, for example, has often “ended up with a bitter taste in communities’ mouths, especially if there is corruption involved, which further deters interest from legitimate construction companies to participate in megaprojects”.
Lutchman says South Africa may have lost its ability to deliver megaprojects successfully, mostly owing to mismanagement, loss of institutional capacity, cost – including ability to raise finance – affordability and competing objectives.
“There is an inherent fear within entities about whether they possess the capability to successfully deliver without bad press,” he concludes.