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Deloitte:China persists in developing Africa's infrastructure

(By chinca)

Updated: 2016-02-23 13:52:01

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The slowdown of China's economy will not affect its outbound investments to Africa. Contrary to popular perception, Chinese participation in the continent's infrastructural projects will increase, said Mark Smith, Head of Infrastructure & Capital Projects in Deloitte East Africa.

"In fact, I am not in agreement with the perception that the economy is slowing down. Chinese mainland is still recording an average growth of 7 percent, which is higher compared to other global players," said the director during the release of the fourth Africa Construction Trends report 2015 in Nairobi.

The fourth edition of the Deloitte Africa Construction Trends report highlighted that the total value of mega projects in the continent stood at $357 billion in 2015, a 15 percent increase from 2014. Of these projects, Southern Africa contributed the biggest share with 109 projects worth $140 billion, followed by West Africa with 79 projects values at $116 billion.

"Rapid urbanization and influx of an expanding middle class continues to drive the need for infrastructural reform, expansion and upgrading," said Smith.

With participation in 145 of the 301 projects in Africa, DFIs (development finance institutions) are the largest financiers representing 48 percent of total projects and 34 percent of continent-wide financing according to the report.

"Governments are the second highest provider of funding, followed by the amalgamation of the participation of all singular countries' financing and then by China on a stand-alone basis," reads the report.

Governments continued to own the projects by 71 percent (214) projects followed by private domestic owners with 38 projects and Africa DFIs with 9 projects (3 percent)

In construction, the amalgamation of all the singular countries building participation represented the highest involvement at 28 percent, followed slightly by government at 27 percent. "China is present in 14 percent of all the projects on a standalone basis," read the report.

The report tracks projects valued at more than $50 million.

Smith noted that China's investment in East Africa continued to lead other foreign countries save for International Development Finance Institutions (DFIs). He opined that Kenya and Ethiopia will be the biggest recipients in the region.

"We have seen China supporting regional mega transport infrastructure projects particularly in rail and ports. The trend will likely to continue in the short to long term future," said Smith.

Overall according to the report, China owns only one project in the continent but is however present in the funding of 13 projects (4 percent) and heavily present in the construction of 42 projects (15 percent).

Smith said that China's dominance was strongly visible in East Africa. "It has provided funding for 8 percent of the mega projects and builds 21 percent of them," said Smith during his presentation. This translates to about 13 projects.

He pointed out that most of these projects are trans-border in nature hence accelerating the regional integration goals fronted by the governments namely Kenya, Uganda, Tanzania, Rwanda, South Sudan and Ethiopia.

"This is also likely to fuel inter regional trade," he asserted observing that it will continue playing a significant role in bolstering confidence of such projects.

East Africa accounted for 20 percent of all on-going projects in Africa, valued at $57.5 billion in 2015, compared to $60.7 billion the previous year. In total the number of projects in the region rose by 10 to 61 projects, with Kenya leading the pack at 20 followed by Ethiopia with 12 projects.

However, there was a drop in projects value from $60.7 billion in 2014 to 57.5 billion in the year under review. "I think this is a good thing considering the challenges in the global economy such as liquidity crunch and low commodity prices. There has been a restructuring in the planning and packaging of these projects to bite-size portions," said Smith.

The report also noted a single entry of real estate project for the first time in the region. The Two Rivers Project, valued at $200 million, saw two Chinese companies in a joint venture invest $70 million for a 38.9 percent stake. Aviation Industry Corporation of China (AVIC-ENG) and the Jiangxi Water and Hydropower Construction have invested in the mall billed to be the largest in east and central Africa.