The importance of infrastructure has long been recognized and cannot be overemphasized. "Eight major initiatives" launched during the 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) has put industrial promotion and infrastructure connectivity to the forefront, attracting another US$60bn of financing from Chinese government. The unprecedented magnitude of current African infrastructure development plans and private sector growth initiatives requires significant capital management skills. Deloitte hereby releases the 2018 Africa Construction Trends (ACT) report in review of the Infrastructure & Capital Projects (I&CP) across the continent.
In this year's ACT report, 482 projects valued at US$50m or above that had broken ground by 1 June 2018 were analysed, a year-on-year increase of 59.1%. Total value soars by 53.3% to US$471bn. 70% of the projects, however, fall into the lower US$50m-US$500m range, in line with the 2017 report on the difficulties in structuring, financing, and delivering mega projects.
Since the launch of FOCAC in 2000, Chinese influence in Africa has been on the rise. In this report, China is the most visible single-country funder and builder of infrastructure projects in Africa – financing one in five and constructing one in three projects. However, the infrastructure investment gap remains large, totalling between US$68bn and US$108bn according to the African Development Bank. Gross fixed capital formation (GFCF) across Africa generally occupies less than 30% of GDP, signifying a shortage of domestic spending on infrastructure as well. Belt and Road Initiative, under these circumstances, has great potentials in Africa. Besides supporting financing and construction, BRI will bring about more investment, improve connectivity and logistics, and promote intra-regional and global trade.
In terms of the ownership, funding and contractors, report concludes that African governments predominantly owns more than three quarters of the projects and continues to fund the largest share of projects (24.5%), while African DFIs only fund fewer than 10%. China leads as the most prolific builder, surpassing African domestic companies and nearly five times the number of projects of the third place.
As for geographical distribution, East Africa leads in the number of projects with 139 projects, whereas North Africa accounts for the largest share with US$148.3bn or 31.5%. For single countries, Egypt ranks first both in terms of number (46, 9.5%) and value of projects (US$79.2bn, 17%), edging out South Africa and Nigeria respectively. Detailed analysis of the five regions across the continent is included in the report.
Analysis by sector can be best summarized into the Chinese proverb "If you want to prosper, first build roads". This 1982 development philosophy of then head of Meishan County still holds true after more than three decades: almost 40% of the projects tracked are related to either roads, bridges or rail, occupying 22.7% of the total value. Real Estate, Energy & Power, together with Transport form the top three sectors both in terms of number and value of projects.
African economy also looks promising. Although the October 2018 World Economic Outlook (WEO) lowered the global growth forecast to 3.7%, Sub-Saharan Africa's growth, supported by an enabling external environment and domestic reforms, will remain resilient. East Africa is expected to achieve the highest growth of 6.4%, surpassing the 4.7% emerging markets expectation. Southern Africa, dragged down by South Africa, will be the slowest with a 1.7% growth.
Deloitte teams have advised across the lifecycle on many of the global largest and most complex I&CP. Deloitte China is working closely with the Deloitte Africa practice to help companies, governments and investors understand the roles and opportunities within the BRI, highlighting the synergies of our Deloitte offering across borders.