Tuesday, 22 January 2013

Infrastructure: Opportunity galore in east Africa



Lamu Port: Advertised
LAPSSET US$23 BILLION, Konza Techno city $7 billion, Kenya Railways Upgrade $2.4 billion, Dar-Chalinze super highway$530 million, Kigamboni bridge $140 million, Kigamboni city $6.7 billion.  That is US$40 billion worth of business opportunities in east Africa. And there are more.

Even before the discovery of hydrocarbons in eastern Africa coast, governments were already investing in transport and energy infrastructure to support national productivity. The mainly agriculture based economies were already being diversified to include basic manufacturing, trade and services.

 Robust economic growth coupled with diversification spawned increased demand for more and better roads, Electricity, telecoms and Ports. Initial investments in expanding existing infrastructure exposed their inadequacy which led to massive investments in infrastructure.

Lake Turkana Resort City
The result:  huge infrastructure projects which only a few years earlier would have been dismissed as sheer fantasy are now out at the implementation stage. Such gigantic projects include; the Lamu port, South Sudan, Ethiopia transport corridor. This project includes a 32 berth sea Port at Lamu in Kenya, a 200Km oil pipeline from Juba in South Sudan to the Lamu Port, a 1700KM railway line and 1800km of highway linking the same destinations. It also includes a 120,0000bpd oil refinery.

Already Toyota Tsusho, the investment arm of Toyota Motor Corporation has placed a US$5 billion bid for the Pipeline. The Kenya government has advertised for the construction of three berths at the 32 berth Lamu Port.

A few hundred kilometers to the South west of Lapsset is the Northern Corridor, also comprising of a highway linking the Mombasa Port- also in Kenya -to Uganda, Rwanda and eastern DR Congo. The high way is complete but the railway line will be upgraded to high speed line beginning the second quarter of this year. The lunatic express will cost US$2.4 million and will support activity at the Mombasa port, which is also being expanded into a Mega Port.

Along the northern Corridor is the Konza technology city, christened Africa’s silicon Savannah. The US$7 billion city is meant to the Technology hub of Africa, lies right bang between the railway line and Mombasa- Malaba highway. Its ground breaking ceremony will be performed tomorrow.

Across the border in Tanzania are smaller but equally significant infrastructure projects. The Kigamboni Bridge now under construction will open the kigamboni suburb which will be turned into a resort city. The US$6.7 billion resort city will make Dar-es-salaam city a tourist hub of the country. Also slated for development in Tanzania is the 100KM Dar-Chalinze super highway which shall ease congestion at Dar-Es-salaam.
Kigamboni Bridge over the sea. Construction started


 So how are these projects business opportunities? Apart from the construction contracts, the projects will be leased to private sector contractors to manage. Already a concessionaire to operate the rolling stock on the Kenya- Uganda Railway is in place. However projections are that the concessionaire’s service will be inadequate once the upgrading of Mombasa Port is complete. The Upgrade will raise the Port’s freight handling capacity to 1.2million TEUs a year from the current 0.7 million TEUs. With a high speed Railway line, a huge chunk of the Cargo will be transported by rail.

The Lapsset Corridor, experts say, will operate at least 74 trains a day four of which will be passenger trains and the rest freight. The Northern corridor, experts say will need to operate a similar number of trains to ease congestion at the Mombasa Port. This size of rolling stock, analysts say, is beyond the capacity of a single concessionaire. Therefore there is room for two or three more concessionaires on both northern Corridor. On the Lapsset, at least four concessionaires will be required.

On the Port of Lamu, the other 29 berths will be built on PPP basis. In addition on this corridor are three resort cities at Lamu, Isiolo and Turkana which will also be developed on PPP basis. And so is Konza techno city. The government will provide the basic infrastructure such as roads, power lines, telecoms lines, transport infrastructure then let the private sector to develop the real estate and lease it to interested investors.

Thika Superhighway:Advertised  to be a toll road
 Already the tender for a contractor to manage Thika Superhighway as a toll road has been advertised.  The Kigamboni Bridge in Tanzania will follow suit after completion. The Chalinze toll road will also be built on a PPP basis.

Governments in the region have sweetened the deals by first investing in risks that the private sector has no stomach for.  The risks include the construction costs which the private sector probably won’t stomach, or will take ages to raise the required capital.

Thika super highway for instance was built by the government with loans from Africa development bank. Once leased , the burden of maintenance will be passed on to the concessionaire. Also the concession fees will be used to service the debt thus relieving the tax payer of the debt burden
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The Kigamboni Bridge in Tanzania is financed by the Government of Tanzania and the local retirement benefits fund, NSSF. After construction it will turned into a toll-road managed by concessionaire.

This  investment model even in the electricity generation sector have become popular in east Africa since they enable quick implementation of development projects.The model also raises the return on investment for the concessionaires to anywhere between 15 and 24 per cent depending on the project.



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