A basis for the boom: African infrastructure

As foreign investment increases and African nations collaborate to integrate their economies, the infrastructure is being transformed. Vision looks at how Africa is building its future

A sharp, salty tang infuses the air as bleeping cranes move containers in the Kenyan port of Mombasa. Ships anchored side by side in the Indian Ocean sway in the waves, and yet more wait to dock. The container-filled port is the busiest in East Africa. Importers and exporters line up in the humid heat of the afternoon as they wait for customs officials to clear their goods. A consignment of imported cars arrive from Japan en route to Uganda after a three-week trip traversing the Pacific and Indian Oceans and around the Cape of Good Hope then north, to finally dock at Mombasa.

It is necessary to invest in social infrastructure to ensure countries have healthy, educated and skilled people fit to drive economic development

Ajen Sita, Managing Partner for Africa, Ernst & Young

The port serves Kenya, Uganda, Burundi, South Sudan, Rwanda, Somalia and the Eastern Democratic Republic of Congo. It has grown by 30 per cent since 2006, handling 19.6 million tonnes in 2012 alone. With congestion becoming an increasing challenge, the port presents a significant opportunity for infrastructure investment, as does the port at Dar es Salaam in neighbouring Tanzania.

Some 240km north of Mombasa on the border with Somalia lies the town of Lamu, the site of a proposed US$23bn development, which will include a port, refinery, pipelines, luxury hotels, three airports and a rail link. It is envisaged that Lamu will act as a corridor between Kenya and countries such as Ethiopia and South Sudan, which will ease the volume of trade in Mombasa as well as create jobs.

Transforming a continent

China has been one of the leading investors in the project, cementing its position as the key player in building Africa’s logistics. Qatar and the UAE have also been in talks to back the development. “We can see their [the UAE’s] involvement increase even further with their drive to leverage Africa’s vast arable land for their own food sustainability,” notes Ajen Sita, Managing Partner for Africa, Ernst & Young.

Chinese foreign direct investments (FDI) in Africa are now in excess of US$15bn, with total investments estimated at approximately US$40bn, according to the International Policy Digest. In recent years China has been rolling out a number of major road, energy, steel manufacturing and urban development projects across the continent. Chinese companies have become the single largest source of FDI and finance in Africa, surpassing the World Bank by US$10bn as of 2011. China’s President, Hu Jintao, pledged an additional US$20bn in loans to Africa in June 2012.

In 2011, the China Civil Engineering and Construction Corporation signed a US$7bn deal with the government of Chad for a 1,344km railway connecting the land-locked oil-producing country to Sudan and Cameroon. The project links the three countries with the aim of easing transportation of goods and facilitating trade.

Countries such as China and the UAE are well-placed to take advantage of Africa’s drive to improve its logistics networks, with China using Dubai as a transport hub to develop its reach into the continent. The Dubai-based marine terminal operator giant DP World is capitalising on China’s demand for hubs within Africa, by establishing ports in Tunisia, Senegal, Djibouti, Mozambique and South Africa.

When DP World took over a terminal at Dakar in Senegal, its aim was to provide an entry for imports and exports to West Africa and landlocked sub-Saharan countries. “Efficient container ports in strategic locations will benefit regional transhipment,” a DP World spokesman said. “We have seen that in Dakar and Djibouti, which act as regional gateways for cargo to and from the surrounding countries. Four of DP World’s locations in Africa are dealing or planning to deal with the regional transhipment requirements of a continent with high growth potential.”

Fresh foundations

The MENA Infrastructure Fund, a private equity fund worth US$300m with headquarters in Dubai, has bought a stake in Alexandria International Container Terminals in Egypt, which links worldwide shipments to the mainland. The Dubai International Financial Centre (DIFC) is an onshore financial hub and tax-free zone that is home to more than 32 firms, which range from banks to law firms, insurance companies and fund managers.

Industrial and Commercial Bank of China – which owns 20 per cent of Standard Bank Group, the largest bank in Africa – and PetroChina are using the DIFC as a platform to access Africa. “Dubai has become the hub of choice for anyone setting up a business in Africa,” says Ashish J Thakker, the Ugandan-born founder and Managing Director of the Mara Group, a conglomerate with interests ranging from property to tourism and IT.

“Dubai has deep expertise in infrastructure, logistics, transport, finance and trade. These are handy for African businesses who can make use of these facilities to reach out to potential customers in Europe, Eastern Europe, North America and Asia, including India and China. Dubai plays an important role in the growth of our company.

"Most of our business is in Africa, but we have partners across the world. We work with partners and suppliers from India, Pakistan, the Middle East and Europe, and Dubai is at the crossroads of all of these regions. East Africa is just a few hours away from Dubai. Most of the leading players have the headquarters for their emerging markets activities in Dubai. Being close to our partners and suppliers facilitates trade and stimulates generation of new venture ideas.”