FROM MAGAZINE: Africa invests heavily to improve port and railway infrastructure

FROM MAGAZINE: Africa invests heavily to improve port and railway infrastructure

The world is eager to do business with Africa!

This is amid growing recognition of the continent as the fastest growing economic hub that in turn translates into a plethora of opportunities for trade and commerce. But to achieve its full economic growth potential, Africa has to improve its infrastructure.

Shreya Bhattacharya

Africa has more than one-quarter of the world’s arable land, eleven of its countries rank among the top ten sources for at least one major mineral and every potential hydrocarbon basin across East Africa is today a subject of immense curiosity. No wonder, for global business leaders, Africa is today’s most promising investment destination.

Although investors are keen to explore the continent’s burgeoning consumer market they find difficulty in getting access to it, especially in the interior, due to poor transport infrastructure. The deficit also leads to hike in transaction costs of business as import and export of goods, filling orders, and obtaining supplies become extremely difficult.Africa understands this really well and hence has identified infrastructure development as one of its key priorities.

While reliable transport infrastructure, like railways, roads and ports—is crucial and are being put in place,soft infrastructure like policy reforms, adaptive customs and relaxed border controls enabling trade programs are also getting due attention.

“There are encouraging signs of world-class infrastructure delivery in the continent.High-impact projects under way such as the Gautrain project and the Inga Dam in the Democratic Republic of Congo are examples. There is also an emergence of policy trends, from regional free trade agreements to improved PPP frameworks across a large number of countries, which suggests that the enabling environment for infrastructure development is improving each day,” said Sultan Ahmed Bin Sulayem, Chairman and CEO, DP World Group.

Ports construction, expansion improving trade corridor efficiency In order to address the infrastructure gap, governments in Africa have strategized to make heavy investment on ports and railway projects while enticing both domestic as well as foreign players into the business.

For instance, South Africa plans to invest around ZAR48.4 billion (USD 3.2 billion) in capacity expansion at its major commercial ports over the next seven years to support a projected 4 percent annual increase in cargo volumes over that timeframe.

According to Transnet- the country’s national ports authority- capacity demand at the nine major ports will reach 314 million tonnes per annum by 2022, up from 255 million tonnes in 2015. That figure is expected to rise to 543 million by 2046, with particularly strong growth in demand for containerised and liquid bulk cargoes over the next three decades.

In the chase, South Africa’s busiest commercial port, the Port of Durban is set to embrace technology, with bringing exciting digital initiatives that will see some of its operations being conducted through wireless technology.

Similarly, in the east, global trade enabler DP World has agreed to take charge of managing Somaliland Port of Berbera that opens a new point of access to the Red Sea and will complement DP World’s existing port at Djibouti in the Horn of Africa.Dubai based DP World will set up a joint venture with 65% control together with the government of Somaliland to manage and invest in the port.

“Berbera Port will contribute to our continued growth in the developing markets of Africa in the years ahead. It is also a breakthrough in developing access to the sea for landlocked Ethiopia, the region’s largest economy.Investment in this natural deep-water port will attract more shipping lines to East Africa and its modernisation will act as a catalyst for the growth of the country,” explained Bin Sulayem.

“The investment of up to $442 million will include a first phase of a 400 metre quay and 250,000 square metre yard extension, and gantry cranes and reach stackers to handle containers and cargo. Construction of the quay extension is expected to start 12 months after the satisfaction of the terms and conditions of the agreement and will take 24 months to complete,” added Bin Sulayem.

DP World already operates the most advanced portsin the African continent at Doraleh, Djibouti, plus two ports in Algeria, one in Egypt and one in Dakar.

Over the past 3-5 years, DP World has invested US $1.3billion in capex and added 2,275,000 TEU of capacity in Africa across its terminals, bringing its total annual capacity to 6.2 million TEU.It also has investments underway in Egypt, Mozambique, Algeria and Senegal to further expand its capacity in the region.

Not only private players but the governments of China and Japan are also major investors in the continent. Both the countries are planning to increase involvement in infrastructure projects to strengthen their foothold in the continent.

China has been investing heavily in Bagamoyo Port in Tanzania, which when operational would be the biggest port in East Africa. It is hoped the new facility will handle double the capacity of the one in Dar es Salaam. The project will cost about $11billion, with much of the funding for construction coming from a government-owned Chinese investment firm. It will take two years to complete, and includes building rail and road links. China-Africa trade in 2015 amounted to about $180 billion.

Meanwhile, at the Sixth Tokyo International Conference on African Development (TICAD), which was hosted in Nairobi, Kenya in August 2016, Japanese Prime Minister Shinzo Abe pledged $30 billion in public and private support for Africa over the next three years—including $10 billion for African infrastructure projects carried out in cooperation with the African Development Bank and $20 billion of investment from the Japanese private sector.

Kenya’s Mombasa Port, where Japan has invested heavily, is the second-largest port in Africa by cargo tonnage and container. The port recently completed phase 1 of its Mombasa Port Development Project, increasing its capacity by 550,000 TEUs. Japan invested $217 millionto build the new Kipevu container terminal at the port. It includes three new berths adding an additional 900 meters (2,952 feet) in quay length to the existing 840 metres, with an alongside depth of 15 metres and a 35-hectare (86 acres) container yard. Two ship-to-shore cranes and four rubber tire gantry cranes are operating at the site.

Another South African nation Angola’s two largest ports, at Luanda and Lobito, provide a solid and expansive base for trade, not only for the country itself, but also for its landlocked neighbours like Zambia and Zimbabwe.Enormous investment in port facilities and infrastructure has helped boost their capabilities and capacities, as well as reduce waiting times.

The Angolan government’s development strategy has so far included opening up the maritime sector to private investment, and to expanding the reach of ports and port operators beyond the ports themselves. The major players from the private sector who have invested in Angola’s ports include the Multiterminais and Multiparques groups. Following an investor-led injection of $75 million-worth of new equipment, bulk storage silos and a state-of-the-art tracking system, the average wait time has reportedly dropped substantially, thereby greatly alleviating congestion and reducing costs to the customer by roughly $700 per container.

Extensive network of rail to open economies railCurrently, there has been a push to integrate ports with other logistical systems in the countries, by making heavy investment especially in the rebuilding and extension of the domestic rail network. According to the Logistics Performance Index (LPI), featured in the Connecting to Compete series 2016, South and East African countries have engaged in significant improvement in trade corridor efficiency.

For instance, a seven-kilometre long branch line connects Lobito port complex with the Benguela rail terminal in Angola, where dedicated passenger halls and boarding platforms can accommodate up to six trains at a time, and passengers wait to board for destinations along the African continent’s second-largest rail line.

Since Africa consists of a large number of landlocked countries, African ports are the gateways of the continent to the outside.

Landlocked countries therefore require specific connections to coastal areas to allow them to trade with countries outside Africa.

In an ambitious project, Kenya’s port of Mombasa is being linked to the landlocked Uganda and Rwanda, in which $3.2 billion has been invested till now.The rail line is Kenya’s biggest investment since independence in 1963 and is among the most advanced of the more than $30 billion of African rail projects planned or under way.

Eventually, the $13.8 billion rail network will link Mombasa with other major east African cities such as Bujumbura in Burundi and Juba, in South Sudan.

The project is being managed by the East Africa Community; an intergovernmental organization of six partner states; Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda, which aims to create a politically united and secure East Africa. It is being built by the state-owned China Road and Bridge Corporation (CRBC), 90% of the ongoing development of the Mombasa-Nairobi section is being financed by The Export-Import Bank of China.

Meanwhile, Ethiopia’s flagship project, a 756 km railway line linking its capital Addis Ababa to the port of Djibouti aims to provide landlocked Ethiopia with improved railroad access to the sea and is anticipated to have a dramatic impact on the country’s socio-economic development. Ethiopia’s Prime Minister Hailemariam Desalegn and President of Djibouti Ismail Omar Guelleh officially inaugurated the Chinese-built railway in October, 2016. Construction of the Ethiopian section of the route has cost around $3.4 billion, financed 70 percent by China Exim Bank and 30 percent by the Ethiopian government.

Meanwhile, government as well as mining companies in West Africa are investing in a 3000 kilometre rail project, which when completed will link Benin, Burkina Faso, Niger, Ivory Coast, Ghana, Nigeria and Togo.The massive rail project is designed to help move minerals from mines to ports, but experts say it has the potential to drive up further economic development.

According to Deloitte, more than $131 billion was spent on transportation construction on the continent in 2015; by 2025, $200 billion is expected to be spent on the continent's roads, and another $7 billion dollars on African airports.However, the robust growth that Africa has enjoyed over the past few years bring new challenges and current evidence suggests new investment alone will not fix Africa’s infrastructure.Corruption, poor management and bureaucratic bottlenecks may mean the gains will be misspent. Therefore, the governments have to be extra focused to use the money in an efficient manner.

Also with the recent withdrawal of the United Kingdom from the European Union, Africa could face indirect consequences. The uncertainty created by Brexit will have indirect consequences for all developing economies and it will be interesting to see how trade agreements evolve.

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