Kenya - Kenya's booming construction industry has faced significant headwinds, as rampant inflation - due to a weak shilling, among other factors - has seen building costs soar. Moreover, with the Central Bank of Kenya yet to show the commitment needed to support its beleaguered currency, we expect these price pressures to continue to make life difficult for the sector over the coming quarters, with the increasingly prohibitive cost of building materials and bank loans curbing demand for new developments. Our downwardly revised forecasts for the construction industry in 2012 reflects the deterioration of the economic picture, with real growth substantially eroded as a result. In light of this, we are now pencilling in real growth of 2.5% for construction industry value in 2012.
Key developments include:
? The government has development plans with a total cost of US$22bn that include significant improvements to roads, railways, seaports, airports, water, sanitation and telecommunications. According to the Government, Kenya is focusing on these in the hope of attracting, accelerating and retaining investors who often complain its dilapidated facilities increase the cost of doing business, rendering Kenya's products uncompetitive in the global market
? The construction of the port of Lamu in northern Kenya has not yet begun, yet is already generating much interest. Having been mooted for years, it seems that construction of the port is to begin soon. The new facility at Lamu, which will cost US$5.3bn, will spread over 700 acres of land. The port will serve as the maritime entry point to the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor, which will include rail, road, oil pipeline and fibre optic cable connections with South Sudan and Ethiopia. The site will also be home to a new international airport. In total, price estimates for the multi-modal project range from US$16bn to US$23bn.
A new high voltage transmission line linking Mombasa to Nairobi should provide much greater security of supply, transmitting electricity from the power rich coast to the electricity starved capital. The new 450km high voltage transmission line will have the capacity to handle 1,500MW of electricity, equal to Kenya's current installed capacity. The power line will allow electricity generated on the coast around Mombasa to be transported to Nairobi to feed the capital's electricity consumption. With a new 300MW coal power plant planned to be built around Mombasa it is hoped that the power line will help distribute this new electricity further up country.
? The decision by Kenya's National Environment Management Authority to approve the first phase of the US$5bn Tatu City development is an encouraging sign for the country's residential construction sector as it seeks to meet rapidly rising demand.
Sudan
Rising political tensions represents a key risk to the economies and infrastructure sector of Sudan and South Sudan. These developments reconfirm our view that, though a lack of data for the separate entities impedes accurate forecasting, the Sudanese economy will endure a sharp recession in 2012. The lack of administrative systems to collect taxes in South Sudan and Sudan looking for new ways to help bolster the economy and foment growth, coupled with the potential disruption to oil output in both states, will accentuate pressures on public finances. As a result, BMI believes subdued government revenues will significantly hinder much-needed public spending on housing and infrastructure for the foreseeable future. Tensions have been raised by Sudan-South Sudan's still undemarcated border, which cuts through oil fields, as well as mutual allegations that each side backs proxy rebel forces against the other.
On January 25 2012, it was reported that South Sudan closed the taps on more than half its oil output, heightening tensions with neighbouring North Sudan after failing to agree on how to divide oil revenues essential to both economies.'The situation in Sudan and South Sudan has reached a critical point, it has become a major threat to peace and security across the region', Ban Ki Moon told an African Union summit in the Ethiopian capital.
With official data for both states not yet available, the forecasting environment remains fraught with difficulties. However, for the time being, we also expect Sudanese infrastructure and utility sectors to be negatively affected by the reduced income and the uncertain business environment. As a consequence, we see construction industry value falling by -19.5% in 2012.
Among other key trends in the two countries, we note that:
- Despite various plans to increase electrification level and include renewables in the energy mix, results have largely yet to materialise in Sudan, where the main power utility, National Electricity Corporation of Sudan (NEC) , is still fully state-owned. Despite having retained the majority of the power infrastructure part of the previously unified state, Sudan existing capacity is dismal.
- We also highlight that the outlook for the utility sector in now independent South Sudan is still relatively unclear. The Southern Sudan Electricity Corporation (SSEC), established as a subsidiary of the Ministry of Energy and Mining (MEM), is responsible for generation, transmission, distribution and sales of electrical energy to consumers in Juba, Malakal and Wau. The government has, however, yet to release a sector strategy paper and present key projects.
- South Sudan Vice President, Riek Machar, has promised that the country will mobilise US$500bn in investment for infrastructure development in the next few years. The significant oil potential of the country notwithstanding, we note that the target is highly ambitious, and we take a cautious stance on the matter.
- Sudan's Finance and Economy Minister Ali Mahmoud and the Arab Fund for Economic and Social Development (AFESD)'s Director General Abdullatif Al-Hamad have signed a loan agreement for the Upper Atbara and Stait dams' hydropower project in Eastern Sudan. Under the terms of the agreement signed on December 28 2011, the AFESD will provide financial assistance of US$111mn. The hydropower project is expected to result in a significant progress in the Sudanese government's measures to conserve water, according to Al-Hamad. Meanwhile, the AFESD has already provided US$400mn for the Merwoe Dam on the Atbara River and 50% funding for the Roseires Dam on the Blue Nile River, according to Sudan's Electricity and Dams Minister, Osama Abdullah. He added that both the dams are scheduled to become operational in May 2012.
Tanzania
We see the government's major infrastructure expansion programme - which will involve the construction of new ports, railways and power infrastructure - as not only positive for overall economic development, but also as presenting new opportunities for sponsors and engineering, procurement and construction (EPC) contractors with the expertise to undertake the major projects. Nascent oil and gas upstream activity will drive new ventures in auxiliary infrastructure, including gas pipelines, and facilitate the economic viability of gas power plants. However, regulatory risks and the prohibitive cost of the projects remain the greatest obstacles. Opposition to projects on environmental grounds will also delay implementation.
Key developments include:
? Reinforcing our view that infrastructure will be a priority public policy area, the government's budget for 2011/2012 places strong emphasis on development expenditure, with part of the TZS13.52trn (US$8.6bn) budget earmarked for infrastructure investment. However, BMI's Africa country risk team highlights that the budget remains reliant on loans and grants from foreign entities, thus limiting the scope for full implementation.
? Huge gas deposits have been found in Tanzania. According to the Citizen, the country is expected to receive an FDI of around $7bn from just one company: Ophir Energy and its partners British Gas. Other multinational companies such as Petrobras and Statoil are involved in drilling programmes in 2012.
? Tanzania and Uganda have revealed plans for a US$2.7bn joint venture (JV) to develop a railway line and ports on Lake Victoria. The new 800km railway will link a deep water port at Mwambani Bay in Tanga with Musoma Port at Lake Victoria. In parallel, Tanzania, Rwanda and Burundi are planning to invest US$3.5bn in upgrading an existing rail line in Tanzania between Dar es Salaam and Isaka. Work will also include the construction of a new 1,651km railway from Isaka to Kigali, in Rwanda, and Keza to Gitega and Musongati in Burundi.
? The Tanzania Airports Authority (TAA) has announced that it is to construct a new terminal at Julius Nyerere International Airport in Dar es Salaam, reports airport-technology.com. A feasibility study was undertaken in 2010, and the TAA will now begin a tendering process for the design and construction of the terminal. Eight companies have already expressed an interest and the project will be financed through a Public-Private Partnership (PPP) initiative.
? The Tanzanian Government and Export-Import Bank of China are negotiating the financing of the US$700mn Mnazi Bay gas-for-electricity project in southern Tanzania. The realisation of the Mnazi Bay project is of strategic importance to the country, which is suffering from acute power shortages.
Click for Report details:East Africa Infrastructure Report Q2 2012
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