Top 5 infrastructure investment opportunities in Africa

By Kurt Davis

The 'Top 5 public private partnership opportunities in Africa' highlighted the best countries for PPPs in Africa. This article examines the best countries for infrastructure investment, if we assume all things to be equal in each country’s PPP system. 

Only one country - Nigeria - makes both top 5 lists, largely because it's government has made great strides in recent years to match its enthusiasm to develop infrastructure with the demand for infrastructure investment in the country. Over time, all political indicators point to a greater PPP environment in the other four countries on this list, and greater growth in PPPs across the continent. Still, in the short term, private investors should not be deterred by the challenges in the PPP markets, as officials in these countries have indicated that they are keen to bolster the PPP market, especially from a legal perspective, and participate with investors.

Angola

More than ten years after a 27-year civil war that left nearly 1.5 million people dead, Angola is taking off like no other country. Situated on the western cost of southern Africa, the country is home to a wealth of natural resources, most notably oil (making Angola the second largest oil producer in sub-Saharan Africa). A boom in real estate construction (including hotels) and financial services unsurprisingly accompanies the oil boom, making Luanda unrecognisable from 10 years ago.

On the surface, it is a perfect turnaround. But, as it goes in any other country, every boom has its challenges. The all-encompassing challenge in Angola’s growth story is infrastructure. New buildings, more people, and a deficit in power sums it up, says a major Lusophone private investor. Hydropower is an obvious solution and the government is making great strides in restoring its capabilities. Still the hydropower facilities and greater distribution systems for power remain a shell of themselves after their decimation in the civil war.

Fundo Soberano de Angola, the US$5-billion sovereign wealth fund for Angola, is targeting infrastructure investments across the country. Yet, despite the government’s pledge to transfer annual surpluses from the oil reserves account (with annual receipts as high as US$3.5-billion), greater investment will be required from foreign investors. The quality of the transport network, including airports and ports, is sub-par to support the country’s growth. Private investors will find an interested government partner and a lucrative return in connecting the resource-rich Democratic Republic of Congo with the Atlantic Ocean and partners in the transport-capable country of Namibia.

Mozambique

As the other big Lusophone country in southern Africa, Mozambique shares a similar story of civil war and decimation. Booming with gas reserves and the accompanying real estate sector, the country is in great need of a transport upgrade. Recent estimates by professional services firm, PwC, values transport projects in the pipeline at US$17-billion, including increased rail links to the ports and expanding port capacities. Yet, by all accounts and estimates, more money will be required to ensure that major ports, including Nacala, Beira and Macuse, reach full potential. Equally, transport networks from those ports to neighboring Zimbabwe, Malawi and Zambia require financing currently not available in the market.

A recent announcement by the Minister of Public Works Cadmiel Muthemba indicates an openness on the government’s side to erect more toll roads. The country currently has only one toll road - the N4 toll road connecting Maputo to South Africa - which is operated by South Africa’s Trans Africa Concessions (TRAC). Private operators see enormous return potential in several routes, including highways between Manica and Tete, between Nampula and the port of Nacala, and between Marracuene and Inhambane.

Speaking at the ‘Africa Rising’ conference back in May, hosted by the International Monetary Fund (IMF) in Mozambique, the Minister of Planning and Development Aiuba Cuereneia stated the country’s notable gains in paved roads and the projects in the pipelines. Equally, during Q&A, he conceded that more financing was required, specifically from foreign investors, to match the plans envisioned by the government.

A power deficit is also quite noticeable in the country. A changing environment for public private partnerships should breathe life into this sector in the near term.

Cote D’Ivoire

Talk of a country booming under the public radar. Cote d’Ivoire has made amazing strides since the assumption of power by President Alassane Ouattara in 2011. The economy expanded 9.8% in 2012 and 8.7%  in 2013, with an estimated 8.0% predicted in 2014, according to the IMF. Yet it remains a fragile state, especially with elections around the corner in 2015.

The country is the largest producer of cocoa as well a global player in the palm oil and cashew nuts markets. Cargill, Cadbury and Hershey’s among many others call the country an agriculture hub - yet the country is nowhere near its potential. Infrastructural upgrades in the transport sector, specifically ports and road infrastructure, will greatly boost the country’s capacity for moving agricultural products and growing its position as a food basket and trading partner to neighboring Sierra Leone, Liberia, and Ghana.

The arrival of energy companies, following the discovery of oil reserves, will help fill government coffers for spending on infrastructure. But the boost in cash, particularly in the short term, is not sufficient to jump the infrastructural hurdle left by years of civil war. The power necessary to buoy the energy, agriculture (including agri-processing) and manufacturing sectors going forward is simply not there, creating big opportunities for investors. But it cannot be ignored that Cote d’Ivoire did not make our list for public partnerships in sub-Saharan Africa, as the government will have to do more to appease investor concerns and mediate risk. More details around regulation should appear after next year’s election.

Nigeria

As mentioned before, Nigeria is the only country to appear on both the top five list for public private partnerships and top five list for greatest infrastructural opportunity. Nigeria has one of the greatest infrastructural needs on the continent, particularly due to its size and population, and its politicians recognize this grave infrastructural challenge, consequently enacting laws to promote public private partnerships across the country.

The estimated cost of infrastructure investment required over next 10 years hovers between $8-billion and $10-billion. The newly-established sovereign wealth fund for the country cannot pay the bill for everything. Thus private investors will have a wealth of opportunities to keep picking from in the near future, especially in Nigeria’s power and accompanying transport sectors. Recent laws and change in government approach has numerous private operators waiting at the gates to make a deal. Some parties do complain that the due diligence process is absurdly arduous but this should gradually change over time.

Ethiopia

Ethiopia has the highest spending on infrastructure as a percentage of GDP in Africa. The government is dedicated to delivering high quality infrastructure to the country as the impetus for investment in the country’s other business sectors, particularly manufacturing/industrial and agriculture. For a country with 90 million people and relatively un-urbanized compared to its peers, improved transport - specifically roads and rails - is critical to moving goods to disperse populations.

The country’s leadership currently envisions an energy surplus following the completion of its latest dam project. But this should not lead investors to think the investment opportunities are limited for the power sector. Power purchased at the borders with Djibouti and Somalia can go north of US$0.75 per kWh depending on the time of the year. Thus, Ethiopia's vast land mass - ripe with energy opportunities from geothermal to gas to wind - offers boundless potential for growth.

Power generation could solely justify Ethiopia’s ranking in the top five. But, it would be a failure to ignore the demand for increased investment in power distribution. Any opening to foreign investment in the telecommunication sector will offer investors access to a country desperate for improved telecom infrastructure. Creative operators are already considering opportunities in water and sewage treatment which will become a graver concern to the country’s population as it approaches and surpasses 100 million persons.

It is not about the potential return with Ethiopia, in the eyes of those investors currently looking at the country, but rather all about timing (as to when a sector is more liberalized or the project gets approved). Whether today or in a year, the country will remain very attractive for infrastructure investment.

This article is re-published with permission from Frontier's content partner, Ventures Africa.

10 best-selling building and construction products in Africa

Africa's booming construction sector is creating new opportunities for distributors and manufacturers to supply products.

By John-Paul Iwuoha

Building and construction activities are often signs of growing economies. Africa is home to six of the world’s fastest growing economies in the world. It also has the world’s fastest growing population which is expected to reach 2.3 billion in less than 40 years. It’s no surprise then that Africa’s richest man, Nigeria’s Aliko Dangote, has made a fortune manufacturing cement - one of the most important and hot-selling building materials in Africa. Entrepreneurs, investors and governments are spending billions of dollars on real estate projects in a bid to satisfy the huge demand for residential and commercial accommodation across Africa.

Factors responsible for the growing demand for building and construction materials across Africa.

• Economic growth
• Fast-growing population
• Rapid urbanisation
• Expanding middle class
   

The top selling building and construction materials and products 

Cement

Cement is one of the most widely used building materials in the modern world and nearly six billion tonnes of this very important commodity is produced every year. It is the main ingredient used in the production of blocks, which are the single-most used items in building and construction work. Cement is combined with aggregates (sand, gravel and stones) to make concrete and used as slurry for filling cracks in all kinds of structures. It is also used for masonry work, plastering and pointing. This versatile capability allows cement to be used in all kinds of structures including buildings, bridges. dams, docks, harbours and roads. Manufacturing cement is capital-intensive and requires huge investment in quarries, labour, plants and equipment. As a result, only national governments and businessmen with deep pockets are able to set up cement manufacturing plants. However, small-scale businesses and entrepreneurs can get involved in the cement business by joining the distribution chain. You could become a major dealer who buys directly from the cement manufacturers or major importers. Or you could start up as a retailer who sells the product directly to home builders and contractors. Depending on the volume of cement you decide to deal in, it’s likely you will need a sizeable store or warehouse to keep your stock. It is important that you know the cement brand(s) that are favoured and preferred by builders in your area.

Wood

Wood is one of the oldest and most commonly used material in building and construction. Despite the growing threat of deforestation, wood has remained in high demand as a building material because of its reasonable cost, availability, attractive appearance and long life (if protected from insects and moisture). Wood used in building and construction work is commonly referred to as timber (or ‘lumber’ in the US and Canada). Timber is sawn into planks or poles and used as supporting materials (beams and pillars), in roof and ceiling construction, door and window frames, and exterior cladding. Timber is also commonly used in flooring, paneling and general finishing. It is most commonly used to form the mould in which liquid concrete is poured, compacted, and allowed to harden. Before wood is used for building and construction work, it has to be felled in the forest, processed and seasoned (the process of removing moisture from wood). It is then sawn into logs and planks and sold on the market. Although Africa has extensive (but fast depleting) forest reserves, the conservation efforts in many countries are forcing builders to look for alternatives to timber. In Kenya for example, innovative entrepreneurs like Lorna Rutto of EcoPost are using waste plastic to produce a strong and durable substitute to timber; and making a lot of money in the process. Entrepreneurs who intend to harvest trees to be used as timber will likely require a permit or license from their government’s forestry department or agency responsible for forest resources. Permits have become necessary to avoid indiscriminate logging that cause damage to the environment. If you intend to buy wood from loggers and process them to timber, it’s likely you will need to invest in machinery and experienced labour who know the techniques of treating, seasoning and curing wood to avoid damage caused by moisture and insects.

Aggregates

Aggregates are raw earth materials which have been used since prehistoric times in building and construction. Aggregates fall into two broad categories - coarse aggregates (such as crushed stones, gravel, pebbles, and granite) and fine aggregates (usually sand and clay). In modern construction work, aggregates are combined with cement to produce concrete and mortar. Using aggregates gives volume, stability, resistance to wear or erosion, and other desired physical properties to all kinds of structures – buildings, bridges, roads etc. As you may have guessed, aggregates are the most mined materials in the world. Operating a mine (or quarry) is very capital-intensive and requires large earth-moving equipment, belt conveyors, and machines specifically designed for crushing and separating various sizes of aggregates.  Entrepreneurs who intend to play in this space could buy aggregates from quarry operators and sell them directly to builders in truck loads or much smaller sizes.

Roofing materials

All buildings (especially houses) usually have a roof over them. Roofing materials form the outermost layer on the roof of a building and provides shelter from the natural elements (wind, sunlight and rain) and insulation against heat and cold. Commercially available roofing materials can range from corrugated iron and aluminum, clay tiles, plastic, fiberglass and concrete. In choosing roofing materials in Africa, builders and home owners usually consider cost, style and quality, suitability of the material to the climate, low maintenance and long life span. Materials like asbestos (which used to be very common) are becoming increasingly undesirable due to its adverse health effects. Entrepreneurs who intend to start a business in roofing materials must constantly look out for changes in taste and trends in the market. New products are constantly being developed to overcome the shortcomings of older roofing materials, meet the demands of modern building techniques, and conform to increasingly stringent building codes. 

Plumbing materials

Plumbing usually refers to the system of pipes, drains, fittings, valves, valve assemblies, and devices installed in a building for the distribution of water for drinking, heating and washing, and the removal of human and domestic waste (sewage). The main categories of plumbing systems include: potable cold and hot tap water supply; drainage venting; septic systems; rainwater, surface, and subsurface water drainage; and fuel gas piping. The common materials used in modern plumbing include copper, brass and plastic. In fact more than 70% of materials used in today’s plumbing are made of PVC or PEX plastic. This is because plastic is very flexible, easy to install, has a low cost, does not rust like most metals and can last for a very long time. A lot of the plumbing materials supplied to local African markets are manufactured locally or imported from overseas. Depending on the taste and requirements of customers, the quality and cost of plumbing materials in the market can vary considerably.

Steel and metal products

Steel and metal products are widely used in building and construction. Steel is commonly used to make reinforced concrete that supports structures in buildings, bridges, dams etc. Steel is made up of iron combined with a small percentage of carbon. High-carbon or ‘hard’ steel is used to make tools with cutting edges. Medium- carbon steel is used for critical structural components of buildings such as I-beams, reinforcing bars and frames. Low- carbon or ‘mild’ steel is used for pipes, nails, screws, door and window hinges, wire, screening, fencing and corrugated roofing sheets. Metals such as aluminum and copper have become popular building materials due to their ability to resist rust and corrosion. Copper is used for electric wires, tubing for water supply and for flashing. Aluminum is most commonly used for roofing sheets, gutters and the accompanying nails. Brass is another corrosion-resistant alloy of copper and zinc used extensively for building hardware. Like cement, running a steel production plant is expensive. The opportunity for entrepreneurs lies in retail and distribution of steel products to home builders and construction contractors.

Electrical materials and accessories

Electrical materials are the parts and elements used in the electrical system of any building and construction project. This includes a huge inventory of materials used to supply electric power or telecommunications to different parts of a building and will typically consist of: electrical conduits and fittings, wires and cables, explosion proof enclosures, meters, circuit breakers, connectors, and electrical products such as wiring devices (switches, plugs) and lighting (bulbs). Solar energy products are becoming a popular way of providing electricity to millions of Africans who are not connected to the grid. Entrepreneurs, like Tanzania's Patrick Ngowi of Helvetic Solar Contractors, are building million dollar fortunes from providing solar electricity to residential homes and government buildings. While some of the electrical materials mentioned above are made locally, a variety of brands are imported from North America, Europe and Asia and may be preferred for their higher quality. Before entering this business, entrepreneurs must ensure that they are well aware of customer preferences in their area.

Glass

Glass is fast becoming one of the most preferred materials of modern building architecture. Clear windows have been used since the invention of glass to cover small openings in buildings and provide us with the ability to both let light into rooms while at the same time keeping undesirable weather outside. Glass controls light, letting in the good rays and keeping out the bad ones; it also saves on energy costs by providing natural day lighting. As a result, more designers are finding that glass fits quite nicely into today’s green building environment. Other qualities that make glass such a hot-selling building material include its roles in heat, sound, fire and solar protection. It also provides an interesting means of design and electromagnetic dampening. Glass sold on the market is of varying types (reinforced, laminated and tempered) for all kinds of uses. Glass has also found popular use as a decorative material in designing building exteriors. Entrepreneurs can source glass from both local and foreign glazers.

Paints

Paints are the colourful substances applied to interior and exterior walls of buildings to make them beautiful, enhance texture and protect from cracks, wear and tear. There are paints of all colours and types in the market which typically include : emulsions (water-based paints), matte finish, gloss, varnish, enamel and lacquers. A growing number of local businesses now manufacture paints to compete with dominant foreign brands. We advise that you understand the tastes and preferences of home builders and construction contractors in your area before you go ahead to invest in stock.

A final note…

The materials and products on this hot-selling list are just a handful of the opportunities that exist in building and construction market. Depending on your location and the preferences of home builders and contractors, the types of materials required may differ considerably. It’s important that you study the existing materials and products in your market before you decide on which ones you will start a business around.

John-Paul Iwuoha is chief editor at www.smallstarter.com

Top 5 real estate opportunities in Africa

Commercial property development in Africa provides the opportunity for good returns.

By Kurt Davis

Of the near 23 million m2 in shopping malls in Africa, 21 million m2 sits in South Africa and 0.5 million m2 is in the rest of sub-Saharan Africa. Similar figures are found in the office space sub-sector – 2 million m2 in sub-Saharan Africa (excluding South Africa) as compared to 4 million m2 in North Africa and 15 million m2 in South Africa. Navigating a blank slate in many instances, real estate investors approach the continent with the mixed ambition of Michelangelo and Donald Trump. Yet, as any veteran real estate investor will characterize the “Africa opportunity”, commercial real estate can surely earn north of 25% per annum returns, but only after navigating unexpected hurdles, including poor urban planning, unfinished neighbouring infrastructure (i.e., unpaved roads), and unreliable local developers. If you can stomach the risk and find the right partners, these five countries offer the greatest opportunity:

Nigeria

On the surface, Nigeria is the real estate investor’s dream canvass. It is Africa’s second largest economy (soon-to-be first by many accounts) with burgeoning middle class. Its 170 million-plus population loves to shop and consume. As companies flood the market, office space is lacking, such that prime office space rents as high as $85 per square meter, according to local renters.

The Ikeja City Mall, a 28,522 square metre mall in Lagos, which was backed by London-based private equity firm Actis in 2011, is unofficially considered the second mall to open in the country. Numerous malls have opened throughout the country since 2011. Even the recent boon in commercial space might not meet Nigeria’s rapidly growing demand.

Still, investors must approach with caution. Corruption and regulatory ordeals come without warning. Joining with a strong local partner is accordingly necessary to avoid the downward spiraling effect of a reactionary approach amongst unexpected obstacles you can assume to come.

Kenya

The growth of Kenya’s middle class and the country’s robust economy bids well for commercial real estate. The country may not see the same growth in malls experienced in South Africa. But the country is starting to hit a similar trajectory as economic growth projects well for the long term and tourism tries to find its footing again after terror threats. Office rents and space have moderated, as reported in local daily, The Star, and will exceed demand by 2016. But, as one local investor characterized it, building malls surpasses office spaces on the investor’s profitability meter based on consumer spending and natural returns per annum that follow from it.

Angola

Often loss in the discussion of burgeoning economies is oil giant Angola. A growing middle (and upper) class in Luanda makes the country an attractive hub for commercial real estate investors. As oil prices stay high, global companies flock to the country to capture a piece of the consumer market. Data on office space remains opaque but local developers estimate that rents for prime office space goes as high $100 per square meter.

The growing pockets (and expanding tastes) of Angolans have sprouted new malls with luxury occupants. The Sky Gallery, scheduled to open in June, will include Prada, Armani, and Gucci brands among many others. Once the mall reaches full occupation, the total cost of the project could exceed US$85-million, according to sources associated with the project. Investors warn, however, that these success stories should not obscure the ‘true’ challenge in Angola of finding a dependable and capable developer who can navigate the country’s ‘unclear’ property laws.

Tanzania

Offshore natural gas and a growing middle class underscores the changing real estate landscape and the country’s global reputation. Yet, as a country on U.S. President’s Barack Obama’s Africa tour, hotel supply barely met demand. The situation will gradually worsen as the gas comes out of the ground.

Prime office space rents as high as US$45 per square meter and new businesses are starting to arrive, so expect the price to increase. Accompanying high class apartments and condominiums for executives operating in these new facilities rent out as high as US$8,000 per month. Rapid urbanization in the financial capital, Dar es Salaam, and improved infrastructure has gradually created fertile ground for commercial property. Still a relatively new concept, local investors predict a rapid boon in a high rise commercial headquarters and multi-story malls in the near term.

Ghana

Prime office space in Ghana may be of interest to real estate investors, as rent go as high as US$50 per square meter. But it is not office space that has real estate investors giddy. One single mall dominates the discussion in Ghana. The Accra Mall, which reportedly attracts nearly 4 million visitors per year, is so busy that locals suggest carpooling to the mall on weekends as parking is limited. The West Hills Mall, which would be completed by the end of the year, should relieve congestion at the Accra Mall. But, if real estate investors are only partly correct in their projections, both malls will be clogged on the weekends and a third mall will ‘supposedly’ be required to ease the congestion.

This article is re-published with permission from Frontier's content partner Ventures Africa

View Frontier's database of business and investment opportunities in property/real estate sectors.

Are you looking to invest in South Africa?

5 specific investment projects in South Africa

1. R100bn aerotropolis project in seeks investor - The aerotropolis node is part of the spatial development framework of Mangaung Municipality in Free State Province.
2. Opportunity to develop mixed-use economic zone - A joint venture partner is required to build a mixed economic zone development project in Gauteng Province. 
3. Seeking investor for water-heating system - The developer of an efficient hot-water-heating system requires between R5-million and R10-million investment to commercialise the product.
4. Investors wanted to manufacture styrene-butadiene rubber latex -The Richards Bay Industrial Development Zone is seeking investors to manufacture Styrene-Butadiene Rubber Latex, a product that is used by tyre makers.

5. Investment needed to expand kitchen furniture business - An established supplier of kitchen units seeks investment of US$900 000 to penetrate the Australian market.

View Frontier's comprehensive database of business opportunities and investment projects in South Africa.