The construction of power utilities will be given the top priority, and the construction of railways and commercial and industrial infrastructure will proceed rapidly. Without power, Africa's industrialization can only be a dream. Power supply is crucial for Africa, and the construction of power utilities will undoubtedly be given the top priority in the continent's infrastructure construction. The development of renewable energy tends to increase. Many African countries have long relied on imported oil for power generation, which not only pollutes the environment but also consumes a lot of precious foreign exchange. In response to the challenge of climate change, African countries encourage the development of renewable energy.
In the past two years, some new changes have taken place in infrastructure construction policies in different African regions. Among them, Eastern Africa witnesses the most policy changes, followed by Central and Southern Africa, and Northern and Western Africa the least.
On the whole, new progress has been made in infrastructure construction policies in Eastern Africa at both regional and national levels. Policies at the regional level focus on the connectivity of cross-border railways and power networks, while those at the national level mostly put railway construction and renewable energy development in the first place.
New progress has also been made in infrastructure construction in Central Africa at both regional and national levels. It decides to implement 22 infrastructure connectivity projects.
Due to the improved integration level in Southern Africa, there are a few new policies at the regional level on transport infrastructure construction. Such policies mainly focus on logistics, dock, road and airport upgrading, bridge and road maintenance, and power and telecommunications infrastructure construction. Policies at the regional level focus on the development of renewable energy, while those at the national level focus on the construction of information and communications technology infrastructure, power station renovation, and power grid expansion. Western Africa mainly focuses on the construction of cross-border power grids and hydropower stations, with few new policies on the construction of transport infrastructure.
Relatively, there is a lack of infrastructure construction policies at the regional level in Northern Africa, but those at the national level appear massively, such as Egypt's new capital planning project and the railway project connecting 6th of October City and the capital Cairo, Algeria's highway and renewable energy projects, and Morocco's high-speed railway and seaport projects.
Based on the latest dynamics in the past two years, Africa's economic and social development and previous policies, relevant analysts indicate the following trends in Africa's infrastructure construction policies:
First, the construction of power utilities will be given the top priority, and the construction of railways and commercial and industrial infrastructure will proceed rapidly. Without power, Africa's industrialization can only be a dream. Power supply is crucial for Africa, and the construction of power utilities will undoubtedly be given the top priority in the continent's infrastructure construction. In terms of transport infrastructure, the railway is more advantageous than other modes in terms of large volume, low price, wide coverage of freight networks and large shipment. It is expected that railway construction will advance rapidly in Africa to expedite industrial, tourism and resource development. However, due to the rapid population growth and industrialization and urbanization, more and more enterprises and the middle class in Africa need suitable places for production, business operation and shopping as well as ports, industrial parks and other supporting facilities. It is expected that investment in commercial and industrial infrastructure will also flourish.
Second, the development of renewable energy increases. Many African countries have long relied on imported oil for power generation, which not only pollutes the environment but also consumes a lot of precious foreign exchange. Besides, due to the fluctuation in international crude oil prices, the economy is vulnerable. In order to meet the challenge of climate change, alleviate energy shortage and facilitate households' access to conventional power grids, African countries encourage the development of renewable energy. For example, Namibia's White Paper on Energy Policy released in September 2015 identifies renewable energy as one of the national energy security and sustainable development goals.
Third, great progress will be made in cross-border and cross-regional infrastructure. In recent years, African countries have gradually enhanced their awareness of integration and their ability to act, and the construction of cross-border and cross-regional infrastructure has increased. For example, the transport corridor that links South Sudan, Ethiopia and Kenya (LAPSSET project), the Northern Corridor Integration Projects that link Rwanda, Uganda and Kenya, the 22 infrastructure connectivity projects of the Central Corridor, the Eastern Africa Power Pool and Central African Power Pool's North-South Power Transmission Corridor are under construction.
Fourth, the privatization of investment, management and operation is accelerating and public-private partnerships are on the rise. Infrastructure construction requires a large amount of capital. To ensure capital supply, balance the infrastructure deficit and increase efficiency, more and more African countries tend to carry out the privatization reform and adopt the public-private partnerships (PPPs). For example, Nigeria sold its power generation and distribution companies in 2013, and announced recently that it would continue to privatize the power sector and maintain the policy stability. In February 2016, Nigeria announced that the railways within its territory would be operated by China Civil Engineering Construction Corporation (CCECC) Nigeria Limited. Morocco said it would launch the first batch of PPP projects in the transport sector.
Fifth, the bidding process is increasingly transparent and requirements on localization and project quality become stricter. As Africa expands infrastructure construction, the bidding process is increasingly transparent. In April 2015, the Kenyan government said that it would launch an e-bidding system, stipulating that all ministries and commissions, government departments and agencies shall conduct bidding projects online through the bidding portal of the integrated financial management information system. South Africa, Botswana and Zambia launched a number of anti-monopoly investigation measures to increase the transparency of the bidding process and reduce under-the-table deals. Meanwhile, requirements on localization are increasingly strict. For example, Namibia amended some of the Tender Board Regulations in 2015, requiring all projects with government public funds to give priority to domestic suppliers and domestic products when bidding.
Sixth, the unstable policies, default of owners and other risks remain significant. Due to the current account deficit and fiscal deficit resulted from the continued decrease in the price of oil and other commodities and massive infrastructure spending since 2014, most African countries are in an economic downturn and on a tight budget, especially oil exporters. The default of owners, unstable policies (e.g. tax increases) and other risks remain significant.
For enterprises, there are several methods to reduce risks. First, enterprises should assess the risks in advance. If a country has serious political corruption, prominent economic structural problems and frequent social conflicts, enterprises should carefully enter the country to avoid rushed projects and reduce human risks.
Second, a safety risk prevention and control team should be set up to keep a close eye on the changes in local laws and policies, make risk plans, promote the construction of industrial chains related to the main business and resolve external constraints.
Third, enterprises should buy overseas investment insurance from China Export & Credit Insurance Corporation. It is currently the most effective way to obtain economic compensation after the risk of political default occurs.
Fourth, enterprises can increase the share of contracts involved in the host country's government or community, local and international enterprises or organizations to form joint ventures for joint investment, thus effectively reducing the risk of government default.
Fifth, the terms of payment and delivery shall be agreed upon with caution. Enterprises shall avoid a rash advance during project implementation and keep the progress of the project in line with the owner's payment to avoid any loss caused by the project payment default.
Sixth, enterprises should implement the localization strategy, protect the environment, actively fulfill the social responsibility and keep in regular touch with the local community and government agencies to avoid misunderstanding and create an atmosphere of mutual benefit.
It is understood that Africa has a huge infrastructure construction market and accounts for more than half of China's newly signed overseas project contracts for many years. At present, Africa has launched a new round of infrastructure construction, bringing new market opportunities to China's international project contracting industry. As a result, more and more Chinese enterprises have entered the African market. It is obvious that to enter the African infrastructure construction market smoothly, Chinese enterprises need to analyze the new trends of Africa's infrastructure construction policies and take corresponding measures.
Source: China-Africa Trade Research Center