AFRICA : The E & C scene – Opportunities and Challenges

ECR

I

2

Agenda

2

Africa

Reborn ?

Drivers of

Africa’s rise

Challenges +

Mitigation

E + C

Opportunities

0 1 0 2 0 3 0 4

3

Africa

Reborn ? 0 1 New office development – Waterfall, Gauteng

4

AFRICA –Continent reborn?

• Sub Saharan African growth to be “robust”

―5.25% (2013 – 2014) - IMF Oct 2012

• Numerous studies and analysis suggests Africa is the

new driver of world economic growth.

• Compared to South East Asia of 1970’s.

• Increasingly viewed as the future bread basket of the

world.

• Massively under developed and un-explored.

5

AFRICA – Continent reborn?

10 yrs.

6

IMF + McKinsey Global Institute

Lions on the move:

6 of the worlds top fastest growing economies

AFRICA – Continent reborn?

Index

100

75

50

25

0

No Data Ibrahim Index of African governance

AFRICA – Continent reborn?

8

Drivers

of

Africa’s rise 0 2

Free-flow interchange for SANRAL – KZN

8

9

Drivers for Africa’s rise:

Expanding discovery of Mineral and Energy Resources

10

• 1.4 billion people by 2025 (1 billion 2009)

• 2.5 billion by 2050

• GDP – US$ 2.6 trillion by 2020 (1.6 trillion 2008)

• Consumer Spend US$ 1.4 trillion by 2020 (860 billion 2008)

• Aspirational growing middle class and individual wealth.

– Expanding retail, leisure, housing, transport demands

• 50% Africans in cities by 2025 (30% 2005)

– Additional 300 million urban dwellers over 15yrs

Source (Lions on the Move – McKinsey)

Drivers for Africa’s rise:

Expanding economically active population

11

11

Sources: IMF, Standard Bank Research

Africa – Robust GDP growth rates %

12

E +C

Opportunities 0 3

Practical skills development

through the group’s academy

AFRICA - E + C Opportunities:

Massive shortage of infrastructure to support the growth

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Mining and Metals

Oil and Gas

Exploitation of Natural Resources

Hotels and tourism

Consumer Products

Construction

Telecommunications

Financial Services

Energy

Transportation

Industrial and Commercial machinery

Infrastructure Development

Electronic and electrical equipment

Automotive

Alternative/ renewable energy

Business Services

E&C Opportunities

AFRICA - E&C opportunities are almost endless

Ernst & Young – Africa Attractiveness Survey 2011

AFRICA - Mineral Resources

• Rich mineral deposits found across the continent and new

resources being unlocked every year.

• Africa lacks transport and power infrastructure to fully exploit

its mineral wealth.

• Resources usually in remote areas.

Preferred methods of development:

– Concessions on deposits

– Private sector capital – often project financed on start-ups

– Infrastructure often a constraint – power, transport

E+C Opportunities

– Significant mining and supporting infrastructure via EPCM

or EPC, some alliancing opportunities.

– Pit to port transport - typically road and rail.

AFRICA - Oil and Gas, coal

• Reserves have doubled in 20 years

• Large new discoveries in Mozambique, Uganda, Kenya and Tanzania

• Gas estimates 100 trillion cubic feet.

• Mozambique to over-take Qatar as primary gas exporter by 2020+

• Continental fuel Storage facilities inadequate to support growth.

Preferred development method

– reserves are concessioned to Oil majors – strong BRICS support

– private sector develops – mostly with government shareholding

E+C Opportunities – East African focus.

– On shore terminals

– Port developments and upgrades.

– Pipelines

– Storage facilities

AFRICA - Power generation and distribution

• Continental shortage of >80,000MW of Power - backbone of all

development

– Coal, increasingly gas and hydro.

– South Africa has a significant nuclear program planned.

– Renewable energy gaining traction in wind, Solar, mini-hydro.

• Slow development progress due to:

– Poor Transmission and Distribution infrastructure

– Fuel supply logistics and storage

– EIA’s and government guarantees

– Poor regional interconnectivity

Preferred development method:

– Traditionally government utilities – regional political and funding

challenges

– Increasingly IPP’s – but structuring can be arduous

E+C Opportunities – Power concessions (IPP)

– EPC contracting

AFRICA – development corridors

• Transport and development corridors

across the continent have been identified:

• Corridors include:

– Road, rail, ports to facilitate resource export.

– Airports require upgrading and new build

• Cross regional projects often run into

political/ aligning issues

Preferred method of development

– Traditionally government or aid funded – often not successfully

– Chinese contractors dominate currently, but…..

– Increasingly the private sector through concessions and tolling

E+C Opportunities

– Massive continental build programme mooted

Transport Corridors…example 1 North – South transport corridor

Transport and development corridors…example 2 Zambian corridor to unlock regional minerals reserves

Transport and development Corridors…example 3 Mozambique – road, rail, power, ports, industrial, tourism

Transport and development Corridors…example 4 Tanzania – gas, minerals, power, agriculture

Transport and development Corridors…example 5 Zimbabwe – a strategic regional infrastructure node for road and

rail transport routes, regional power grid, water, agriculture….

Group Five

busy with

> $200m road

infrastructure

upgrade

Transport and development Corridors…example 6 Malawi – unlocking critical minerals, agriculture trade routes

Africa - Urban Space

• 50% of Africans will live in an urban environment by 2030

• Cities – urbanisation is driving the need for new urban environments:

– Roads

– Malls

– residential areas

– Healthcare

– Education.

• Increasingly see property portfolio investment in Africa – whole new cities planned.

Preferred method of development

– Mostly private sector – real estate, commercial, retail and hotels.

– Some traction on PPP’s for public buildings, healthcare

– Government social housing programmes poorly executed.

E+C Opportunities

• Mostly low margin tender market for E+C companies.

South African infrastructure programme

Presidential Infrastructure Co-Ordinating Committee (PICC)

• PICC – an inter- ministerial infrastructure planning task group

comprising key ministries

– Finance, Treasury

– Public works

– State owned enterprises (Eskom, Transnet, SANRAL, DWAF etc)

– Economic affairs

– Energy

– Mineral resources

• 17 Strategic Infrastructure Projects (SIPS) identified to stimulate

South Africa’s economy through new infrastructure.

– Key focus is Transnet – $35 + billion spend – funding may be an issue.

– Transport corridors including:

» Waterberg & Swaziland coal line

» Durban Port

» Gauteng – Free State – Durban corridor

» Richards Bay and Ngqura

South Africa – 17 Strategic Infrastructure Projects (SIP)

$350 billion over 10 years

XXXX

South Africa – 17 SIPPS

GEOGRAPHIC SIPS

SIP 1 - Unlocking the Northern Mineral Belt – Waterberg

SIP 2 - Durban – Free State – Gauteng –corridor.

SIP 3 - South Eastern Node and corridor development.

SIP 4 - Unlocking the opportunities NW Province.

SIP 5 - Saldhana – Northern Cape development corridor.

ENERGY SIPS

SIP 8 - Green Energy in support of South African economy.

SIP 9 - Electricity generation for socio-economic development.

SIP 10 - Electricity transmission and distribution for all.

.

South Africa – 17 SIPPS (cont.)

SPATIAL SIPS

SIP 6 - Integrated Municipal Infrastructure Project

SIP 7 - Integrated Urban Space and Public Transport Programme.

SIP 11 - Agri –logistics and rural infrastructure

SOCIAL INFRASTRUCTURE SIPS

SIP 12 - Revitalisation of public health and hospitals.

SIP 13 - National School Build Programme

SIP 14 - Higher Education Infrastructure.

KNOWLEDGE SIPS

SIP 16 - SKA – (square kilometre array)

SIP 15 - Expanding access to communication technology.

REGIONAL SIPS

SIP 17 - Regional integration for African cooperation and development.

South Africa - Transnet Capital Expenditure Programme

South Africa –Future power build – 42,500 MW

Challenges

+

Mitigation 0 4

GJ Crookes Hospital – KZN

• Difficulty in accessing financing.

• Adherence to contractual terms and remedies.

• Payment risk and mitigation.

• Poor infrastructure

– High risk to E+C pricing and scheduling

• Inefficient bureaucracy – 53 countries

– Trade licenses

– Company registrations

– Work permits

– Variable application of legislation

– Ports of entry

• The tax regimes – 53 countries

– Increasingly aggressive tax authorities – corrupt tendencies

– High rates of taxation

Africa - E + C challenges:

Problem areas for E+C corporates across Africa

• Workforce issues :

– Safety has to be a key strategy

– Increasing indigenisation requirements – NO to the china model !

– Poor domestic skills – will have to implement site training school

– Language – interpreters, local community liaison

– Cultural norms often over-looked by westerners – disciplined ex-pats

– Dietary needs – multi-cultural workforce – can be a potential risk

– Remote sites with tough conditions – E+C pricing and risk passing

– Safety and security – hot spots require special precautions and cost.

– Health care – Malaria, HIV aids endemic

AFRICA - E + C challenges:

Problem areas for E+C corporates across Africa

• Community action

– “Homage” and community benefits expectations.

– Employment rites – community liaison

– Intimidation of work force, lock down of the site

• Local supply chain

– Generally weak supply chains

– Sub-contractors - competence a risk

• Political risk ranks fairly low down the list.

• Corruption

– Site level intimidation

AFRICA - E + C challenges:

Problem areas for E+C corporates across Africa

• Identify and incentivise your A-team.

• Self contained project solutions – can be expensive, but

mitigate many risks

• Staff Retention Policies – but without driving costs and

expectations.

• Local public relations and SED’s - community

involvement is critical to avoiding disputes.

• Indigenisation of the work force – key to local support.

• Corruption – keep clean......give guidance to employees.

• Clear understanding of tax regimes and allowances prior

to engagement.

AFRICA - E + C mitigants

Some pointers

• Verification of project fundamentals:

• Client profile

• Clients source of funding – security of payment.

• Procurement methods – contract type – BOQ, LSTK, remeasurable

• Clients regulatory approvals obtained

• Upfront risk assessment and mitigation plan.

• Cash positive contract milestones

• Security for payments

• Funding models - government – government to compete with

Chinese.

• Insurance for personnel is key and include risk and extraction

plans

• Political risk insurance – Export Credit Agencies and

Development Finance Institutions involvement critical.

AFRICA - E + C mitigants

Some pointers

• In short…

Emerging Asia and emerging South America had

similar issues ?

Experienced international E+C contractors should

be able to mitigate the risks of delivery in

Africa……….. with the right partners ?

39

Group Five

A diversified construction, infrastructure

concessions and services group

with

A growing international client base engaged in

resources, energy and infrastructure delivery

which

Operates in South Africa, the rest of Africa, the

Middle East and Eastern Europe

40

Group structure that supports the strategy 40

Investments and Concessions

Manufacturing Construction Engineering & Construction

Eric Vemer John Wallace Andrew McJannet Willie Zeelie

Fibre Cement

Building and

Housing Power

Civil Engineering Oil + gas

Steel MEI Projects Nuclear

Infrastructure

Concessions

Property

Developments

Develop Design Supply Build Operate Invest Service

41

Business rationale is to extract value from the full

infrastructure lifecycle

Investments +

Concessions

Engineering +

Construction

Manufacturing

Construction

Develop Invest Design Supply Build Operate Service

Capability to deliver over the whole life cycle

Potential in progress

Group Five – African Experience

Group Five Operations

Morocco

Algeria Egypt Libya

Mauritania Mali

Senegal

Guinea

Sudan Niger Chad

Nigeria

Burkina Faso

B e n i n

Sierra Leone

Guinea Bissau

Cameroon

Ethiopia

Central African Republic

Gabon Democratic Republic of Congo

Kenya

T anzania

Angola Zambia

Zimbabwe

Lesotho

Liberia

Mauritius

Rwanda

Swaziland

Burundi

Equatorial Guinea

Gambia

Comores Mayotte

Djibouti

Active contracts

Dormant

20 Countries

Mining

Power

Oil + Gas

Real estate

Water

Industrial

Transport

Gh

ana South

Sudan

Uganda

• Experienced African contractor – operational in 20 African

countries.

• Best safety record in the industry*.

• Best BBBEE credentials in the industry*

• Broad expertise across key sectors – mining, transport, power,

oil & gas, water, buildings and housing.

• Track record of partnering with EPCM and client for EPC.

• Understands local conditions

• Indigenisation of project teams.

• Strong relationships with funders – able to source financing for

projects.

• Client and solution focused.

• Able to provide a total project solution.

Group Five – an African partner

*Analysis of published information

Heading here: Arial 24

Q & A

Thank you

45

Delivery …

46

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Contact Details

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Guy Mottram

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Email: gmottram@groupfive.co.za

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