How do East African cities
deliver sustainable
economic development
through infrastructure
delivery?
September 2014
CONTENTS
Section 1:
East Africa country profiles
5
Section 2:
What are the real problems?
23
Section 3:
A model for economic development
30
Section 4:
Our approach to economic development
34
3
FOREWORD
Quite rightly, the talk of an “African economic Renaissance” continues to grow. The reality is that
a wide range of African countries have now experienced consistent and robust growth for over a
decade. In the period since 2002, the size of the overall African economy has more than trebled.
What makes this economic performance all the more remarkable is that half of the decade has been
marked by a deeply troubled global economy. A diverse group of African economies (including
Ethiopia and Tanzania in East Africa)are among the fastest growing in the world, with growth at
7%+ over a sustained period. The signs for Africa and East Africa in particular are good - investor
interest is driven by strong economic growth, rising foreign exchange reserves, quality and cost
competitiveness and encouraging Government policy-making. These strong levels of economic
growth have led to an expansion of industry, commerce and per capita income which in turn has
fuelled demand for infrastructure services including energy, transportation, ICT, water supply,
growing agriculture and urban infrastructure.
Joe Cosma
Advisory Sector Leader
Government & Infrastructure
Tel: +27 (0)11 772 5416
Email: joe.cosma@za.ey.com
East Africa has a history that demonstrates the positive relationship between infrastructure growth
and country buoyancy (measured by GDP). In the period between 1995-2005, improvements
in communication technologies and Power infrastructure boosted growth by approximately one
percentage point per year. Indeed in terms of access to improved sources of water and sanitation
and internet density, it is at least comparable with the subcontinent’s leader, Southern Africa.
However, even with this investment, East Africa’s infrastructure ranks behind that of its neighbours
South and West Africa across a range of other indicators and by contrast, density of fixed-line
telephones, power generation capacity, and access to electricity remain extremely low (though
utility performance is improving through regional power trades). The road network requires
improvement and all forms of surface transport are challenged by border crossings, port delays,
slow travel, limited railways, and trade logistics. Air transport benefits from a strong hub-and-spoke
structure but has made little progress toward a free and competitive market. Of the seven countries
in the region, four are landlocked, two have populations of fewer than 10 million people, and two
have an annual gross domestic product of less than $10 billion. The difficult economic geography of
East Africa makes a regional approach to infrastructure development necessary to achieve further
improvement.
We are delighted that this, our first East Africa economic development specific publication, creates
an opportunity through our current thought leadership and capabilities, to consider both the unique
strengths of each country in the cluster whilst also enabling a genuine discussion on regional
infrastructure development, cognizant of a complex set of problem statements. We hope that
you are as excited as us at the opportunities for sustainable economic development to galvanize
community development and prosperity and set a course for an integrated and connected (East)
Africa!
We look forward to meeting with you and discussing every matter of interest.
Warmest regards,
Celestine Munda
East Region Advisory Leader
Tel: +27 (0)11 772 3315
Email: celestine.munda@ke.ey.com
4
Joe Cosma
East Africa
country profiles
5
South
Sudan
Uganda
Ethiopia
Kenya
Tanzania
Ethiopia
Country overview
Opportunity indicators
Risk indicators
GDP (current)
US$43.13bn
Ease of doing business overall rank out of 184
countries (16th in Africa)
127
Population growth (annual)
2.09%
Transparency International Corruption Perceptions
Index (0=highly corrupt, 100=very clean; ranked 26th
in Africa)
33
Population (m)
88.38
Strength of investor protection index (0 =unfavourable,
10=favourable; ranked 25th in Africa)
4.3
Mobile penetration (% of population with mobile
access)
16.67%
Logistics Performance Index: overall rank out of 155
countries (34th in Africa)
141
Urban population (% of total)
17.02%
Democracy score (0=lowest, 10=highest)
1
Real GDP growth (compound average growth rate):
5-year forecast (2018)
6.38%
Mo Ibrahim Index of African Governance (rank out of
52 countries)
33
Real GDP growth (compound average growth rate):
10-year historical (2003)
9.76%
Perceptions of governance – rule of law: percentile rank
(0=lowest, 100=highest)
29.11
GDP per capita (US$): 5-year forecast (2018)
US$677
Perceptions of governance – regulatory quality:
percentile rank (0=lowest, 100=highest)
18
Country wealth (1=low income, 2=lower middle,
3=upper middle, 4=high income (non-OECD),
5=high income (OECD))
1
Quality of overall infrastructure (1=extremely
underdeveloped, 7=extensive and efficient by
international standards)
3.6
Literacy rate (total population %)
42.7%
Corporate maximum tax rate (%)
30%
Source: The World Bank; OECD National Accounts; United Nations Population Division & World Urbanization Prospects; Oxford Economics; ITU International; Transparency
International; International Bank for Reconstruction and Development; Polity IV Project; Mo Ibrahim Index of African Governance; Worldwide Governance Indicators; WEF Global
Competitiveness Report; Worldwide Corporate Tax Guide
Zemedeneh Negatu
EY Country Leader
Tel: + 251 11 550 4933
Email: zemedeneh.negatu@et.ey.com
6
FDI trends in Ethiopia
Ethiopia’s inflow of investment of FDI since 2003
Ethiopia received 1.6% of Africa’s total FDI for new
projects and 0.8% of capital invested since 2007.
Nearly 43% of capital invested into Ethiopia went
into manufacturing activities. Food and tobacco,
textiles, ICT and automotives are the major sector
beneficiaries of FDI projects.
9671
New projects
5.4%
% CAGR (2007–12)
Capital invested
-28.7%
Jobs created
-32.5%
20
6,656
13
10
10
8
8
2,630
2,390
1,507
2 995
1 200
77
33
2003
3
1,350
1
20
2004
762
321
8
2005
Capital invested FDI (US$m)
2006
2007
1,360
1,310
1,123
2008
630
290
2009
2010
441
2011
2012
New projects FDI
Jobs created by FDI
Ethiopia’s top 5 investors for FDI capital invested since 2007 (total = US$4,833m)
Top sectors
Other investors 13%
Food and tobacco, professional services, textiles
and automotives accounted for 54% of project
activity.
China 8%
UAE 42%
Germany 9%
India 12%
United States 16%
Ethiopia’s investment into top sectors (2007–12)
by most projects
Ethiopia’s top 5 investors for FDI new project since 2007 (total = 69)
(Total = 69)
Other sectors
46%
Other investors 29%
Food and tobacco
18%
India 23%
Germany 6%
Financial
services 13%
United States 19%
UAE 9%
China 14%
Textiles 10%
Metals
6%
Automotive OEM
7%
Ethiopia’s investment into top sectors (2007–12)
by most capital invested
Ethiopia’s top 10 project investors since 2007
Countries are ranked by most new projects (2007–12).
The top investors show a diverse investment focus toward manufacturing-led activity,
while the US’s capital flowed toward resource extraction and the UAE’s toward real estate
construction.
16
(Total = US$4,833m)
5,094
13
4,657
Other sectors
28%
Real estate
30%
10
4,182
3,362
6
4
2,013
3
2
Textiles
8%
Communications
8%
774
609
Food and
tobacco 16%
Coal, oil and
natural gas 12%
117
USA
Capital invested FDI (US$m)
2
2
667
458
368
India
2
1,240
1,165
China
UAE
Germany
Jobs created by FDI
UK
112
Turkey
45
252
Egypt
443
19
182
Kenya
165
Nigeria
New projects FDI
Source: All diagrams on this page have been sourced from fDi Markets and EY analysis.
7
4
4
3,000
Ethiopia’s top investors by their top sector FDI investments since 2007
Investor countries are ranked by most new projects 2007–12.
These top investors contribute to 71% of all project activity and 87% of capital invested into Ethiopia since 2007.
4
1
Capital invested FDI (US$m)
19% projects/16% capital
Jobs created by FDI
1
1
1
UAE
14.5% projects/8% capital
9% projects/42% capital
221
Food and tobacco
228
168
131
1,092
China
112
351
Communications
97
103
Metals
14
37
Ceramics and glass
Textiles
15
67
Non-automotive transport OEM
Automotive OEM
Beverages
67
189
37
169
221
Coal, oil and natural gas
26
Business services
14
30
Software and IT services
United States
23% projects/13% capital
1
404
557
577
15
115
Food and tobacco
Automotive OEM
66
Alternative / renewable energy
72
80
19
Financial services
Food and tobacco
34
317
100
Textiles
India
1
Chemicals
1
Transportation
1
1,470
1
2
1,267
1
2
993
1
2
Real estate
2
1,517
2
2,116
1,989
3
Germany
6% projects/
9.5% capital
New projects FDI
Source: fDi Markets; EY analysis.
Ethiopia’s FDI outlook
FDI outlook
2000
2013
2018
Comments
Gold reserves and the potential for commercial development in natural gas, iron ore and oil
Natural resources
reserves provide growing interest for investors.
Labour
Working population is growing rapidly and cost of labour remains low. Education and
literacy rates are relatively poor but are improving.
Market size
Still a small economy in absolute terms, but sustained and rapid growth, coupled with a
large population, makes this a market with significant potential.
Infrastructure
Infrastructure levels are rapidly improving, with substantial investments being made.
Bureaucracy
Bureaucracy is a challenge to business, although improvements are being made (Ethiopia
ranks in the 3rd quartile in the World Bank's Doing Business Index, ahead of Brazil and
India).
The handover of power following the passing of Meles Zenawi has been smooth, and the
Political environment
political environment remains stable. Ethiopia is a nominal democracy, although power has
generally been concentrated in a dominant ruling party.
Natural resources, a large population and a rapidly growing economy, with particular
emphasis on manufacturing capacity and agribusiness opportunities, will attract increasing
Overall outlook for FDI
levels of FDI.
Very unattractive
Unattractive
Source: Oxford Economics; EY analysis
8
Average
Attractive
Very attractive for FDI
Ethiopia’s infrastructure project breakdown
Ethiopia’s active* infrastructure projects up to July 2013
Ethiopia ranks 15th in Africa by number of projects and 18th by capital allocation.
Infrastructure’s % contribution by number of projects
Logistics sectors 38%
Power generation
and transmission 29%
Infrastructure’s % contribution by capital value
Construction sectors 9%
Logistics sectors 50%
Power generation and
transmission 41%
6
Construction sectors 33%
4800
4,368
5
3,827
3600
4
2400
2
2
1200
2
751
147
Power plants
and transmission
grids
194
133
Commercial
construction
Rail
Capital value (US$m)
Airports
Industrial
construction
Roads and
bridges
Project number
*Active projects are categorized into three phases: 1. Conceptual to feasibility; 2. Financial closure to early implementation; 3. In progress and near completion.
Source: Africa Project Access, Business Monitor International; EY analysis.
Examples of some active infrastructure projects in Ethiopia
Project name
Capacity and time frame
Company involvement
Other details
Gibe III Hydropower Dam
250Kms southwest of Addis
Ababa on the Omo River.
• 1,879 MW – a 243m-high
roller-compacted concrete
dam that, once completed,
will be the largest of its kind
• In progress (greenfield);
currently about threequarters complete.
The dam is owned and operated by the national
utility Ethiopian Electric Power Corporation
(EEPCo), which awarded the main EPC contract
to Salini Costruttori (Italy). 85% of the near
US$500mn cost is covered by a loan from the
Industrial and Commercial Bank of China (ICBC).
China’s Dongfang Electric Corporation (DEC)
is contracted for the hydromechanical and
electromechanical part of the project.
The Gibe III dam is part of the Gibe-Omo Cascade
project, which includes 184 MW Gilgel Gibe I (in
operation), 420 MW Gibe II (in operation), Gibe
III (under construction). At least 50% of power
generated will be utilized domestically, the rest
exported. The 1870 MW of installed power will be
generated through 10 Francis turbines in an open-air
power house and will provide 6500 GWh per year.
Grand Ethiopian Renaissance
Hydropower Dam
40km east of the border with
Sudan on the Blue Nile River.
• 6,000 MW – once
completed, it will be the
largest hydroelectric power
plant in Africa. It is 1,800m
long and170m high, with
an overall volume of 10
million cubic metres
• Expected completion is
2017; reportedly near 20%
complete as of April 2013
Owned and operated by the Ethiopian Electric
Power Corporation (EEPCo). The Salini
Construttori was awarded the main EPC contract
worth US$4.8b. The Metals & Engineering
Corporation (METEC), and Ethiopian company,
is responsible for the electromechanical works of
the hydropower project. Alstom (France) has the
contract to supply the turbines and generators
for phase one. Costs of the turbines and
associated electrical equipment of the project is
reportedly financed by the Chinese banks, with
the remaining funds intended to come from the
Ethiopian Government.
It is expected to consume 10 million metric tons
of concrete, and the Government has pledged to
use only domestically produced concrete. Diversion
of the Blue Nile was completed on 28 May 2013
and marked by a ceremony the same day. Selling
the electricity from the dam would require the
construction of massive transmission lines to major
regional urban centers such as Addis Ababa and
Sudan’s capital Khartoum, both located more than
400km away from the dam.
Mieso to Djibouti Border Railway
Line.
• The entire 656km railway
network from Addis Ababa
to Djibouti will have about
eight main routes that will
connect to more than 49
urban centers by 2015
• In progress (greenfield);
estimated completion by
end-2015
The Ethiopian Railways Corporation (ERC) has
entered into a contract with the China Civil
Engineering Construction Corporation (CCECC)
and the China Railway Engineering Corporation
(CREC) to construct sections of the railway.
Finance is secured from the China Exim Bank
and the Industrial and Commercial Bank of China
(ICBC).
The project is part of Ethiopia's national Growth and
Transformation Plan (GTP). Ethiopia and Djibouti's
economies are reliant on each other, with about 70%
of all trade through Djibouti's port coming from its
land-locked neighbor. Under the five-year GTP, the
Ethiopian Government aims to develop a 2,395kms
railway network nationwide, out of which 1,808kms
is planned to be completed by 2015.
Source: Africa Project Access, Business Monitor International; EY analysis.
9
South
Sudan
Uganda
Ethiopia
Kenya
Tanzania
Kenya
Country overview
Opportunity indicators
Risk indicators
GDP (current)
US$37.34bn
Ease of doing business overall rank out of 184 countries
121
(13th in Africa)
Population growth (annual)
2.72%
Transparency International Corruption Perceptions
Index (0=highly corrupt, 100=very clean; ranked 37th
in Africa)
27
Population (m)
44
Strength of investor protection index (0 =unfavourable,
10=favourable; ranked 19th in Africa)
5
Mobile penetration (% of population with mobile
access)
67.49%
Logistics Performance Index: overall rank out of 155
countries (26th in Africa)
122
Urban population (% of total)
23.98%
Democracy score (0=lowest, 10=highest)
8
Real GDP growth (compound average growth rate):
5-year forecast (2018)
5.72%
Mo Ibrahim Index of African Governance (rank out of
52 countries)
25
Real GDP growth (compound average growth rate):
10-year historical (2003)
4.91%
Perceptions of governance – rule of law: percentile rank
(0=lowest, 100=highest)
16.43
GDP per capita (US$): 5-year forecast (2018)
US$1,209
Perceptions of governance – regulatory quality:
percentile rank (0=lowest, 100=highest)
47
Country wealth (1=low income, 2=lower middle,
3=upper middle, 4=high income (non-OECD),
5=high income (OECD))
1
Quality of overall infrastructure (1=extremely
underdeveloped, 7=extensive and efficient by
international standards)
4
Literacy rate (total population %)
87.4%
Corporate maximum tax rate (%)
30%
Source: The World Bank; OECD National Accounts; United Nations Population Division & World Urbanization Prospects; Oxford Economics; ITU International; Transparency
International; International Bank for Reconstruction and Development; Polity IV Project; Mo Ibrahim Index of African Governance; Worldwide Governance Indicators; WEF Global
Competitiveness Report; Worldwide Corporate Tax Guide
Gitahi Gachahi
EY East Africa Regional Leader
Tel: + 254 20 271 5300
Email: gitahi.gachahi@ke.ey.com
10
FDI trends in Kenya
Kenya’s inflow of investment of FDI since 2003
Kenya received 5% of Africa’s total FDI for new projects and 1.5% of capital invested since 2007.
As the hub of East Africa, Kenya has seen robust investment growth, especially into manufacturing-led and consumer-facing activity.
Kenya also has as one of the fastest growth rates of all investors of outward investments into Africa. Active exploration and successful
finds have seen the resource sector attracting an increasing share of capital; 35% of the total since 2007.
58
54
7,391
% CAGR (2007–12)
New projects
Capital invested
43.1 %
24.3%
Jobs created
26.2%
34
29
23
3,716 3,744
15
13
13
12
3,127
9
2,906
2,855
2,297
1,865
1,761
1,382
929
2003
988
908
579
650
275
2004
2005
Capital invested FDI (US$m)
391
174
2006
549
332
2007
Jobs created by FDI
2008
2009
2010
2011
2012
New project FDI
Kenya’s top 5 investors for FDI capital invested since 2007 (total = US$9,822m)
Top sectors
ICT, professional services, automotives and
transport logistics remain key, attracting a third of
all projects and nearly two-thirds of capital invested.
Other investors 30%
India 38%
UK 7%
Mauritius 6%
Israel 11%
United States 8%
Kenya’s investments into sectors (2007–12) by
most projects
Kenya’s top 5 investors for FDI new projects since 2007 (total = 207)
(Total = 207)
United States 14%
Other sectors
42%
Communications
17%
India 11%
Other investors 52%
UK 11%
South Africa 7%
China 5%
Transportation
5%
Software and
IT services 9%
Financial
services 17%
Business services
10%
Kenya’s top 10 project investors since 2007
Countries are ranked by most new projects (2007–12).
Most of India and the US’s capital is directed toward manufacturing and electricity activity,
while all the top investors have the majority of their project investments focused into
marketing, support, financial and other professional services.
Kenya’s investments into sectors (2007–12) by
most capital invested
29
24
(Total = US$9,822m)
22
Other sectors
25%
Coal, oil and
natural gas
32%
6,617
14
3,702
Transportation
4%
Financial
services 4%
Alternative/
renewable energy
16%
3,497
11
9
2,175
8
7
1,250
762
725
742
106
United States
Communications
19%
India
Capital invested FDI (US$m)
UK
217
167
South Africa
Jobs created by FDI
China
162
Japan
75
135
Togo
447
7
7
346
France
249
266
UAE
576
42
South Korea
New project FDI
Source: All diagrams on this page have been sourced from fDi Markets and EY analysis.
11
Kenya’s top investors by their top sector FDI investments since 2007
Investor countries are ranked by most new projects 2007–12.
These top investors contribute to 47% of all project activity and 56% of capital invested into Kenya since 2007.
7
2,618
5
4
4
5
2,025
5
4
4
3
3
3
3
1,543
3
3
3
1,292
2
2
1
1
United States
14% projects/8% capital
Capital invested FDI (US$m)
1
1
443
India
19 34
UK
12% projects/38% capital
11% projects/7% capital
South Africa
7% projects/1% capital
99
161
8
15
39
Non-automotive transport OEM
15 31
Consumer electronics
18 38
Automotive OEM
38 68
Communications
131
Software and IT services
Health care
68
Business services
139 101
Transportation
25
Business services
23 47
Software and IT services
Chemicals
79
Financial services
272
104
Coal, oil and natural gas
Automotive OEM
2
527
246
24
19
Software and IT services
41
Business services
133
Communications
63
Alternative / renewable energy
150
Financial services
104
Beverages
38
Communications
24 48
279
235
155
Financial services
323
300
Business services
Software and IT services
83
520
461
393
2
1
Metals
2
900
Japan
4% projects/
2% capital
New project FDI
Jobs created by FDI
Source: fDi Markets; EY analysis.
Kenya’s FDI outlook
FDI outlook
2000
2013
2018
Comments
Kenya has historically lacked the natural resources that makes many other African
economies attractive. However, the recent discovery of oil in the northwestern Turkana
Natural resources
region by Tullow may change that.
A rapidly growing working population, a good-quality system of education and a relatively
Labour
efficient labour market makes Kenya attractive from a labour perspective.
The absolute size of the economy is relatively small, but a large population and rising GDP
Market size
per capita levels offer growth potential.
Lack of investment funds has limited spending on infrastructure to date, but investment
levels should rise over the next decade.
Infrastructure
Significant levels still remain, which hinders business. Although Kenya is well positioned
compared with many other African countries, only modest improvements in recent years
Bureaucracy
may be cause for concern.
Progress has been made in embedding democratic institutions and processes. The
Political environment
successful and peaceful presidential election provides cause for optimism.
Kenya is already established as a gateway to the East Africa region, and this status will
be reinforced as the region continues to grow and as levels of infrastructure and the
Overall outlook for FDI
Very unattractive
institutional environment continue to improve. Oil discoveries in Kenya and the region as a
whole will provide an accelerator for growth.
Unattractive
Source: Oxford Economics; EY analysis
12
Average
Attractive
Very attractive for FDI
Kenya’s infrastructure project breakdown
Kenya’s active* infrastructure projects up to July 2013
Kenya ranks 4th in Africa by number of projects and 6th by capital allocation.
Infrastructure’s % contribution by number of projects
Infrastructure’s % contribution by capital value
Construction sectors
6%
Social and welfare 7%
Power generation
and transmission 45%
Logistics sectors 42%
Social and welfare 4%
Construction sectors 4%
Power generation and
transmission 16%
Logistics sectors 76%
17,590
31
12
5,431
4,991
8
6
2,714
4
1,303
3
341
Power
plants and
transmission
grids
Roads and
bridges
Airports
Rail
Water
Capital value (US$m)
Ports
2
440
Commercial
construction
2
745
Industrial
construction
1
100
Health care
Project number
*Active projects are categorized into three phases: 1. Conceptual to feasibility; 2. Financial closure to early implementation; 3. In progress and near completion.
Source: Africa Project Access, Business Monitor International; EY analysis.
Examples of some active infrastructure projects in Kenya
Project name
Capacity and time frame
Company involvement
Other details
Olkaria IV Geothermal Power
Project
120km northwest from Nairobi.
• 280 MW – upon completion,
national geothermal
capacity would have
tripled from the current
150 megawatts to 430
megawatts
• In progress (brownfield);
expected completion by
2014
Owner of the project is the national utility
operator the Kenya Electricity Generating
Company (KenGen), who has raised US$920m
in syndicated loans from: the World Bank,
Germany’s Development Bank (KfW), the
European Investment Bank, the Japan
International Corporation Agency (JICA) and
the French Development Agency (AFD). The
remaining finance comes from the Kenyan
Government. The plant commissioned as a
turnkey from the main EPC consortium of
Toyota Tsusho Corp. (Japan) and Hyundai
Engineering & Construction (Korea).
The existing Olkaria I power station will be extended
by constructing two additional units, which will be
built at Olkaria IV. Kenya is the first African country
to drill geothermal power, tapping vast steam energy
in the country's Great Rift Valley. Four 70 MW
power-generating plants, steam-gathering systems,
substations, transmission lines and other infrastructure
will be installed. Kenya is targeting at least 5,000 MW
(70% of its potential) from geothermal power by 2030.
Heavy Fuel Oil (HFO) Thermal
Power Plant
In the Athi River area of Mavoko
Municipality.
• 80 MW – including a 66kv
interconnector and backup
metering equipment
• In progress (brownfield);
expected completion by
late 2013
Wärtsilä (Finland) was awarded the operation
and maintenance (O&M) contract by leading
local Kenyan energy company Gulf Power Ltd
(GPL) as the holder of the project contract.
The Project will have a 20-year power purchase
agreement (PPA) with the Kenya Power and
Lighting Company (KPLC) – the national
transmission and distribution company.
The plant is developed on a 20-year build-own-operate
(BOO) basis, and will be powered by 10 turbocharged
medium speed diesel (MSD) Wärtsilä engines. When
the plant comes on stream, Wärtsilä's total installed
thermal generating capacity in Kenya would represent
roughly 60% of the country's total thermal capacity.
Garissa Solar Plant
In the northwestern arid city of
Garissa.
• 50 MW – it will produce
about 76,473 MWh
annually
• Still in pre-implementation
phase
Chinese PV manufacturer JinkoSolar Holdings
(NYSE listed) has joined with the China Jiangxi
Corporation for International Economic &
Technical Co, Ltd. (CJIC) as a consortium
holder of the EPC contract to build the solar
power plant.
The project will sit on a 81Ha site, making it one of the
largest grid-connected solar power plants in Africa.
Kenya receives an estimated 4Kwh–6KWh per square
meter per day of solar energy, all year round – an
annual equivalent solar power potential of roughly 70
million tons of oil.
Source: Africa Project Access, Business Monitor International; EY analysis.
13
South
Sudan
Ethiopia
Uganda
Kenya
Tanzania
South Sudan
Country overview
Opportunity indicators
GDP (current)
NOTE
US$13.8bn
Population growth (annual)
4.1%
Population (m)
11
Mobile penetration (% of population with mobile access)
20%
Urban population (% of total)
33.2%
Real GDP growth (compound average growth rate): forecast 5 year (2018)
2.75%
Real GDP growth (compound average growth rate): historical 10 year (2003)
GDP per capita (US$): forecast 5 year (2018)
-11.35%
A, B
US$4,336
Country wealth (1=low income, 2=lower middle, 3=upper middle, 4=high income (non-OECD), 5=high income (OECD))
n/a
Literacy rate (total population %)
27%
NOTE:
A. Independence on 9 July 2011;
B. Gross Domestic Product (GDP) in South Sudan contracted by 55.80% in 2012 from the previous year given an oil transit fee conflict
with Sudan
Key factors
1. South Sudan control 75% of daily oil production (Sudan has been the 3rd largest sub-Saharan Africa oil producer)
2. Until January 2012, oil production accounted for 98 percent of the government’s revenues
3. The U.S. government’s long-standing sanctions against the Sudan were officially removed from applicability to South Sudan in December 2011
4. Strong reserves of copper, gold and tin
5. South Sudan has received more than US$4bn foreign aid since 2005 and Government revenues are remain largely dependent on foreign aid.
Government is burdened with large levels of debt
6. Insecure property rights and weak price signal given markets are not organised
7. Factors inhibiting investment in South Sudan include limited physical infrastructure, a lack of both skilled and unskilled labour (has fewer than 400
kilometers of paved roads, despite the existence of three power plants, none of which are working at full capacity, the country is almost completely
reliant on diesel-run generators for electricity) and Foreign exchange market rules and regulations are highly restrictive
Gitahi Gachahi
EY East Africa Regional Leader
Tel: + 254 20 271 5300
Email: gitahi.gachahi@ke.ey.com
14
South
Sudan
Ethiopia
Uganda
Kenya
Tanzania
Tanzania
Country overview
Opportunity indicators
Risk indicators
GDP (current)
US$28.25bn
Ease of doing business overall rank out of 184 countries
134
(18th in Africa)
Population growth (annual)
3.12%
Transparency International Corruption Perceptions
Index (0=highly corrupt, 100=very clean; ranked 22nd
in Africa)
35
Population (m)
49.3
Strength of investor protection index (0 =unfavourable,
10=favourable; ranked 22nd in Africa)
5
Mobile penetration (% of population with mobile
access)
55.53%
Logistics Performance Index: overall rank out of 155
countries (12th in Africa)
88
Urban population (% of total)
26.74%
Democracy score (0=lowest, 10=highest)
2
Real GDP growth (compound average growth rate):
forecast 5 year (2018)
6.47%
Mo Ibrahim Index of African Governance: (rank out of
52 countries)
10
Real GDP growth (compound average growth rate):
historical 10 year (2003)
6.95%
Perceptions of governance – rule of law: percentile rank
(0=lowest, 100=highest)
48.83
GDP per capita (US$): forecast 5 year (2018)
US$934
Perceptions of governance – regulatory quality: percentile rank (0=lowest, 100=highest)
56
Country wealth (1=low income, 2=lower middle,
3=upper middle, 4=high income (non-OECD),
5=high income (OECD))
1
Quality of overall infrastructure (1=extremely underdeveloped, 7=extensive and efficient by international
standards)
3.1
Literacy rate (total population %)
69.4%
Corporate maximum tax rate (%)
30%
Source: The World Bank; OECD National Accounts; United Nations Population Division & World Urbanization Prospects; Oxford Economics; ITU International; Transparency
International; International Bank for Reconstruction and Development; Polity IV Project; Mo Ibrahim Index of African Governance; Worldwide Governance Indicators; WEF Global
Competitiveness Report; Worldwide Corporate Tax Guide
Joseph Sheffu
Country Leader
Tel: +255 22 2667227
Email: joseph.sheffu@tz.ey.com
15
FDI Trends in Tanzania
Tanzania’s inflow of investment of FDI since 2003
Tanzania received 3% of Africa’s total FDI for new projects and 1.5% of capital invested since 2007.
Heightened confidence in Tanzania’s economy has bolstered investments substantially. Greenfield projects grew more than five-fold since
2007, and at a robust compound growth rate of nearly 39%. Massive new offshore natural gas finds will boost economic performance in
the coming years and afford the potential for the country to become one of the leading gas exporters globally. The resource space currently
attracts nearly 40% of capital investments, and 11% of projects.
35
6,767
New projects
38.9%
% CAGR (2007-12)
Capital Invested
2914%
Jobs Created
18.7%
7,354
31
25
19
2,645
2,492
6
1,983
1,699
294
2004
2005
Capital Invested FDI (US$mn)
1,136
1,077
1,066
841
2003
12
2,045
6
1,602
1275
11
7
7 2,258
3,805
3,716
3,416
623
317
2006
2007
2008
2009
2010
2011
2012
New Project FDI (Rhs)
Jobs Created by FDI
Tanzania’s top 5 investors for FDI capital invested since 2007 (total = US$9,452m)
Top sectors
Half of all projects have a focus on financial
and other professional services, marketing and
support activities. Outside of the resource sectors,
communications infrastructure, transport and
logistics, construction for tourism, and also
manufacturing of consumer goods and materials
are the main investment beneficiaries.
Tanzania’s investment into sectors (2007-12) by
most Projects
UK 46%
Other investors 31%
India 5%
Kenya 7%
South Africa 5%
Australia 6%
Tanzania’s top 5 investors for FDI new projects since 2007 (total = 128)
UK 24%
Other investors 34%
(total = 128)
Other sectors
43%
Financial Services
27%
Kenya 15%
United States 6%
India 11%
South Africa 10%
Communications
10%
Food and
Tobacco 6%
Transportation 7%
Beverages 7%
Tanzania’s investment into sectors (2007-12) by
most Capital Invested
Tanzania’s top 10 project investors since 2007
Countries are ranked by most new projects (2007–12).
Nearly half of the UK’s capital investments and 20% of their project interests goes towards
resources. Manufacturing of beverages and alternative energy too attracts a third of their
project focus. The rest of the interest is similarly diverse as those from Kenya, India and South
Africa’s – with a particular focus on professional services.
31
6,332
(total = US$9,452m)
Coal, Oil and
Natural Gas
25%
Other sectors
25%
4,329
19
14
13
7
1,836
Building and
Construction
Materials 8%
Alternative/
Renewable energy
11%
4
1,613
4
1,786
3
3
3
1,161
688
451
533
697
574
413
382
91
Metals
13%
Communications
18%
UK
Kenya
Capital Invested FDI (US$mn)
India
38
South Africa United States
Jobs Created by FDI
UAE
68
Togo
152
291
Germany
415
Canada
315
Nigeria
New Project FDI (Rhs)
Source: All diagrams on this page have been sourced from fDi Markets and EY analysis.
16
Tanzania’s top investors by their top sector FDI investments since 2007
Investor countries are ranked by most new projects 2007–12.
These top investors contribute to 66% of all project and 64% of capital invested into Tanzania since 2007.
8
1774
7
7
1,498
1,326
5
4
844 3
4
771
1
UK
38
68
Capital Invested FDI (US$mn)
205
146
73
67
Kenya
India
15% Projects / 7% Capital
24% Projects / 46% Capital
1
11% Projects / 5% Capital
1
353
304
207
99
69
200
35
43
South Africa
10% Projects / 5.5% Capital
54
25
Minerals
112
Healthcare
Electronic Components
Food & Tobacco
12
168
70
Building & Construction Materials
81
295
294
2
Transportation
1
273
Financial Services
79
Alternative/Renewable energy
Financial Services
Coal, Oil and Natural Gas
Communications
Beverages
35 90
2
Communications
319
2
Financial Services
440
235
2
Non Automotive Transport OEM
532
Consumer Products
2
Hotels & Tourism
2
565
Financial Services
844
4
Transportation
4
United States
5.5% Projects / 1% Capital
New Project FDI (Rhs)
Jobs Created by FDI
Source: fDi Markets, and EY analysis.
Tanzania FDI outlook
FDI outlook
2000
2013
2018
Some gold reserves and growing levels of optimism about offshore gas fields.
Natural resources
Rapidly growing working population and rising literacy levels remain attractive.
Labour
Among the fastest growing economies in the world with a sizable population, although GDP
per capita levels remain low.
Market size
Lack of investment funds has limited spending on infrastructure to date, but the new IMF–
Infrastructure
backed plan should see improvements over the next five years.
Significant amounts remain, which hinders business.
Bureaucracy
The political situation is relatively stable and corruption is being actively tackled.
Political environment
An increasingly attractive outlook , with rapid growth, attractive natural resource base, and
improving governance.
Overall outlook for FDI
Very unattractive
Comments
Unattractive
Average
Attractive
Very attractive for FDI
Source: Oxford Economics and EY analysis
17
Tanzania’s infrastructure project breakdown
Tanzania’s active* infrastructure projects up to July 2013
Tanzania ranks 8th in Africa by number of projects and 10th by capital allocation.
Infrastructure’s % contribution by Number of Projects
Social and Welfare 3%
Oil and Gas 7%
Construction sectors 7%
Infrastructure’s % contribution by Capital Value
Construction sectors 6%
Logistics sectors 43%
Oil and Gas 7%
Logistics sectors 65%
Power generation and
transmission 22%
Power generation and
transmission 40%
9,200
12
6
3,513
3
3
2
639
1,100
1
138
Power plants
and transmission
grids
Roads &
Bridges
1
1
650
1
1,000
65
Rail
Airports
Oil & Gas
Pipelines
Capital value (US$mn)
Healthcare
Industrial
Construction
Ports
Residential
Construction
Project number
*Active projects are categorized into three phases: 1. Conceptual to feasibility; 2. Financial closure to early implementation; 3. In progress and near completion.
Source: Africa Project Access, Business Monitor International; EY analysis.
Examples of some active infrastructure projects in Tanzania
Project name
Capacity and time frame
Company involvement
Other details
Mnazi Bay (Mtwara) to Dar es
Salaam Natural Gas Pipeline
• 532 km Upon completion,
the pipeline is expected to
handle 210 million cubic
feet of gas per day, double
the current capacity.
• In progress (Greenfield).
Expected completion of
construction by year end
2014.
Agreements signed between the governments
of Tanzania and China for the construction of
this US$1.2 billion project. Undertaken jointly
by state companies China Petroleum and
Technology Development Company (CPTDC) a wholly owned subsidiary of China National
Petroleum Corp. (CNPC) - and Tanzania
Petroleum Development Corporation (TPDC).
Financed by China Exim Bank loan, which
will also finance the construction of two gas
processing plants. The loan will be paid over
two decades, with first payments starting
seven years after the pipeline comes online.
Wentworth Resources (UK) is the Mnazi Bay
concession partner.
The purpose of the pipeline is to transport Mnazi Bay
gas, as well as incremental Songo Songo and Nyuni
area gas, other deep water offshore gas, and future
incremental gas production along the line to population
centres and large-scale industrial users in other parts
of the country. Construction is for a new 24in to
36in pipeline between Mnazi Bay and Somanga, and
expansion of the current pipeline between Somanga
and Dar es Salaam. The natural gas will also be used to
manufacture fertilizers, such as phosphate, ammonia,
urea and potash.
Kinyerezi Gas-Fired Power Plant
- At Kinyerezi in the Temeke
District
• 240 MW - Once operation
the plant is intended
to cover nearly 20% of
domestic demand.
• Greenfield (currently in
early development stages).
Started 2013, expecting to
be commissioned in 2017.
National electricity utility, Tanzania Electric
Supply Company Limited (TANESCO), is
the executing agency and client. The main
engineering-procurement-construction (EPC)
contract has been awarded to Sumitomo
Corporation (Japan), which will also provide
operational maintenance for two years
after completion of the plant. The African
Development Bank and other Development
Finance Institution donors are linked to
financing of the project.
The Kinyerezi power plant will be Tanzania’s first
combined cycle natural gas-fired power plant, and
will feed into the national grid to meet growing power
demands. To transport the electricity generated at the
Kinyerezi plant, the country will have to development
the electricity grid backbone to accommodate new
electricity fed into the grid.
Source: Africa Project Access, Business Monitor International; EY analysis.
18
South
Sudan
Uganda
Ethiopia
Kenya
Tanzania
Uganda
Country overview
Opportunity indicators
Risk indicators
GDP (current)
US$19.88bn
Ease of doing business overall rank out of 184 countries (12th in Africa)
120
Population growth (annual)
3.19 %
Transparency International Corruption Perceptions
Index (0=highly corrupt, 100=very clean; ranked 35th
in Africa)
29
Population (m)
36.84
Strength of investor protection index (0 =unfavourable,
4
10=favourable; ranked 32nd in Africa)
Mobile penetration (% of population with mobile
access)
48.38%
Logistics Performance Index: overall rank out of 155
countries (N/A)
N/A
Urban population (% of total)
15.58%
Democracy score (0=lowest, 10=highest)
1
Real GDP growth (compound average growth rate):
forecast 5 year (2018)
6.38%
Mo Ibrahim Index of African Governance: (rank out of
52 countries)
19
Real GDP growth (compound average growth rate):
historical 10 year (2003)
6.76%
Perceptions of governance – rule of law: percentile rank
(0=lowest, 100=highest)
23
GDP per capita (US$): forecast 5 year (2018)
US$870
Perceptions of governance – regulatory quality: percentile rank (0=lowest, 100=highest)
32
Country wealth (1=low income, 2=lower middle,
3=upper middle, 4=high income (non-OECD),
5=high income (OECD))
1
Quality of overall infrastructure (1=extremely underdeveloped, 7=extensive and efficient by international
standards)
3.4
Literacy rate (total population %)
66.8%
Corporate maximum tax rate (%)
30%
Source: The World Bank; OECD National Accounts; United Nations Population Division & World Urbanization Prospects; Oxford Economics; ITU International; Transparency
International; International Bank for Reconstruction and Development; Polity IV Project; Mo Ibrahim Index of African Governance; Worldwide Governance Indicators; WEF Global
Competitiveness Report; Worldwide Corporate Tax Guide
Muhammed Ssempijja
Country Leader
Tel: +256 414 343 520
Email: muhammed.ssempijja@ug.ey.com
19
FDI Trends in Uganda
Uganda’s inflow of investment of FDI since 2003
Uganda received 2.7% of Africa’s total FDI new projects and 2.7% of capital invested since 2007.
Uganda’s new oil and gas finds has spurred a lot of interests in the resource space, attracting 75% of all capital investments, and 13% of
projects. The consumer-facing and consumer goods sectors, as well as the ICT space and manufacturing activity has underpinned growth
and investment in the non-resource economy.
8,505
42
New projects
19,4%
% CAGR (2007-12)
Capital Invested
14,3%
Jobs Created
31,4%
4,436
22
17
17
3,057
15
15
2,925
2,476
2,147
7
5
1,179
422
36
2003
6
5
189
2004
463
2005
Capital Invested FDI (US$mn)
374
569
518
291
2006
2,030
1,374
1,225
69
2,134
2007
2008
2009
2010
2011
2012
New Project FDI (Rhs)
Jobs Created by FDI
Uganda’s top 5 investors for FDI capital invested since 2007 (total = US$17,046m)
Top sectors
Financial and other professional services, marketing
and support activities account for half of all projects,
while manufacturing and retail activity contributes
to another third of all project investments.
Other investors 13%
France 5%
South Africa 5%
UK 55%
Mauritius 7%
Kenya 15%
Uganda’s investment into top sectors, (2007-12)
by most Projects
Uganda’s top 5 investors for FDI new project since 2007 (total = 120)
(total = 120)
Kenya 28%
Other sectors
30%
Financial
Services 33%
Other investors 33%
UK 15%
Nigeria 7%
India 8%
Transportation
5%
Coal, Oil and
Natural Gas
9%
Communications
13%
Food and Tobacco
10%
Uganda’s investment into top sectors, (2007-12)
by most Capital Invested
South Africa 9%
Uganda’s top 10 project investors since 2007
Countries are ranked by most new projects (2007–12).
Neighbouring Kenya is the main investor to Uganda’s landlocked economy, with just over
half of its project investment directing into financial services, followed by a quarter share of
projects into food manufacturing and retail activity. The UK’s capital is directed into the oil and
gas space, split half between extractive means and processing activity.
34
9,317
(total = US$17,046m)
Food and Tobacco
2%
Other sectors
8%
18
Financial
Services 2%
11
9
3,409
8
7
2,601 2,695
5
4
Transportation 3%
902
782
393
Communications
12%
20
Coal, Oil and
Natural Gas
73%
Kenya
UK
South Africa
Capital Invested FDI (US$mn)
573
128
India
Jobs Created by FDI
271
Nigeria
151
509
778
UAE
704
76
France
3
2
1,073
United States
1,042
28
166
Japan
104
China
New Project FDI (Rhs)
Source: All diagrams on this page have been sourced from fDi Markets and EY analysis.
Uganda’s top investors by their top sector FDI investments since 2007
Investor countries are ranked by most new projects 2007–12.
These top investors contribute to 68% of all project and 85% of capital invested into Uganda since 2007.
18
9,045
9
7
7
6
4
3
3
2,822
1,786
1
2
1
1
1
2
1
1
1
1
1
839
Kenya
UK
28% Projects / 15% Capital
Capital Invested FDI (US$mn)
15% Projects / 55% Capital
60 10
9
26
351
97
799
118
Coal, Oil and Natural Gas
235
Communications
59
Communications
219
Alternative/Renewable Energy
52
Financial Services
300 250
Healthcare
28 51
Communications
207
43
Financial Services
12 103
Consumer Products
Communications
23 27
Financial Services
459
51
Transportation
Beverages
Coal, Oil and Natural Gas
Transportation
28
Financial Services
133 293
168 112
Coal, Oil and Natural Gas
1,819
161
280
Food & Tobacco
Financial Services
169 306
South Africa
India
Nigeria
Mauritius
9% Projects / 5% Capital
7.5% Projects / 2% Capital
7% Projects / 1% Capital
2% Projects / 7% Capital
New Project FDI (Rhs)
Jobs Created by FDI
Source: fDi Markets, and EY analysis.
Uganda FDI outlook
FDI outlook
2000
2013
2018
Comments
There are increasing levels of interest in Uganda’s oil reserves, with production expected to
come online in 2016.
Natural resources
A relatively well-educated population with improving levels of education.
Labour
The economy is currently small, but high growth rates and a relatively large population offer
Market size
much potential and is also acting as a hub for other countries like South Sudan.
Continued improvement over previous decade, with good level of investment, albeit from a
Infrastructure
low base.
Significant improvements have taken place and more is expected for years to come based
Bureaucracy
on focus on liberalization.
Political environment
Elective representation and rule of law is strong although change of top leadership through
the ballot is still a challenge.
Overall outlook for FDI
Natural resources which are a strong pull factor for FDI and good macroeconomic
management are significant benefits.
Very unattractive
Unattractive
Average
Attractive
Very attractive for FDI
21
Uganda’s infrastructure project breakdown
Uganda’s active* infrastructure projects up to July 2013
Uganda ranks 5th in Africa by number of projects and 11th by capital allocation.
Infrastructure’s % contribution by Number of Projects
Oil and Gas pipelines 3%
Social and Welfare 10%
Construction sectors
1%
Power generation and
transmission 42%
Infrastructure’s % contribution by Capital Value
Social and Welfare 3%
Construction sectors 10%
Logistics sectors 44%
Oil and Gas pipelines 1%
Logistics sectors 50%
Power generation and
transmission 36%
7,246
7,116
29
21
2,532
2,000
7
4
618
3
146
Power plants
and transmission
grids
Roads and
Bridges
Water
Rail
Ports
Capital value (US$mn)
2
2
72
0
Airports
Oil and Gas
Pipelines
1
Industrial
Construction
Project number
*Active projects are categorized into three phases: 1. Conceptual to feasibility; 2. Financial closure to early implementation; 3. In progress and near completion.
Source: Africa Project Access, Business Monitor International; EY analysis.
Examples of some active infrastructure projects in Uganda
Project name
Capacity and time frame
Company involvement
Other details
Bujagali Hydropower (PublicPrivate Partnership) Project
- Ugandan shores of the Victoria
Nile (Dumbell Island) near Jinja.
• 250 MW - Full generating
capacity achieved in 2012. It
aims to produce 50% of the
total national electric power
demands.
• Financial close achieved in
late 2007, and commissioned
in 2012.
Bujagali Energy Limited (BEL) is a projectspecific privately owned and managed company,
which consists of the consortium of Sithe Global
Power LLC (US) and Aga Khan for Economic
Development (AKFED). The consortium provided
US$190 million in funding. A syndicated group
of donors provided the balance of US$610
million project finance. The client is the national
electricity utility, the Uganda Electricity
Transmission Company Limited (UETCL). The
main engineering-procurement-construction
(EPC) contract was awarded to Salini Costruttori
(Italy).
Uganda’s Ministry of Energy and Mineral
Development has been nominated for the World
Finance Public Private Partnership Awards 2013
because of work on the Bujagali project, for
excellence and innovation in the pre-delivery phases.
In addition to mobilising private capital, the project
promotes private sector ownership and management
of the power sector. The project was developed as
a turnkey on a build-own-operate-transfer (BOOT)
basis with BEL, which included the construction of
100 km of transmission lines.
Tororo-Pakwach Rail Line
Rehabilitation - Linking eastern
to northern Uganda
• 500 km railway that has
been out of operation for the
last 18 years. Being fixed in
tranches, the first addresses
basic clearing and restoring
the washed out areas due
to flooding, installing new
culverts, and re-railing of
the track. The next tranche
of overhaul work will then
commences, which involves
new rolling stock.
• Reopened in August 2013.
Rift Valley Railway (RVR), the current operators
and concession holder of the Kenyan and
Ugandan rail networks. Kato Contractors, a
Ugandan engineering company is doing the initial
clearing. Overhaul of wagons and locomotives
is being funded by the DFI’s, led by the German
Development Bank (KfW).
Under the recently launched National Transport
Master Plan, the Government is to improve railway
infrastructure with a standard gauge railway
line. The project is crucial in linking trade routes
strategically between Uganda and South Sudan. As
political relations are mended between South Sudan
and Khartoum, this rail route is expected to boost
more trade as far up as Egypt. Upon completion, a
10-wagon train shall operate the route, which should
come as a big boost to farmers, whose produce is
not selling cheap because of middlemen and poor
transport.
Source: Africa Project Access, Business Monitor International; EY analysis.
22
What are the
real problems?
23
Responding to changes in population
demographics and social indicators
Population mobility
Connecting the continent through
infrastructure development and removing
bottlenecks to greater mobility of people,
will allow Africans to work together
towards the common goal of developing
the continent. There is good progress,
Burundi, Kenya, Rwanda, Tanzania, and
Uganda - have made some progress on
integrating regionally in the East African
Community (EAC) since 1999. These
advances are critical, as integration
would transform the five countries into
potentially one coastal, regional economy
and reduce transactional business costs.
Rapid population growth and
demographic changes
The African population has topped the 1bn
mark or approximately 15% of the global
total (this is set to rise to 30% by 2030).
Rapid population growth set against a
current lack of and/or age of infrastructure
further exacerbates the infrastructure
crisis (including spiralling costs of
maintenance through use, etc.).
A lack of infrastructure investment gives
rise to questions of intergenerational
parity, where future generations are
lumbered with the costs arising from
current decision making.
24
The impact of changing population
demographics on the provision of public
services
The potential costs of changing
demographics are generally acknowledged
but often little understood in detail. There
are significant challenges to economies
(and City budgets) that need to support
younger (below the age of 49) population
numbers in terms of employment creation,
housing and other basic services (access
to health, education, etc.). Africa is going
through a process of rapid urbanization.
The large majority of these new
urbanites lives in unplanned, or informal,
settlements. These rapid changes signify
serious challenges for these communities
(individuals) as well as for city
authorities, who are faced with the task of
providing the expanding populations with
adequate infrastructures and services for
water, sanitation and solid waste. Empirical
evidence shows that a failure to respond
to these needs has profound community
impacts (social cohesion, urban poverty,
etc.).
There is currently a pronounced
infrastructure deficit
Inefficient use of existing resources
Low current spending on infrastructure
The experience of other developing
countries shows that capital investment
equivalent to about 25% of GDP is
generally needed for a substantial rise in
per capita income.
It is often the case that the efficiency of
infrastructure programmes can be affected
by overstaffing; high procurement costs
(coupled with the potential of low quality)
and fragmentation over a multitude of
small projects.
Burdensome trade regulations
Inadequate infrastructure frustrates
continental integration ambitions
Increased cost of doing business
Inadequate levels of existing infrastructure
(particularly power and transport)
increase the transaction costs of business
in most African economies. There are no
incentive structures to impact positively
on market prices and therefore consumer
welfare and transactional business costs.
To overcome the challenges of continental
integration more focus should be
given to complimentary cross-border
infrastructure, ‘development corridors’ and
shared regional standards deliver scale and economies of scale – beyond the reach
of individual country ambition.
‘Red tape’ and the costs incurred
through complicated border processes
and bureaucratic bottlenecks, hinder
economic, growth considerably by
reducing access to global markets.
Inadequate infrastructure frustrates
the promotion of inclusive and
sustainable growth
A lack of investment in diversified
economic infrastructure creates
sustainability risks
An over-reliance on a particular
technology (power generation source,
etc.) will make that economy vulnerable
to the provision of those conditions (e.g.
over reliance on Hydro-power makes
that economy vulnerable to hydrological
conditions).
Focussed investment in economic
and social infrastructure has played a
significant and positive role in the growth
performance of fast growing economies
(BRICS). Providing infrastructure for the
economy and communities is one of the
main ways a City will realise inclusive and
jobs-rich growth. Affordable infrastructure
of a high quality raises economic
productivity, permits economic expansion
and allows marginalised households and
communities to take advantage of new
opportunities. It also builds social capital;
and raises living standards, as people have
access to basic services.
25
Defining the role of the Public Sector
Delivering innovative approaches to
sustainable infrastructure development
as well as financing
Providing a suitable enabling framework
Environmental awareness and unique
country-specific considerations to the built
environment are crucial to sustainable
development and strong stakeholder
engagement. Governments must
proactively seek out innovative financing
methods (including the use of efficiency
gains from performance improvement,
development of infrastructure bonds,
combining grant and repayable finance
methods to benefit from both options and
risk diversification, etc.).
Creating adequate maintenance plans
A suitable framework that allows for
easy Private Sector entry and exit, or the
right incentives for operation (sustaining
Private Sector investment requires an
active and well-performing Public Sector).
The Private Sector conditions would
include:
- Attractiveness and ‘bankability’
- Technical feasibility
- Potential economic impact
-
Exemplary governance:
i. Quantifiable financial returns
ii. Strong legal and regulatory
framework
iii. Funding for project preparation
iv. A positive economic impact
v. Strong stakeholder engagement
vi. Political will
26
Maintenance plans are crucial for
sustainable infrastructure, both corrective
and preventative.
A poor business environment
The impact of corruption: (including
perceived)
Corruption has emerged as a top
bottleneck to doing business on the
continent.
1
Inadequate cost recovery
Insufficient competition
Cost recovery provides the financial
foundation for sector development
(do tariffs and actual collections cover
operational and maintenance costs, what
about capital costs for service expansion,
do charges encourage local and foreign
entrants, where are government subsidies
currently and do they need to be
re-directed?
The full benefits of competition are yet to
be realised in most infrastructure sectors.
In addition, there is a lack of stability due
to unpredictable political interference,
and insufficient information about future
planning.
Low credibility of institutions
The low (including perceived) credibility
of regulatory and judicial institutions.
Regulatory credibility is undermined
in some sectors because of conflicts
of interest arising from inadequate
separation between policy, regulatory, and
operational functions. Effective regulatory
decision making can be constrained,
by limited regulatory capacity and
experience.
27
Access to financing and the ability to fund
investment over time
Baseline country and East Africa
spending needs
The continent’s infrastructure spending
needs are enormously significant, recent
studies demonstrate that about 40% of
total spending needs are associated with
power. Using their meager fiscal resources,
African governments simply cannot
keep up with spending requirements. A
baseline study that determines priority
infrastructure needs (responding to
local conditions and potential for wider
integration) associated to market
attractiveness (revenue returning
vs. revenue hungry) and its potential
economic impact (job creation, economic
diversification, regional integration,
enhancing innovation, etc.) is crucial.
?
??
Identify opportunities to finance and
fund the remaining gap and other
infrastructure opportunities
In setting up policies to finance the
remaining infrastructure gap and other
infrastructure opportunities, two areas
need consideration:
• Engage, coordinate and leverage
different sources of financing and
funding - The long-term maturity of
infrastructure projects and their large
scale require different types of financiers,
including Private Sector, bilateral and
multilateral partners. Policymakers
therefore need to engage and coordinate
with many partners. One challenge will
be to find ways to leverage aid flows
so as to attract the private investment
necessary.
Understanding the impact of efficient
use of current infrastructure to reduce
the funding gap
A more efficient use of existing
infrastructure can reduce the overall
funding gap. In order to achieve
this goal, policymakers must focus
on reducing inefficiencies through
measures such as rehabilitating existing
infrastructure, targeting better subsidies
and improving budget execution (and
health) and physical infrastructure
(transportation, power, and information
and communication technologies).
However, given the potential role of
deeper financial markets and more
developed capital markets in helping
find the necessary resources for such
investments, policymakers should also
consider improving the infrastructure of
the financial system, starting with the
payments system.
28
• Financial Innovation - African
policymakers will also need to create
appropriate innovative financing
solutions. So far, Private Sector
investment has focused on areas such
as mobile telephones, power plants and
container terminals. In other areas,
such as power, water and railways, the
Private Sector has preferred the use of
concessions and other types of contracts.
Innovative financing can play a role in
attracting Private Sector funds to these
areas. Financing infrastructure projects
is challenging because of the large size,
long tenures and complexity of projects.
In Africa, local banks, which dominate
the financial sector, are not able to
provide sufficient long-term finance.
Untapped sources of funding are also
relevant. The use of diaspora bonds (like
those issued by Ethiopia) as well as the
placement of infrastructure bonds to the
diaspora (like those in Kenya). In project
finance, solutions to mitigate credit
risk could involve multilateral partners.
It critical to consider investments in
financial infrastructure. Generally,
efforts are dedicated to investments
in social infrastructure (water supply,
sanitation, sewage disposal, education
and health) and physical infrastructure
(transportation, power, and information
and communication technologies).
However, given the potential role of
deeper financial markets and more
developed capital markets in helping
find the necessary resources for such
investments, policymakers should also
consider improving the infrastructure of
the financial system, starting with the
payments system.
The difference between funding and financing of infrastructure
Financing
Financing is selecting the immediate source of cash that will physically
develop the assets, with the repayment of this investment over the life of
the asset. Governments have a wide range of financing solutions, both
public and private, available to develop infrastructure. Private investors
have demonstrated a willingness to participate in a wide range of financing
solutions in respect of government infrastructure including.
Funding is the revenue stream that repays the financing. The funding of
infrastructure can be considered as the allocation of ultimate cash flows
that support the construction and operation of infrastructure.
Funding
Responding to environmental factors
The adverse impacts of climate change
Infrastructure design and development
These changes are a major challenge to
socio-economic development globally.
The African continent, including the East
African region, is particularly vulnerable
to impacts of climate change affecting key
economic drivers such as water resources,
agriculture, energy, transport, health,
forestry, wildlife, land and infrastructure.
The impacts include; water stress and
scarcity, food insecurity, diminished
hydropower generation potential, loss of
biodiversity and ecosystem degradation,
increased incidence of disease burden,
the crumbling of infrastructure, high
costs of disaster management as a result
of increased frequency and intensity of
droughts, floods and landslides.
Governments across Africa must consider
the impact of infrastructure design and
development on:
• The ecology
The environmental impact of service
delivery
The global requirements, driven through
regulation, are becoming more stringent
and costly. These indicators are motivated
and managed through policies and
programmes and should be fundamental
to any, and all, infrastructure footprint
considerations. A change in population
(service users, through urbanisation,
etc.) can create an inadequate provision
of solid and waste water disposal,
increased air pollution, due to transport
volumes and emission from processing
factories, etc.
• The production of increased levels of
greenhouse gases and other emissions
to air
• Water resources and the overall water
environment
• Materials used in the infrastructure build
itself
• Land use (current and future)
29
A model for
economic
development
30
Introducing our model
1
Vision
7
2
What do you want
to achieve?
Environment &
social indicators
Human capital
How do you attract the
right people?
Why do you need
(want)to do it?
3
Economic
development
6
Economic &
spatial indicators
Financial
management
Where do you do it and
what impact will
it have?
Can you afford it?
5
4
The role of the
Public Sector
Assess current
infrastructure
How do you get this
done correctly?
Where are you now?
31
The details
Economic
development
outcomes
46
Governance,
culture & other
organisational
capabilities
43
42
4
Transparent
accountable &
org. alignment
Ambition
vs Reality
44
Organisational
capabilities
Allocation of
resources
Local
vs Africa
integration
Roles &
responsibilities
3
1
Rapid
Urbanisation
Vision
ii
I
2
Organisational
structure
iii
i
31
iv
Public
Envir
So
Indic
Human
Capital
45
i
ii
32
Private
Treasury
management
38
Financing
vs funding
39
Economic
Diversification
40
iii
Focus on
sectors with
higher value
added
Expenditure
management
iv
Financial
Management
Revenue
management
33
Regional
Development
41
35
Balance
sheet
management
Economic
Development
objectives
Investment
attratcion
FM policy
34
A model of
economic
reform
Fiscal
in/dependable
36
Improving
social
conditions
37
Enhancing
innovation
Job
creation
Defining the
Public sector
role
29
Credibility
Creating
effective
maintenance
plans
Innovation
28
26
Community
& stakeholder
engagement
Enabling
frameworks
22
Assess
Current
Infrastructu
Deficit
Corruption
(perceived)
& political
interface
25
Local vs
regional
integration
27
23
24
32
21
20
Key
5
6
mpacts of
climate
changes
7
Appropriate
regulatory
framework
8
ronment
ocial
cators
9
10
Social
cohesion
11
Socio-economic
& spatial
assessment
Economic
& Spatial
Modelling
12
Measuring
the benefits
of public
spending
13
14
Spatial
transportation
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
15
16
17
32.
Need
vs current
practice
33.
ure
Incentive
structures
Existing
barriers
19
18
Population growth
Population mobility
Population demographics
Transport & congestion
Water resources
Energy
Land use
Monitoring & enforcement
Labour force & employment profile
Economic structure & trends
Income distribution
Personal income
GDP
Business output
Wealth
Current spending
Spend efficiency
Cost to business
Burdensome trade regulations
Development corridors and shared standards
Diversified development
Intergovernmental coordination
Incentives for operations
Entry/exit market mechanism
Corrective plans
Preventative plans
Sustainability
Financing & funding solutions
Judicial system
Regulatory systems
Public funds
i. User charges
ii. Current & future (borrowing) tax revenues
iii. Grant & donor funding
iv. Funds available through own means
(financial management)
Private funds
i. Efficiency gains
ii. Infrastructure bonds
iii. Combined modelling
iv. Traditional finance models (PPP, BOOT, etc.)
Effective cost recovery
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
Revenue enhancement initiatives and collections
Asset/liability modelling
Tariff management
Tax base forecasting
Cost control initiatives
Maximise returns from cash holdings
Working Capital management
Government grants vs own means
Current skills audit
Forecast future skills
44.
Mixed economy model and budget management
45.
Organisational design
46.
Change management approaches
33
Our approach
to economic
development
34
Introducing our approach
1
Vision
•
•
•
•
7
Economic impact
Sustainability
Affordability
Deliverability
2
Environment
& social indicators
Human capital
•
•
•
•
•
Organisational structure
Roles and responsibilities
Allocation of resources
Organisational capabilities
Governance, culture, talent,
location, systems and
process alignment to
organisational design
6
3
Economic
development
Financial
management
•
•
•
•
•
•
•
• Baseline current position
• Forecast future demand:
Basic services
• Forecast future need: High
value sectors
• Establish appropriate
regulatory framework
Economic and
spatial planning
Financing
Funding
Revenue management
Expenditure management
Treasury management
Balance sheet management
Fiscal in/dependence
5
4
The role of the
Public Sector
• Revitalise the Public Sector
compact
• Develop enabling frameworks
• Develop innovation
opportunities
• Stakeholder engagement
• Customer and service
delivery
• Socio-economic and
spatial baseline
• Gear appropriate
measurement tools
• Framework of key
performance areas
• Measure the impact of
• Public Sector spending
Assess current
infrastructure
•
•
•
•
Baseline current provision
Determine existing barriers
Consider incentive structures
Assess opportunities of
regional transport corridors
35
The details
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37
How to ensure you get it right
Financial appraisal
• Ability to attract foreign debt and equity funding
(return vs. risk, limits, etc.)
• Assess the capacity of domestic and international
markets to fund
• Financial instruments to attract private sector equity,
debt and participation
• Low risk innovation opportunities and equitable risk
transfer
Economic metrics
• Unlock economic opportunities
• Consider unique city and regional
synergies
• Investor considerations:
• Long term growth in national
productivity
• Inflation rates is short term
interest rates
• Trends in the balance of
payments and international
debt levels
• Trends in domestic budget
balance and level of public debt
• Government spending as a
proportion of GDP
• Actual GDP growth
• Savings rate
38
Spatial planning
• Addresses: Economic prosperity; social
well-being and environmental targets
at the same time and balances their
respective needs
• Needs analysis/assessment:
• Economic impact modelling
• Environmental studies/
expectations
• Social indicators and future
forecasts
• Concentration of ‘use’, co-use synergies
and multiple spatial uses are
promoted
• Critical to harmonise regional
development
•
City management
y
or
lat
Regu
•
•
Fiduciary structures;
Constitutional
arrangements;
Decision making
capabilities
Organisational
improvement tracking
Economic growth &
regeneration
•
•
•
Revenue management
Expenditure management
Balance sheet
management
Proactive treasury
management
Cash reserves
Fiscal in/dependence
Impact of financing
decisions/instruments
•
•
•
•
a
l
ia spo
c
n re
a
n
i
F a nd
r
es
po
ns
•
ut
ns ono
ibi my
lity
Lead
ers
hi
p
•
•
Customers,
Partners &
Resources
Services performed
Needs vs. ambition
Enabling structures &
technologies
lity
•
•
•
•
sibi
•
Clear political mandate
Democratic, accountable
link
Contextual and reality
based direction
Strategic and operational
plans are aligned and
resourced
on
•
•
b
sp
re
am
Func
tio
na
l
n
o
i
t
i
ibili
ty
Environment (local, regional/international):
Environment (local, regional/international):
• Technology constraints or opportunities
• Environmental issues
• Legislative change
•
•
•
Macro-political
Economic landscape
Social indicators
39
The key components of financial management
Inherently, cost containment is a highly
sensitive and difficult topic to drive
internally and communicate externally.
Opportunities for efficiency improvements:
• Simplifying and standardising core
process activity
• Challenging and standardising
management structure/s
• New service delivery platforms
(outsource, shared services, etc.)
• Third party spend optimisation
Expenditure
management
Balance sheet
management
Financial
management
Revenue
management
Treasury
management
Fiscal
in/dependence
Cash
reserves
• The balance sheet offers a snapshot of a
city's health. It tells you how much they
own (its assets), and how much it owes
(its liabilities). The difference between
what it owns and what it owes is its
equity (net assets/liabilities)
• The balance sheet tells investors a lot
about a city’s fundamentals (financial
ratios; cash holdings; financial
performance measures; etc.)
• The management of an organisation’s
financial needs to ensure: that the right
amount of cash resources are available
in the right place, at the right time, in
such a way as to maximise the return
on surplus funds, to minimise the
financing costs of the organisation and
to control the risks, credit, interest rate
and currency exposures to an acceptable
level.
• Management of working capital is critical
to increase available cash flow across
receivables, payables, inventory and
cash/banking management.
• Effectively leveraging operational
processes, human assets and technology
enablers.
40
• Cash reserves are an essential part of
good financial management
• They help cities cope with unpredictable
financial pressures and plan for future
spending commitments
• Cities hold cash reserves to generate
investment income or avoid external
borrowing and hence secure financial
savings.
• Sustainable success depends on
funding and credible income streams
• Impacted by inefficient day-to-day
processes;
• Inadequate technology;
• A lack of data integrity;
• Unreliable and time consuming
manual processes;
• Inconsistent credit control and
debt collection measures;
• A culture of non-payment; and
• A lack of capacity and skills.
• What is the extent of financial
dependence or autonomy?
• What are the risks associated with the
relationships?
• Implications:
• Revenue raising opportunities?
• Pre-implementation - active role in
policy formulation.
• Post-implementation - active
lobbying that is evidence based
(legislation change or additional
funding request, etc.).
• Importance of mature IGR
Vision
2020
a
ng
ldi
i
Bu
Bu
ild
ing
better working
wo
rld
ld
or
w
a better working
Positioning
Quality and values
What is our point of competitive
differentiation?
Running through everything are our shared values,
which inspire our people worldwide and guide them
to do the right thing, and our committment to quality,
which is embedded in who we are and in everything
we do.
The highest perfoming teams, delivering
exceptional client service, worldwide.
Our purpose
Building a better working world
EY is committed to doing its part in building a better working world.
The insights and quality services we deliver help build trust and confidence in the capital markets and in in the
capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our
promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our
people, for our clients and for our communities.
Strategy
Our ambition
How we will get there?
Relentless focus on winning in the
market.
By 2020 we will be a US$50 billion
distinctive professional services
organization.
•
•
•
•
•
• We will have the best brand
• We will be the most favored employer
• We will be #1 or #2 in market share in our chosen
services
• We will have leading growth and competitive
earnings sufficient to attract and retain world-class
talent
• We will have positive and strong relationships with
our stakeholders
Deliver Exceptional Client Service
Maximize opportunities in markets and services
Create the highest performing teams
Attract, develop and inspire the best people
Commit to a culture of world-class teaming
Strengthen global, empower local
• Press our global advantage
• Empower local teams by enabling their success
41
EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction and advisory services. The
insights and quality services we deliver help build trust and confidence in the
capital markets and in economies the world over. We develop outstanding
leaders who team to deliver on our promises to all of our stakeholders. In so
doing, we play a critical role in building a better working world for our people,
for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the
member firms of Ernst & Young Global Limited, each of which is a separate
legal entity. Ernst & Young Global Limited, a UK company limited by
guarantee, does not provide services to clients. For more information about
our organization, please visit ey.com.
© 2014 EYGM Limited.
All Rights Reserved
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This material has been prepared for general informational purposes only and
is not intended to be relied upon as accounting, tax, or other professional
advice. Please refer to your advisors for specific advice.
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