Indian construction firms making inroads into Africa
Africa’s, and in particular Sub-Saharan Africa’s (SSA), infrastructure deficit is notorious. A host of factors have been held to account for the manner in which SSA’s infrastructure failed to appreciate during the decades of fairly rapid global advance between 1970 and 2000.
For example, where in 1970 Africa had almost three times more electricity-generating capacity per million (mn) people than did South Asia, by 2000 South Asia had almost twice the generating capacity per million people. The infrastructure deficiency is not confined to electricity generation: SSA under-performs in all forms of infrastructure, even compared to other low-income countries
India: Financing flows to Africa elevate in light of broader bilateral ambitions
Unlike China, infrastructure-related investments have played only an auxiliary role in India’s thrust into Africa. Given India’s own infrastructure-deficit, it is no surprise that India’s infrastructure-related firms are underweight in Africa. It is certainly worth stressing that India plans to spend US$1.5 trillion (tr) by 2015 to overhaul its own creaky infrastructure. Nevertheless, clear structural synergies are materialising.
In recent years, Indian financing and technical assistance for African infrastructure has displayed meaningful gains. The World Bank estimates that Indian infrastructure deals in Africa averaged $500 mn per year between 2003 and 2007. The majority of Indian financing for projects in Africa is channelled through the India Exim Bank, which extends lines of credit (LOCs) to African governments or regional institutions, many of which are intended for direct infrastructure projects.
As of 1 September 2010, almost two-thirds of India Exim Bank’s total operative LOCs were in Africa, amounting to a sizeable $2.8 bn. Half of these LOCs to Africa had a direct infrastructure focus. While the majority of the LOCs fall within the $10 mn to $50 mn range, sizeable commitments to countries such as Sudan and the ECOWAS Bank for Investment and Development (EBID) act as an indication of the strategic significance of support for the Indian government, particularly in African countries rich in natural resources.
India’s railway expertise creates an opportunity for African cooperation
In December 2009, during a visit to New Delhi, the World Bank president, Robert Zoellick, announced that his organisation would be looking to partner with Indian Railways in project implementation throughout the developing world, with a focus on Africa. With revenues of almost $20 bn, state-owned Indian Railways has one of the largest and most profitable networks in the world, shuttling upwards of 20 mn passengers per day in India on 18 000 trains, and employing 1.4 mn people. Logistical synergies with low-income African countries are clear, providing Indian Railways with a further comparative advantage.
Currently, the World Bank has committed $2 bn to strengthen India’s domestic rail network, and hopes that such assistance will allow an outward expansion.
Already, Indian Railways has made furtive forays into Africa, having supplied locomotives to Mozambique, Tanzania, Mali and Senegal, and coaches to Angola. It has also rehabilitated sections of railway in Mozambique and Liberia. Two currently operative LOCs ($27.7 mn to Mali and Senegal combined and $10.25 mn to Benin) by the India Exim Bank are for the acquisition of railway coaches and locomotives from India.
Clearly, India Exim Bank is playing a pivotal role in elevating India’s infrastructure offering in Africa. The bank’s physical presence is mapping wider engagements; in September this year the bank opened an East Africa representative office in Addis Ababa, supplementing existing bases in Senegal (Dakar) and South Africa (Durban).
Global-minded private enterprises will surge into Africa
Beyond state-led cooperation, Indian private sector players are increasingly positioning themselves to monopolise on African infrastructure opportunities. Looking ahead, a number of Indian infrastructure-orientated firms, with seemingly ambitious global aspirations, hefty purchasing power and a healthy appetite for acquisitions, will develop deeper ties with Africa. Some of these already operate on the continent and others will follow.
Larsen & Toubro
Larsen & Toubro (L&T) is India’s largest engineering, construction and cement conglomerate. The Engineering Construction & Contracts division of L&T is India’s largest construction organisation, specialising in civil, mechanical, electrical and instrumentation engineering. L&T has expanded its focus to the Middle East, South East Asia, Russia, and Africa.
Tanzania: L&T secured two large World Bank-financed turnkey contracts worth $100 mn. The Songo Songo Gas Development and Power Generation Project involves collecting gas from three offshore and two onshore wells, processing it in the gas plant and piping it 215 km to Dar Es Salaam.
Mozambique: L&T is involved in supplying transmission line towers for the Boane Salamanga Project of Electricidade De Mozambique.
Sudan: L&T is managing the new two-lane 127 km flexible road from Haiya to Atbara.
Mauritius: Several L&T projects are ongoing, including: construction of a turnkey 10.8 mn litre-per-day water treatment plant at Mont Blanc; construction of 70 m-high, 12-storey Cyber Tower, utility buildings and site development works for Business Parks of Mauritius Limited; and the construction of the Swami Vivekananda International Convention Centre.
Kenya: L&T is constructing a pure soda ash plant for Magadi Soda Company Ltd.
South Africa: L&T signed a shareholders’ agreement with South Africa’s Befula Investments to establish a joint venture company in order to collaborate on areas that include turnkey execution of power transmission lines, sub-stations, rural electrifications, power distribution and industrial electrification.
Hindustan Construction Company (HCC) Infrastructure Ltd.
Hindustan Construction Company (HCC) Infrastructure Ltd. is engaged in infrastructure projects that include roads, bridges, ports, airports and power. HCC mainly operates according to public-private partnerships.
Egypt: In June this year, HCC Infrastructure signed a memorandum of understanding (MOU) with Egypt’s Orascom Construction Industries to develop large national highway projects jointly. To begin, the two companies will explore the scope for partnership to create a portfolio of infrastructure assets across different sectors in India. However, given Orascom’s strength in key regional markets in the Middle East and North Africa, the deal also enables HCC to expand into Africa in the future.
Patel Engineering has been contracted for projects funded by governments and institutions such as the World Bank. Projects are concentrated to India. However, Patel Engineering has successfully executed construction projects outside India in the US, Chile, China, Greece and Eritrea.
Eritrea: In 2001, Patel Engineering completed the Toker River Water Supply Project for the government of Eritrea.
Mauritius: In March 2010, the company was awarded the contract to develop an integrated township in Port Louis. Valued at $1 bn the project involves residential and commercial infrastructure.
Punj Lloyd specialises in laying offshore pipelines. In the past 12 months, the company has been awarded the contracts for commercial and residential developments for three townships worth $1.3 bn and the utilities for three townships worth $414 mn. The company has a regional office in Libya, after securing pipeline projects from Sirte Oil Company.
Subhash Projects and Marketing is a leading infrastructure development group with more than three decades of experience in water, power, environment and infrastructure. The group has completed over 400 projects, mostly focused on India. Nevertheless, the company has undertaken a few important water-related projects in Africa – most notably in South Africa, Swaziland and Tanzania.
Robust economic growth in India coupled with supportive fiscal stimulus programmes have ensured against a hard landing. India’s economic growth is expected at 9.6% in 2010. The infrastructure-orientated firms have been particularly fortunate as large shares of fiscal support have involved much-needed infrastructure roll-outs. Given that India intends to roll out $1.5 tr worth of infrastructure-related projects over the next few years, a number of national champions are likely to emerge. Many of the likely candidates have already started to position themselves to benefit.
This article is an edited extract of a Standard Bank research report titled “BRIC and Africa: New partnerships poised to grow Africa’s commercial infrastructure”.