While Africa may be awash with an expanding variety of infrastructure developments, the landscape continues to be dominated by those projects that facilitate the pit to port transportation of natural resources. With commodity prices at historically high levels, the continent is rapidly becoming a hotbed of foreign investment.[hidepost=9][/hidepost]
To talk about some of the challenges and opportunities facing pit to port developments in Africa, I sat down with Jamie Holley, divisional chief executive of the rail division at Grindrod, one of Africa’s leading shipping and freight logistics operations.
Big volumes, big distances
“Infrastructure is probably the biggest problem that African miners and trading houses are facing these days,” Holley noted. “Decades of under-investment have meant that the critical infrastructure needed for the export of bulk commodities has regressed to a point where it requires major refurbishment and large capital investment.”
Making a business case for that investment, however, can often be a significant problem. In many cases, commodity volumes coming out of mines are simply not large enough to warrant a large infrastructure investment. “So then you have to look at what other commodities could flow on that line, but in many countries and regions your options can be limited,” added Holley.
“With lines that often run in excess of 1,000 kilometres (km), it is very difficult to bank large infrastructure projects without the big volumes that come from large-scale mines. In some instances, such as in the Democratic Republic of the Congo (DRC), soft loans from development funding institutions backed by private party operators are what are required to unlock these projects.”
However, Holley notes that the environment in many regions is changing rapidly due to increased mining investment. In response, some mining interests have started to secure long-term concessions for railway lines on their own in order to ensure a consistent route to export markets.
In Sierra Leone, for example, Grindrod has built and delivered 24 locomotives, with a further 10 under construction, to a project that refurbished an existing colonial-era railway line and extended it to connect a new iron ore mine with an existing river port, which also required refurbishment and expansion. Similar – and larger scale – projects are underway across the continent.
Improving connections to drive efficiency
The challenges increase when the mine sits within a land-locked country. “The issue of interchange between countries is a major problem because you need everyone along the line to be coordinated and investing at the same pace and level,” added Holley. “Where investments in infrastructure are made, be it in rail or ports, the ability to operate this infrastructure efficiently is central to a successful project. Issues such as border crossing delays and the reliance on third party operators often represent challenges to efficiency.”
However, Holley believes that these challenges can be overcome. The Maputo Corridor – which connects South Africa’s manufacturing and industrial heartland with the deep water port in Maputo, Mozambique – is one such example. “Partners of in the project looked at the full supply chain and came up with opportunities to improve the operating methodologies. The most important of these was simply improved communication across the full supply chain,” Holley noted.
“As a result, we have been able to more than double the volumes through our bulk terminal in Matola (at the Port of Maputo) without any investment into new infrastructure.”
Getting government onside
According to Holley, one of the most critical requirements of any pit to port project in Africa is government engagement and partnership. “Whether they are directly investing into the project or not, the manner in which a company chooses to involve government is a key determinant of success,” added Holley.
“Infrastructure projects are long-term investments. For a project to be sustainable we believe it is important that private parties work closely with government in building investment master plans and are transparent with government when operating. This removes expectation gaps between the operators of key strategic infrastructure assets and government, and ensures the needs of the country are properly considered.”
Holley also notes that many of Africa’s governments take some time to move projects from announcement through to negotiation and final approval. “The reality, and this is not just an African phenomenon, is that some governments do not have the internal capacity or experience to structure and conclude large deals like these when they are faced with other pressing obligations,” added Holley.
“Development funding institutions such as the World Bank or the Development Bank of South Africa can be of great assistance by providing predevelopment funding to governments to ensure they are properly advised.”
All told, Holley is wholly optimistic about the future for infrastructure development in Africa. “Large foreign investment into new markets, impressive GDP growth and a rising focus on infrastructure has meant that infrastructure investment into the continent has become much more commercially attractive,” noted Holley.
“We see exciting opportunities across Africa for parties that understand the environment and the risks and challenges of operating within that environment. Things are certainly looking up in Africa.”
Klaus Findt is the COO of Global Infrastructure Africa at KPMG