CONFERENCE PROCEEDINGS 1 – 2 SEPTEMBER 2015 · CONFERENCE PROCEEDINGS 1 2 SEPTEMBER 2015 TABLE OF CONTENTS ... The Impact of Transport on the Development of Infrastructure in Africa

CONFERENCE PROCEEDINGS1 – 2 SEPTEMBER 2015

2015

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CONFERENCE PROCEEDINGS . 1 – 2 SEPTEMBER 2015

TABLE OF CONTENTS

Acronyms and Abbreviations used throughout the conference 3

DAY 1: 1ST SEPTEMBER 2015 4

Plenary 1: Member of Executive Council’s Welcoming Address 4

Keynote Address 1: The Impact of Transport on the Development of Infrastructure in Africa 6

Keynote Address 2: How to Bridge Africa’s Infrastructure Gap 7

Keynote Address 3: The Power Africa Initiative’s Contribution to the Continent 8

Plenary Panel 1: Financial Innovation: Infrastructure Development and Financing 9

Breakaway Panel 1: Kenya Country Focus: Infrastructure Project Showcase: LAPSSET

Corridor Development Programme 11

Breakaway Panel 2: Air Transport Projects in Africa Round Table Discussion 13

Breakaway Panel 3: Addressing Africa’s Infrastructure Project Preparation Challenges 15

Breakaway Panel 4: Bridging the Infrastructure Gap – The Physical Connectivity of

Markets Through Roads, Rail and Ports 17

DAY 2: 2nd SEPTEMBER 2015 19

Breakaway Panel 5: Accelerating Region Integration & Access to Markets 19

Breakaway Panel 6: Africa’s Critical Energy Infrastructure: Power, Oil and Gas 22

Breakaway Panel 7: ICT & Telecoms Improving Communication Infrastructure in Africa 24

Breakaway Panel 8: East & Central Africa Transport Corridor 27

Plenary Panel 2: Air Transport Development 29

Plenary Panel 3: Alternative Financing: Pension Fund and Private Equity Funding

Investment into Africa 31

Closing Remarks: Programme Director 33

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ACRONYMS AND ABBREVIATIONS USED THROUGHOUT THE CONFERENCE

ADB African Development Bank

AFCAC African Civil Aviation Commission

AU African Union CCHP Combined cooling, heating, and power generation

COMESA Common Market for Eastern and Southern Africa

DBSA Development Bank of Southern Africa

DFI Development Finance Institution

DRC Democratic Republic of Congo

EAC East African Community

ECIC Export Credit Insurance Corporation of South Africa

EPC Engineering, Procurement and Construction

EU European Union

ESG Environmental, Social and Governance

GDID Gauteng Department of Infrastructure Development

GDP Gross Domestic Product

ICT Information and Communications Technology

IDC Industrial Development Corporation

IMF International Monetary Fund

IRP2015 Integrated Resource Plan for Electricity 2015

LAPSSET Lamu Port Southern Sudan-Ethiopia Transport

MCLI Maputo Corridor Logistics Initiative

MIGA Multilateral Investment Guarantee Agency

MOU Memorandum of Understanding

NAFTA North American Free Trade Agreement

NGO Non-governmental Organisation

NEPAD New Partnership for Africa’s Development

ODA Overseas Development Assistance

PIC Public Investment Corporation

PIDA Programme for Infrastructure Development in Africa

PPP Private Public Partnerships

REIPPP programme Renewable Energy Independent Power Producer procurement programme

RFP Request for Proposals

SA South Africa

SADC Southern African Development Community

SANEA South African National Energy Association

YD Yamoussoukro Decision

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DAY 1: 1ST SEPTEMBER 2015

PLENARY 1: MEMBER OF EXECUTIVE COUNCIL’S WELCOMING ADDRESS

Speaker: HOD Bethuel Netshiswinzhe Gauteng Department of Infrastructure Development

The Gauteng Department of Infrastructure Development (GDID) is a partner to the organisers of the Infrastructure Africa Conference. The World Economic Competitiveness Report 2014 has identified public–private sector collaboration as a driver of sustained economic growth. Public–private sector collaboration relies on a number of factors to be successful: robust leadership, a clear vision and effective ongoing communication to establish trust among partners working towards the common goal of economic development.

It is important to provide a platform in a conference like this, where public and private sector organisations and others can discuss current trends and prevailing challenges in infrastructure development. This event also offers the opportunity to collaborate constructively in matters related to infrastructure development in Africa. In addition, such a platform also provides a learning space from which strategies can be devised that can drive the future growth of energy, transport and ICT (Information and Communications Technology) Infrastructure in Gauteng and Africa at large.

The South African government is seriously engaged in investing in infrastructure development, taking into cognisance the important role that infrastructure plays in the country’s economic growth. It is for the purposes of infrastructure development that both public and private sector actors have been mobilised to deal with the backlogs in infrastructure provision and maintenance. In this respect, several infrastructure projects are already under construction in the country, as shown by public sector contribution to infrastructure development that has risen to 7% of GDP (Gross Domestic Product).

Gauteng Province has put in place a 10 Pillar Programme of radical industrialisation that aims to place Gauteng on the trajectory of a globally competitive city region. Investing in infrastructure is key to strategic development processes that aim at transforming Gauteng as the leading industrial hub in Africa. In this respect, GDID plays a lead role in developing public infrastructure in the province, as well as, being responsible for planning, designing and constructing and managing infrastructure projects in Gauteng.

Currently, GDID is committed to a massive roll out of infrastructure investment programmes in the province, which includes education, social infrastructure, health infrastructure as well as broadening the energy mix. In this regard, the Gauteng Integrated Energy Strategy envisages moving to a low carbon economy that ensures energy efficiency with regard to the deployment of renewable energy, such as solar power and alternative energy options, as well as exploring the supply of natural gas. Gauteng has excellent solar radiation levels that could provide opportunities for the use of rooftop solar PV technology as a renewable energy source in the province.

In addition to moving to the usage of renewable energy in the province, the Gauteng Integrated Energy Strategy has introduced the tri-generation of combined cooling, heating and power generation (CCHP) programme in Gauteng. The tri-generation programme provides power, hot water and cooled water at selected hospitals in Gauteng, such as the Charlotte Maxeke Hospital and others.

African countries are experiencing remarkable economic growth rates. Without the development of first class transport, power and communication infrastructure it will not be possible to sustain these economic growth rates in the long run. In addition, it is equally important to promote partnerships among various sectors in Africa in order to drive sustainable

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economic growth. In this respect, the Gauteng Province encourages public-private partnerships (PPP) with the view that they will help achieve a vision of a prosperous Gauteng.

The Gauteng Department of Infrastructure Development welcomes all delegates to the Infrastructure Africa Conference and invites all attendees to participate constructively in matters related to infrastructure development. It is in working together in such a forum that that the message in this African proverb can be realised: ‘If you want to go fast, go alone; but if you want to go far, travel together.’

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KEYNOTE ADDRESS 1: THE IMPACT OF TRANSPORT ON THE DEVELOPMENT OF INFRASTRUCTURE IN AFRICA REQUIREMENTS FOR AFRICA

Speaker: Kgomotso Modise Deputy Director General, Department of Public Enterprises

Effective transport systems are central to the performance of countries’ economies. Inferior transport systems have negative knock-on effects on the economies of countries. The relationship between effective transport systems and economic development is shown by African economies that exhibit the lowest levels of productivity and are the least competitive in the world.

Poor and substandard transport systems raise the transaction costs of doing business in African countries, which impedes the growth of economic activities. Despite the wealth and abundance of resources with which Africa is endowed, the serious deficits in Africa’s transport infrastructure place enormous strains on domestic economic productivity and limit the development of economic regional integration.

African states with inadequate transport systems suffer the consequences of the high transaction costs of doing business, as well as the huge inefficiencies created by poor transport systems that severely curtail economic development. As a result, intra-Africa trade still remains a challenge on the continent due to sub-standard transport networks. Given that intra-Africa trade is only 12% of all trade on the continent, Africa needs to improve transport infrastructure in order to increase the volume of trade amongst African countries. This in turn will facilitate the growth of key sectors of African economies.

Effective transport systems are key to Africa’s economic integration. By ensuring that transport systems between countries are designed in such a way that production centres are linked with distribution hubs across the continent, greater efficiencies will be created. Such integrated transport networks will allow African countries to compete effectively and, importantly, tap into regional markets.

Productivity, growth and economic competitiveness are higher in countries with effective transport infrastructure services. Effective and efficient transport infrastructure (road, rail, air, etc.) is a pre-requisite for opening up production zones in landlocked countries. Reliable road and rail transport allows companies to import and export goods. This is the case in South Africa where most of the bulk commodities for export are carried by Transnet Freight rail, and 70% of consumer goods going to various destinations are transported by road.

Inadequate infrastructure in sea ports in Africa compromises the competitiveness of market centres given the fact that about 80% of the world’s trade is facilitated by sea ports linked to road and rail infrastructure. Despite the high volumes of goods that require transport, most African countries prioritise road infrastructure investments over rail transport investment due to the enormous capital investment needed for rail infrastructure and rolling stock. As such, the inadequacy of transport systems cuts rural areas and marginalised communities off from market centres and makes it difficult to stimulate economic activities in these areas.

The provision of air transport infrastructure plays a big role in boosting economic development. Air transport plays a significant role in linking countries, cities and towns with respect to transporting goods needed for development. Facilitating the transportation of goods and people by air is instrumental in unlocking economic opportunities in countries. Furthermore, providing air transport in countries stimulates greater infrastructure development, which then promotes economic growth in areas cut off from transport services. Apart from creating employment, air transport impacts positively on developing local economic potential through its unique characteristics, such as speed, reliability and safety.

There is a direct relationship between the maturation of air transport and the development of infrastructure and economic development. Developing efficient air transport infrastructure in Africa is of strategic importance, given the fact that six of the world’s fastest growing economies are located in the continent. African countries present innumerable opportunities for investors intending to develop transport infrastructure networks that can catalyse economic development. Such investment in transport is needed to sustain the impressive economic growth rates exhibited by African countries.

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KEYNOTE ADDRESS 2: HOW TO BRIDGE AFRICA’S INFRASTRUCTURE GAP

Speaker: Moe Shaik Group Executive, Development Bank of Southern Africa (DBSA)

The Overseas Development Assistance (ODA) funding for African infrastructure projects has dropped when compared to increases for funding infrastructure projects from China and private sector entities. African economies are heavily dependent on the export of commodities to the West and China, and decreases in commodity prices as a result of falling demand have significant impacts on African economies. The slowing economic growth of Africa’s trading partners that purchase African commodities hurt African countries.

It is of strategic economic importance for African countries to move away from depending on commodities in order to avoid being affected by declines in commodity prices. When economic growth slows in Europe and China, capital will retreat to safer havens rather than investing in economies weakened by plummeting commodity prices. Moreover, the strengthening dollar puts pressure on commodity based economies in Africa that borrow money in dollars from Western creditor nations to fund infrastructure projects. As such, African countries have to pay more using their local currencies in servicing loans as a direct result of the appreciating dollar.

Infrastructure development loans are given in dollars and currency fluctuations or volatilities have negative consequences on infrastructure budgets. Such volatility results in cost overruns and liquidity problems that affect mega infrastructure projects, especially when African governments cannot service long term infrastructure projects and pay Western creditor nations.

The problem that plagues most infrastructure mega projects is poor planning. Research carried out in 2013 indicates that nine out of every 10 transport projects goes over budget and the projects are never executed on time. It is crucial to get the planning of infrastructure projects right and the planning has got to be meticulous and detailed in order to avoid budgetary cost overruns. In this respect, how can infrastructure projects be planned and financed properly?

The ‘ethos’ of infrastructure development is linked to the risk factors associated in the selection of ‘critical’ projects. It is important to correctly determine both the economic and development rationale behind the construction of infrastructure projects and the changes in project risk profiles during the project’s life cycle. Proper and adequate planning and financing of infrastructure projects involves the targeting and management of risks from both the public and private sectors’ side of project operations.

With regard to the public sector the following needs to be in place: robust infrastructure regulations and binding contracts; the presence of laws and regulatory instruments; reliable and efficient administration; reliable dispute resolution mechanisms, and international commitments. Financiers need to be aware of the risks that develop during the development of infrastructure projects and match the changing risk profile of the project with the financial products used.

The private sector’s role in managing risks involves the following: ensuring the efficient use of financial instruments; ensuring effective interaction with public sector; carrying out consultation with communities, and ensuring responsible business conduct. It is very important to include communities in participation processes that relate to decision-making processes of mega projects before starting them. The e-tolls story is a clear example where the lack of consultation with stakeholders resulted into widespread public opposition.

All of these issues are valuable in the attainment of infrastructure project success and must be dealt with in the processes of planning infrastructure projects in Africa.

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KEYNOTE ADDRESS 3: THE POWER AFRICA INITIATIVE’S CONTRIBUTION TO THE CONTINENT

Speaker: Andrew Herscowitz Coordinator, Power Africa

Power Africa is United State’s President Obama’s initiative that aims at doubling energy access in Africa. The Project started off with a goal of producing 10 000 MW, with 20 million connections in six focus countries. Later, it was decided to triple energy production access to 30 000 MW and 16 million connections throughout sub-Saharan Africa.

Power Africa’s approach to energy access in Africa is premised on three issues; first, power must be generated in sufficient quantities to meet people’s needs; second, power must be accessible in the remotest places that have no energy; and, third, the energy produced must be efficiently managed to ensure optimal use in communities and households.

Investment in infrastructure is a key determinant behind the prosperity of nations. The USA in particular owes its economic power to massive investments in roads, rail and telecommunication networks throughout the US. Every river with hydroelectric power capacity in the US has a dam for power generation. The same case can be said of China’s remarkable economic growth that has been stimulated by massive investments in infrastructure by the Chinese government.

The Power Africa initiative of producing energy access of 30 000 MW and 16 million connections to households in sub-Saharan Africa is supported by over a 100 private sector partners such as the World Bank, Nepad (New Partnership for Africa’s Development), and the African Development Bank (ADB). This initiative is bankrolled with over US$30 billion in funding commitments. Power Africa’s model of operation is based on examining problems that hamper the operations in existing power projects in Africa and finding solutions for them through its partnerships with various private sector organisations. For example, the case of financial challenges, Power Africa can recommend access to financial partners, such as Standard Bank, DBSA, African Development Bank and other organisations.

There are many ideas for renewable energy projects in Africa. Power Africa analyses these ideas and determines those that are financially viable. Power Africa then links these ideas to financing using organisations such as the DBSA, Industrial Development Corporation (IDC), Public Investment Corporation (PIC) and others. The role of Power Africa in this respect is to bridge the gap between the developers and investors. Power Africa also helps to push projects to the bankable stage by assisting in project preparation processes.

Most problems in energy project developments in Africa are chiefly actor-driven, e.g. corruption, lack of technical capacity, incessant red tape and bureaucracy. Institutional governance is a common problem and more often than not hinders the progress of most infrastructure projects. There is a lot of money (e.g. pension funds, sovereign funds, etc.) that is waiting to be invested in African energy projects; however, ‘people problems’ hinder it from being invested in viable energy projects.

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PLENARY PANEL 1: FINANCIAL INNOVATION: INFRASTRUCTURE DEVELOPMENT AND FINANCING

Moderator: Greg Nott, Norton Rose Fulbright

Panel Members: Rajen Pillay CEO, Garuda Finance Ntlai Mosiah, Head, Power and Infrastructure, Standard Bank Charles Kie, Group Executive Corporate and Investment Bank, Ecobank Mohan Vivekanandan, Group Executive: Strategy at DBSA

Key Questions:

• How can African governments increase their capacity to attract and leverage different sources of funding?

• What conditions are needed for attracting long term liquidity for financing infrastructure projects in Africa?

• What new and innovative ways of funding can African governments find and use in infrastructure projects?

• What challenges need to be overcome to ensure sustainable funding for infrastructure projects?

Key Points:

• A strategic mix of traditional and non-traditional funding is necessary to ensure the financial stability of infrastructure projects in Africa.

• Addressing risks properly in infrastructure projects is important for acquiring adequate financing.

• The presence of sufficient capacity and sound governance in public sector institutions is an important pre-requisite in attracting funding for infrastructure projects.

• Sound political, legal and regulatory environments are important for viable private sector investment in infrastructure projects in Africa.

Synopsis:

Every infrastructure project is unique and requires robust preparation for financing. However, most projects in Africa are not well-prepared for Development Finance Institutions (DFIs) to bankroll them. There is a lot of liquidity available for large infrastructure projects; but either project promoters do not know where to go in order to access this funding or the projects are not well prepared. As such these projects often have difficulty in coming to fruition.

The great success of the South Africa’s renewable energy independent power producer procurement (REIPPP) programme is ample proof of excellent project preparation. From the beginning this project was well set up by the South African Department of Energy, with support from entities such as the DBSA and other partners. This renewable energy initiative has brought close to 3 500 MW in power production and has attracted about ZAR193 billion in financing, with 80–90% of the funding received from the private sector banks.

The key success of the REIPPP project preparation can be attributed to the key role that the Department of Energy played in the earliest stages by laying the foundation of this project. It did so by: attracting the private sector investors in the procurement process; the establishment of clear accountability frameworks regarding the role of private sector partners and other project sponsors, as well as the role played by the National Treasury in providing sovereign guarantee around the project offtake. The REIPPP project provides a useful template regarding how infrastructure projects in Africa should be planned and implemented.

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To date, close to US$60 billion has been allocated to infrastructure projects in Africa, which falls short of US$40 billion in additional funding needed for the next 10 years in bridging the infrastructure gap. It is estimated that 50% of the US$60 billion came from China and the rest from DFIs. The key challenge for African countries is finding the extra US$40 billion to bankroll projects. The answer to this challenge is in tapping into available non-traditional sources of funding, such as pension funds and sovereign wealth funds and other sources of long term liquidity.

In this respect, it is important to find the correct ‘financing mix’ in the initial stages of planning projects. This ‘financing mix’ should consist of traditional and non-traditional funding, such as sovereign wealth funds, DFIs, capital markets and investment banks. In this respect, how well the project is structured in terms of finding the ideal ‘financing mix’ of diverse funding, as well as the completion of project preparation processes will determine the success of projects. There are other non-traditional sources of financing projects that African governments can consider, such as raising money from capital markets; remittance backed facilities (diaspora bonds) and Islamic Sukuk Bonds.

Recently Ethiopia raised Diaspora Bonds for financing its infrastructure projects and in 2015 Eskom managed to raise over a US$1 billion from international capital markets without a government guarantee. Where the financing mix is not feasible, Engineering, Procurement and Construction (EPC) contracts are a viable alternative.

Provision of finance to infrastructure projects is heavily dependent on how well project risks are addressed. In this case the Export Credit Insurance Corporation of South Africa (ECIC) specialises in addressing risks inherent in big infrastructure projects. The ECIC of South Africa covers about 0.5% of medium- to long-term transactions and has supported projects in Nigeria and the DRC (Democratic Republic of Congo) in the coverage of risks. The ECIC works with financial institutions, such as the DBSA (Development Bank of Southern Africa) and others, in providing insurance and co-insurance to infrastructure projects funded by financial institutions. In 2014, the ECIC provided 100% of political risk insurance and 85% commercial risk insurance to a consortium of South African banks that funded a power project in Ghana.

Given the challenges of mega infrastructure projects, how can governments in Africa best increase their capacity to deliver upon big infrastructure projects both presently and in the future?

There is the need for excellent institutional capacity and supportive legal and regulatory frameworks in government sectors to support procurement processes as the availability of funding for project planning preparation processes is scarce. Allied to this is the need for the capacity to execute the projects themselves, which requires: the right contractors; the track record and experience in rolling out projects, and being able to deliver on contracts and agreements. It is also important for governments to determine the risks involved in projects in the early stages. This can go a long way in securing financing from DFIs and other funding sources.

It is important for governments to create conditions for project viability, by ensuring that the correct legal, regulatory, and policy frameworks are in place to support project delivery. Moreover, it is imperative for countries to be investor friendly, in terms of issues such as the taxation climate; the repatriation of profits, and ease of doing business. Political stability is also important for project sustainability.

Equally, it is important for African projects to have a political champion and a group of local equity partners that give the project a sense of sustainability that can attract financing. In this respect, having a promoter with well-known credentials that can lead a project has a positive influence in raising funds from international capital markets. It is also important to have an efficient project management team that capital markets and investors do appreciate. In short, everything markets and investors need must be in place for projects to secure sufficient funding.

Infrastructure project size and tenure present significant funding problems. Typically most infrastructure mega projects require more than one funder, which necessitates syndicated financing where several banks come together to raise capital for projects. To supplement syndicated bank funding, Treasury Guarantees and Sovereign Guarantees from national treasuries should be offered to cover the cost risks of infrastructure projects.

Another source of infrastructure funding that is increasing in Africa is private equity funds that usually focus on sectors in infrastructure with the best returns such as power, oil and gas and pipelines. These normally have an EPC contractor that can get the project preparation work paid for by local banks if the local entities that they are working with lack the requisite expertise needed. It is important to bring equity funds and other key funders on board a project at the onset rather than looking at them as back up partners when the project has already started.

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BREAKAWAY PANEL 1: KENYA COUNTRY FOCUS: INFRASTRUCTURE PROJECT SHOWCASE: LAPSSET CORRIDOR DEVELOPMENT PROGRAMME

Moderator: Catherine Grant Makokera, Senior Associate, TUTWA Consulting

Panel Members: Silvester Kasuku, CEO, LAPSSET Development Corridor Daniel Osiemo, Programme Director, NEPAD Secretariat, Kenya James M Hughes, Country Manager, Fluor Mozambique Jean N Kamau, High Commissioner, High Commission of Kenya

Key questions:

• What is the overall national and regional strategic importance of the LAPSSET (Lamu Port Southern Sudan-Ethiopia Transport) Corridor Development Programme?

• What is the current status of the LAPSSET Corridor Development Programme?

• What role will the LAPSSET Corridor Programme and its components play in stimulating economic growth in Northern Kenya?

• How important has been the role of the private sector in the LAPSSET Corridor Development Programme from the beginning to where it presently is?

Key Points:

• The LAPSETT Corridor programme is an important infrastructure project for the East and Central Africa region.

• Public–Private Partnerships (PPPs) have been instrumental in driving the LAPSSET Corridor Project forward.

• The LAPSSET Corridor Development Programme and its components are expected to trigger massive socio-economic developments in the Northern parts of Kenya and areas around the Kenyan coastline.

Synopsis:

The new democratic dispensation in Kenya has produced an enabling climate for infrastructure development. The first economic development policy that came out of the National Rainbow Coalition Government in 2002 had a strong focus on infrastructure development, driven by political promises with emphasis on road development, developing ports and all channels of communication and transport. This policy was followed by Vision 2030, a long range development plan that emphasised infrastructure development.

The new 2010 Kenyan Constitution reflected aspects of infrastructure development. By introducing a devolved system of government characterised by decentralised budgeting and planning, communities were given control over local planning priorities that included infrastructure planning. The Constitution also provided for an Equalisation Fund that provided infrastructure funding for areas in Kenya that were marginalised by previous governments or regimes.

With devolution of planning to the local levels, the National Government can focus on large mega projects such as the Lamu Port Southern Sudan–Ethiopia Transport (LAPSSET) Corridor project. From the outset of the LAPSSET project, leadership of Kenya, Uganda, South Sudan and Ethiopia were involved owing to the regional importance of this project. The LAPSSET project was approved as an important continental infrastructure project under the Nepad Programme for Infrastructure Development in Africa (PIDA) in June 2015. NEPAD considers the LAPSETT project and its key components as the key infrastructure for the East and Central Africa region.

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The LAPSSET Project involves seven infrastructure components. From the start the project involved the strong participation of the private sector investment partners chiefly because national government could not fund this project alone. One of the key components of the LAPSSET Corridor project is the development of the Lamu Port, with the aim of developing 32 deep sea berths off the East African coast by 2018. The intention is that these berths will create a new niche of port services along the East African coast. These berths will be designed by the China Communications Construction Company that won the construction tender.

Private sector participation has been important in driving the LAPSSET Corridor forward and plans are already underway with developing six to nine berths in Lamu with private sector funding assistance and collaboration from development partners such as Development Bank of South Africa. Along with the development of Lamu Port is the planned construction of a 1 000MW coal power plant in Lamu that will facilitate the development of a coal handling facility at the port.

The road to the Port of Lamu, financed by the World Bank to the tune of US$ 500 million, is another component of the LAPSSET project. The road, which is 508 kms long, is being constructed on the Kenyan side of the corridor project from Isiolo to the border with Ethiopia., At the same time, Ethiopia is building a 498 km road on its side that will open road access to Addis Ababa from Lamu. In addition, an immediate road connection is already being built between Lamu and the existing B9 road to service the port from the land side.

The construction of an oil pipeline in Lamu is meant to facilitate the flow of oil from South Sudan and Uganda to be exported through the port. It is expected that the pipeline will be completed in under five years’ time. The construction of the oil refinery at Lamu will facilitate the processing of crude oil from South Sudan and Uganda.

The LAPSSET project is a catalytic project that will open up several economic opportunities in the Northern part of Kenya. In addition, the Kenyan government plans to build nine additional cities in addition to the resort cities present in the Northern part of Kenya, as well as three international airports (Turkana, Isiolo and Lamu) for this region. All of these investments will open up the hinterland for massive economic development opportunities, in the medium to long term.

The current progress and success of the LAPSSET programme is built on the back of both the private and public sectors. In managing projects like LAPSSETT it is important to have a large degree of predictability and flexibility as the project develops. Currency exchange rates can fluctuate due to changes in the capital markets cause by volatility in global markets. In this case, it is important for projects like the long term LAPSETT corridor project to acquire a strategic ‘financing mix’ of traditional and non-traditional funding sources in order to be financially viable and stable.

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BREAKAWAY PANEL 2: AIR TRANSPORT PROJECTS IN AFRICA ROUND TABLE DISCUSSION

Moderator: Paul Runge, Managing Director, Africa Project Access

Key questions:

• What examples exist of recent specific project developments relating to airports and air transport in sub-Saharan Africa?

• What commercial prospects do airports and air transport offer to the economies of sub-Saharan African countries?

• What challenges are facing the growth of air transport and related fields in sub-Saharan Africa?

Key points:

• Airports are being converted into commercial hubs, including retail outlets and hotels.

• The success of these developments depends on the amount of traffic passing through these areas.

• Local conditions such as lack of regulation and local currency are key obstacles in the development of air transport options.

Synopsis:

Airports are commercial hubs and can be very successful because of the number of people moving through these areas. Good examples of commercial hubs in Africa can be found at OR Tambo International Airport as well as Idwala. In order to get more people moving through the Kilimanjaro Airport in Tanzania, improvements to this facility were scheduled to be made in June 2015.

In the past, national airlines have been huge failures owing to, for example, to the high price of jet fuel. However, it seems that efforts to shift this legacy are underway. For example, in early 2015, a memorandum of understanding (MOU) was signed between UK-based Cardiff Aviation and the non-operational Air Djibouti for the re-establishment of a Djibouti national airline.

Some of the sector players maintain a database of road and power utilities, since it is often for these utilities issue tenders, rather than the ministries. However, not all utilities are the same: from experience it is very easy to do business in Namibia because the utilities are competent. One such example is a project, in the pre-implementation phases at Ondangwa Airport in Northern Namibia, to rehabilitate the runways to take Embraer 135 aircraft.

There is a huge need to develop certain airports in Africa. For example, in 2013 Nurizon Consulting was appointed by Equator Investments to undertake a study for the upgrade of the Sao Tome International Airport. The objective of the project is to develop the airport as a regional hub in the Gulf of Guinea.

The need to upgrade airports is strongly linked to tourism. Currently, US$ 150 million is being spent on upgrading the Victoria Falls Airport. Other projects taking place in Zambia include the development of Kalumbila Town, which is in the early implementation stages. It is suggested that when considering doing business in Zambia, it is advisable to make contact with the local chamber of commerce, which is very powerful in that area. This body will be invaluable in assisting with new business ventures..

Many African airports are being built with operator financing, for example, mines are building airports for their own needs. However, before undertaking any sort of project of the magnitude of an airport it is necessary to first establish a relationship with the local authorities and to work closely with these individuals as they will facilitate one’s business processes. As an

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example, the Nacala Airport City Project in Mozambique is just about finished and this will serve as a terminus for coal coming out of the Zambezi Valley.

Some countries, like Ghana, do have a national airports programme. The Ghanaian programme is in the early implementation phase and it comprises new airports at Ho, Bolgatange and Cape Coast; an upgrade to international standards of Tamale and Kumasi airports (Tamale will have a new 4 000-metre runway and modern navigation system), and the construction of new terminals at the Takoradi and Wa airports.

In Madagascar, a French consortium, including Bouygues and Colas, will be modernising and managing the Nosy Be and Ivato Airports in northern and Central Madagascar.

Warehousing is essential to airports as during the export process of perishables, it is vital to keep these in cold storage so as not to break the cold chain. There was a proposed project in Polokwane to develop horticulture and fly flowers out to the Middle East bypassing the Netherlands. Unfortunately, this project did not get off the ground owing to cold chain issues.

Local issues provide challenges to air transport, such as in Angola, where there is no real local currency, which makes it very difficult to get paid. There is a New Luanda International Airport on the cards; however, there is some scepticism about whether or not construction will ever be started on this project.

Other important air transport developments include: Cote d’Ivoire is back to its former glory after the civil war. There is a massive commercial property development underway in Abidjan –Abidjan Aerocity – as well as other commercial developments. The fire at the Jomo Kenyatta Airport in 2013 has put the project regarding the passenger terminal into overdrive and it is progressing nicely.

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BREAKAWAY PANEL 3: ADDRESSING AFRICA’S INFRASTRUCTURE PROJECT PREPARATION CHALLENGES

Moderator: Muzi Kubeka, Director, Norton Rose Fulbright

Panel Members: Raj Kulasingam, Senior Counsel, Dentons De Buys Scott, Head of Infrastructure Advisory, KPMG Omar Vajeth, Managing Director, Gold Key Energy Prof. Muyenga Atanga, Former CEO, Zambia Railways Ltd Lindelwa Myataza, Infrastructure Specialist Mohale Rakgate, General Manager, Project Preparation, DBSA

Key Questions:

• What are the key issues that need to be addressed to ensure sufficient infrastructure project preparation?

• What are the main challenges facing infrastructure project preparation processes in Africa?

• How important is political will and government support in infrastructure project preparation in Africa?

• How valuable is the availability of capacity and skills in infrastructure project preparation processes?

Key Points:

• There is no substitute for stellar project preparation in ensuring the success of infrastructure projects in Africa.

• Serious deficits in capacity and skills in developing infrastructure projects is a major obstacle facing infrastructure project preparation processes in Africa.

• Adequate financial resources are a key necessity for infrastructure project preparation processes.

Synopsis:

The key problem behind infrastructure delivery is not the lack of funding, but the lack of well-packaged, bankable projects. This points to the need for effective infrastructure project preparation for successful project implementation. In this respect, it is important to have sufficient knowledge regarding how the entire project cycle works. Good foresight, money and vision in understanding the whole process from beginning to end are critical in getting projects off the ground.

Most problems that occur in infrastructure projects lie in things that are not done in a project’s development cycle, especially at the beginning. Adequate preparation is important at the beginning of infrastructure projects. Infrastructure project preparation costs a great deal of money, which is worth the cost because this is where most of the mistakes occur. Most infrastructure projects fail due to lack of proper planning in the very early stages of the project. In this regard, the project must be properly defined in terms of the political ownership and leadership. Equally, the proper degree of ownership and sponsorship of the project must be ascertained as well as the proper procurement framework. These are things that must be properly addressed early on in the project; the more these issues are not addressed, the more difficult the project will be.

DFIs pay close attention to project preparation issues, especially for infrastructure project sustainability. Where there is a gap in funding project preparation, DFIs can mobilise funding to ensure project sustainability. Project preparation needs a critical mass of skills and capacity to conceptualise and scope projects in the earliest stages of the project before funding can be sourced. Once the funding is mobilised and the project scoped, there is further need of skills and capacity to de-risk

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infrastructure projects to a level where they can be implemented.

Another key issue is the amount of political will from governments to get infrastructure projects going, especially with cross-border infrastructure projects where two or more countries are involved. Most projects tend to stagnate because of the lack of political will. In general, infrastructure project preparation in the African context is problematic owing to deficits in skills such as project appraisal, managerial capacity and the lack of funds to facilitate project preparation. There are a number of project developers who operate in the infrastructure space that lack the full set of skills, capacity and expertise in delivering a project.

Project size is an important variable in project preparation. The bigger the project, the smaller the percentage of the project preparation cost: US$ 60 million for preparation in a US$2 billion project is small, compared to US$60 million in a US$100 million project. Typically, small projects require significant preparation activity that is similar to big projects so the cost is relative to the project in terms of the percentage. Since projects in Africa tend to be smaller projects, those percentages are large (i.e. 1–4% of budget in G7–G8 countries, and 10–12 % percent of budget in developing countries).

The challenge in Africa is that it can be difficult to raise project preparation money that runs into the millions of dollars. The time for project preparation is also an issue; in some cases projects take up to 5 to 10 years to prepare owing to the nature of politics and other factors that can disrupt processes of infrastructure project preparation.

The context of project preparation, looking at who is involved, and who is included and excluded in the project is important. In the context of territorial infrastructure cross-border projects planning is typically centralised, with hierarchical planning that cascades from top–down to national governments. Cities are excluded from infrastructure planning because the African Union (AU) planning looks at the region from the top followed by the AU Head of State and then to sub-regional institutions. The national state is the last in the chain of this hierarchy, in the line with the principle of subsidiarity of the AU. Furthermore, much happens at the sub-national level that does not include cities, yet cities can contribute significantly to the attainment of sub-national and regional development objectives, such as increasing inter-African and global trade, as well as eradication of poverty in regions.

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BREAKAWAY PANEL 4: BRIDGING THE INFRASTRUCTURE GAP – THE PHYSICAL CONNECTIVITY OF MARKETS THROUGH ROADS, RAIL AND PORTS

Moderator: Linda Mabaso, Chairperson, Transnet SOC Ltd

Panel Members: Hennie Heymans, Managing Director, DHL South Africa Jack van der Merwe, Chief Executive Officer, Gautrain Kunyalala Maphisa, Chief Executive Officer, Subsaharan Concessions Kudzanayi Bangure, Afri-ID Project Manager, NEPAD Business Foundation Stanley Subramoney, Chairman, NEPAD Business Foundation Patricia Norris, Chief Executive Officer, CTE Investments

Key Questions:

• How is Africa faring in transforming its transport landscape and where are the signs of progress?

• How can Africa’s transport networks be integrated to boost regional cooperation on the continent?

• What types and forms of transport are accessible and affordable in a rural African context?

• What joint planning and policies converge on transport infrastructure development?

Key Points:

• On the whole, transport infrastructure in Africa needs serious attention.

• There are pockets of excellence, such as East Africa and South Africa from which lessons can be learned.

• In Africa, road, rail and ports need to be improved so that trade can be facilitated. A good example of how this is already happening is the North–South Corridor.

• Owing to affordability and climatic conditions, many of the citizens of rural Africa rely on bicycles as their sole mode of transport

• South Africans need to become involved in public–private partnerships in Africa.

Synopsis:

Transport is indispensable to Africa and is the best way to boost economic development, for example, in the agricultural sector. Unfortunately, there is a deficiency in infrastructure on the continent. What is heartening to see is that there are pockets of excellence in Africa, such as in East Africa.

However, for transport to work it has to be integrated and accessible. What has been found is that in Africa, people use public transport because they have no choice as few own private automobiles. Once they have saved up enough money to buy a car, they stop using public transport in favour of private vehicles, which causes congestion on the roads.

South Africa has fairly well-developed transport infrastructure and attempts are being made to institute a transport authority. The success of public transport initiatives in South Africa can be seen in the fact that 77% of riders on the Gautrain leave their cars at home and use the train. In terms of taking this infrastructure across the border, the challenge is going to be electricity supply – Metrorail uses 3 000 V of direct current while the Gautrain uses 25 000 V.

Regionalisation is the key to get Africa growing fast and it is essential to reduce transportation costs in order to improve

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the economy. A truck can stand at the Beit Bridge border for days, trying to get across, at an average cost of US$ 1000 a day, which increases logistics costs exponentially. A good example of an initiative that ensures the seamless flow of goods is the North–South Corridor, which links the port of Durban to the Copperbelt in the Democratic Republic of Congo (DRC) and Zambia.

There is a huge sense of entrepreneurship in rural Africa and people find innovative methods of transportation that suit the climate. Most citizens in rural Africa rely on bicycles as a method transport, which works even in the rainy season when trucks cannot be used.

The African Union (AU) has set a target for intra-Africa trade of 30% by 2030. In order to reach this goal, much needs to be done. South African companies need to participate in inter-continental PPP initiatives. Transport needs to become intermodal and unimodal transport needs to be avoided. The funding deficit for infrastructure in Africa is about US$30 billion and if this deficit is going to be made up, political stability will need to be ensured.

Africa is expensive because of the lack of infrastructure. To catapult Africa into the next era, implementation is needed. Leadership plays a key role in ensuring that goals are achievable and it is only when a stable environment is in place that people are willing to take risks.

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DAY 2: 2nd SEPTEMBER 2015

BREAKAWAY PANEL 5: ACCELERATING REGION INTEGRATION & ACCESS TO MARKETS

Moderator: Nigel Gwynne-Evans, The dti

Panel Members: Remigious Makumbe, SADC Johnny M Smith, Walvis Bay Corridor Group Dr Michele Ruiters, DBSA Barbara Mommen, MCLI Vishal Lutchman, WPS – Parsons Brinckerhoff Africa

Key questions:

• How can the regional challenges of high transport costs, degraded physical infrastructure and prohibitive national policies be overcome to promote regional integration? Knowledge sharing between government and industry is key.

• What progress has been made on each of the PIDA projects?

• What projects – rail, ports, pipeline and energy, etc. are available for private sector involvement and in what way can business participate?

• Which countries are championing regional integration and how are they doing it?’

Key Points:

• The African Union Commission, in partnership with the United Nations Economic Commission for Africa, African Development Bank and the NEPAD Planning and Coordinating Agency are rolling out the Programme for Infrastructure Development in Africa (PIDA).

• This continental initiative, based on regional projects and programmes, will help address the infrastructure deficit that severely hampers Africa’s competitiveness in the world market by promoting and facilitating regional integration.

Synopsis:

Implementers of projects have the knack of focusing on what they know very well, often leaving out what they do not know. Usually this comes back to bite them. An example is in the integration of leadership. Countries in the Southern African Development Community (SADC) region are competing with each other for demand and capacity provision, which results in the inflated cost of logistics. Rather, countries should work together. Integrating ports and funding is relatively easy. What is not available is integrated leadership in the region (excluding heads of various states), agreeing that SADC is ‘one country’. Logistics planning is still done at the country level, which is not practical, because then supply chains are being developed that are competing with each other. The sector should be cautious about acceleration, and about what is funded. One example is Transnet, whose plans should fit into regional plans, but right now they do not. The softer issues in project development often go ignored, but they are at times the most important.

There should be a halt to focusing mainly on mega-projects, since they take time and money, as well as resulting in complications (excluding Grand Inga). Despite this, mega projects do create a common vision for a region. Do sponsors have the capacity to support these projects? Institutional capacity is certainly needed. At the political level, southern Africa

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has done well, top–down approaches are there, but things go off course when there is the attempt to get others to plug in to this. One-stop border posts are very important. It was cautioned that the region must be careful not to follow the architecture of colonial extraction, which means focusing on intra-Africa trade rather than too great a focus on ports and exports. Government and private sector must both drive natural winners and losers in markets. There is sufficient funding and policies, but project preparation is limited. What is needed is to decide how to make hubs of excellence, and decide who is going to do what. The high level work has been done, but now the sector is facing an implementation challenge.

Governments do not do regional integration very well. The private sector does the regional integration, and they suffer most when it does not work. Regional infrastructure will not happen unless there is public support for it. The most successful cross-border project was a PPP: the M4 toll road. This had a large economic impact. Also, the Port of Maputo has been successful in generating income. Ports without land side integration are useless. Projects need a soft-issue mediator; otherwise there are great ideas, but no implementation. The private sector should not see itself as a messiah, but should rather have a sense of responsibility for developing supply chains. There needs to be a clear understanding of soft issues, clear legal and policy understanding, and communication. SADC has been driving the implementation of harmonisation of vehicle load management for twenty years. A mediator between the public and private sector (such as Maputo Corridor Logistics Initiative (MCLI) is absolutely necessary.

It is a stark reality how little intra-African trade there is. To address this there should be a clear target for development in future.

In Namibia, there are efforts to focus on the positives in regards to transport development, even with limited resources. Namibia has been independent for 25 years; 15 years ago the Walvis Bay Corridor was created as a focus on regional integration and regional development. There are 2.2 million people in Namibia, which means a small economy. There is no real choice but to take into consideration the region and recognise the value Namibia can add. In regards to planning, in 1995 it developed its first transport master plan, and in 2014 it developed its second transport master plan (this was twenty years apart). In February 2015, it developed a logistics master plan to develop Namibia into a logistics hub in the region. It has focused on transport modes because it has a port emphasis. It started roads development. Currently, Namibia is building its first dual-carriage road (65 kms), which is a big step for such a small economy. It would like to do more with sufficient funding. Namibia is also looking into what to do with aviation. As a whole, the country is trying to develop as an alternative trade route for southern Africa. Five to seven years ago, Walvis Bay was just a fishing port, but now ZAR500 million is coming into Namibia’s economy through this post (from zero rand 10 years ago). Namibia is trying to create a better alternative in the SADC region. Now it is looking to focus on developing the manufacturing sector. Namibia is working with South Africa to develop partnerships (excluding transport corridors to production corridors).

Trade liberalisation across the region is the goal for SADC. PIDA is the continental plan SADC adheres to. There is a tripartite East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA) and SADC free trade agreement in talks, which would encompass 28 countries. SADC’s two key goals are free movement of persons and goods, and the implementation of a trade protocol in SADC (trade liberalisation). Infrastructure is needed to support this process. In addition, there is a Strategic Infrastructure Master Plan. The short-term action plan (first five years of implementation) focuses on mostly working with partners such as the African Union and the Development Bank of Africa. The strategy is to focus on project preparation, to ensure there is a project pipeline so that project implementation and regional integration may be accelerated. There are 16 corridors in SADC and each has a developed infrastructure action plan. There is also a need to rehabilitate rail to reduce goods transport on roads.

Also, a look at the power crisis across the continent is necessary. We need to develop a proper energy mix. Countries are integrated with broadband infrastructure, but still need to reduce the cost of doing business to become more effective. Currently, the master plan is being implemented. There is a private partnership including SADC Rail, Kalahari Rail, Dar es Salaam Port, SADC Broadband Infrastructure Programme. Nine out of 12 SADC Power Networks are connected; we must connect the remaining ones to allow for power trading across the region.

How can a platform be created platforms to build relationship between the strategies and policies, and can the private sector be encouraged to get more involved?

MCLI does this, and it means focusing on issues that affect regions. If governments are implementing trade facilitation

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measures, then we bring together users alongside customs officials and systems people and discuss issues, which then results in the refinement of issues. There is an operational focus, which shows that this work has demystified the relationship between the private and public sector. To do this, we literally put people in the same room and facilitate the issues. In essence, the private and public sector want the same things.

The DRC, Namibia and Zambia were involved in a 2010 MOU at a PPP Transport Forum, discussing issues from Walvis Bay to Lubumbashi. The question was raised: what is the objective of each public and private entity? The issues were written down and the questions were raised: what needs to be done, by when, and who is responsible? This created an action plan, 75 percent of which has been written off in three years. Dialogue is important, both the public and private sector must be present in these meetings, or else it is a waste of time.

The wheels turn at different speeds in government and the private sector. There are opportunities on both sides to make things work. The private sector side is about transaction and economic value, which is often a fatal flaw, because the demands of government are not incorporated into any business plan. Also, there is a fear in the ability of government and government officials to make decisions. Are they looking to do business or to govern? To govern is facilitatory, they can do it, but they need to do it well. Money is always looking to make money. If takes too long to reach an agreement, then business moves on elsewhere. Sometimes we are afraid to implement the plans we came up with.

ICT does well in attracting private sector finance. ICT is based on user-pay, so a network can be developed based on that. There will always be a demand. There is a need to find regional integration in public goods like water, and a need to find a way to involve the private sector. This discussion has not yet been held. What would PPPs for public goods look like? What can we afford, and what do we need to pay for?

Political organisation is required for mega projects (such as Grand Inga), which takes a long time. Political cycles determine how and when projects are implemented, rather than a long-term project implementation plan that is needed for mega projects to work. Mega-projects often do not involve private sector consultation early on.

The reason nothing happens on a regional level (since 1980) is because the majority of national governments do not care about SADC as a whole. This is a terrifying reality, yet it is a reality. Even national development plans do not necessarily get implemented. Everyone works in cocoons, but it is not being taken seriously.

Using an ICT framework on roads for instance would be a challenge, since roads are considered public goods. When financing these things, banks look at cash flows from user pay. But there are other benefits to these projects. How do we translate this into the package of a project? The value proposition for each project and each member state and package accordingly must be looked at.

There is an apparent disconnect between national policies and regional plans. Member states are often reluctant to endorse or implement SADC policies. Some national strategies are superseding regional development policies. To overcome this efforts have been made. SADC encourages member states to integrate the regional plan into their national plans. Inevitably, there is always conflict, but at national level it comes down to how you craft it.

Cross-border conflict has been reduced greatly in SADC region, which is a good starting point. We need champions in specific areas to start to create change. Consensus takes time. In addition, the effort that has been put into planning needs to shift to implementation. The Asian model for regional integration is likely the best example, however it was the perfect storm economically, and perhaps cannot be replicated. The EU (European Union) and NAFTA (North American Free Trade Agreement) are not great examples. Governments do not trade, companies do. The fudging of the lines is happening and this is a problem. The private sector needs to take a stronger role.

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BREAKAWAY PANEL 6: AFRICA’S CRITICAL ENERGY INFRASTRUCTURE: POWER, OIL AND GAS

Moderator: Brian Statham, Chairman, South African National Energy Association (SANEA)

Panel Members: Kribs Govender, Vice President: Business Development, Power and New Energy, Sasol Romain Py, Senior Director, Executive Head of Transactions, African Infrastructure Investment Managers (AIM) Ian Curry, Director, Basil Read Energy Tsidiso Disenyana, Senior Economist, Export Credit Insurance Corporation of South Africa Shaun Nel, Director, BDO Consulting Services

Key Questions:

• How can Africa minimise and avoid disruption of supply caused by infrastructure issues?

• How would it be possible to modernise Africa’s infrastructure?

• What is needed to ensure that the skills, training and resources for Africa to maintain its current infrastructure are provided?

• What uniquely African vision needs to be formulated for the continent to unlock its economic potential?

Key points:

• Africa needs to have the right mix of power, e.g. solar, wind, water, etc., to ensure that the energy needs of the people are met

• It is necessary to prioritise gas in the economy and have a 10-year plan for gas

• Infrastructure is a big supplier of jobs

• SADC and Southern Africa need to align their infrastructure so that they feed into each other

• The Integrated Resource Plan for Electricity (IRP2015) looks at demand, the nature of demand as well as balancing affordability.

Synopsis:

Africa needs energy – not only electricity. In order to avoid disruption of energy supply, caused by infrastructure issues, it is necessary to ensure security of energy supply, that the energy supplied is affordable and to gauge the effect of the energy supply of the environment. It is imperative to keep these three issues in balance. A challenge to maintaining the affordability of energy is that the costs of the value chain are currently not recoverable in the tariffs that are charged for the power. This is not sustainable.

In order to attract investment, the regulatory environment needs to be stable and there needs to be clear policy direction. Unfortunately, governments do not prioritise projects and interdepartmental communication is poor. This leads to the development of multiple systems, which may or may not function, whereas if resources were pooled, an effective system for everyone could be developed.

A fallacy exists among African governments that it is possible to obtain a competitive advantage with regard to the technology present at the source of where power originates. Instead, governments should be looking at getting the right

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mix of power. The power-generation technologies are the problem of the power producer, governments should not be worrying about this. For example, Sasol has been exploiting the natural gas fields in Mozambique since about 1991. They are responsible for maintaining the gas line from Mozambique to South Africa. This system works. In order to maintain a steady supply of power, it is essential that the private sector and government have a good relationship.

It is necessary to move into a gas space in our economy and have a 10-year plan for gas, as it is for electricity. The Integrated Resource Plan for Electricity (IRP2015) looks at demand for power, and the nature of demand for power, balancing affordability with this demand and/or nature and how is that integrated into sustainability. It will also be necessary to acquire different skills in order to maintain this infrastructure, thus contributing to job creation.

Unfortunately, Southern Africa and the South African development energy plans are not aligned as there is still a strong sense of national pride. The economic strength of Southern Africa lies in what the region has - not what the individual countries have. Governments in the individual SADC countries need to focus on regional integration, in other words the standardisation of systems.

Communities mobilising around building their own infrastructure is being observed. It is necessary to change mind sets and infrastructure must follow where the needs are. People are becoming empowered to construct their own power-generating facilities as prices are lowered and technology improves.

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BREAKAWAY PANEL 7: ICT & TELECOMS IMPROVING COMMUNICATION INFRASTRUCTURE IN AFRICA

Moderator Onyebuchi Memeh, Standard Chartered Bank

Panel Members Sandile Ntsele, (not in attendance), MTN Daniel Jaeger, Alcatel-Lucent Inathi Mbomvu, Pensare Yaron Assabi, Digital Solutions Group Gareth Mellon, Frost & Sullivan Henri Zietsman, Flexenclosure

Key questions:

• How can Africa foster a business climate and a development environment that increases the drive to modernise the continent with regards to technology?

• Can Africa translate its mobile sector boom into growth of its ICT and telecomms sectors and contribute to economic development?

• How much investment in voice and broadband infrastructure would be required to achieve universal coverage for Africa?

• How much investment is required to improve connectivity across Africa’s regions?

• What examples are there of infrastructure projects that have brought broadband to Africans and what stage of development are they at?

Key points:

• Significant investments in information and communications technology (ICT) and related infrastructure will be made through 2015 to meet market demand for telecommunications services in Sub-Saharan Africa.

• Current investments will not be enough to attain universal coverage of ICT services.

• There is a disparity between what private markets can be expected to finance and what will be left to the public sector.

Synopsis:

Africa is at a very interesting stage where there are many opportunities for businesses to grow. People are looking at Africa as a place to bring their infrastructure development. For these reasons, Africa needs to be a financially enabling environment, and should be focused on making finances available for small businesses.

In Kenya on M-Pesa, there are 12 million active wallets, two million transactions per day, and 64 million dollars transactions per day. At present 43% percent of Kenya’s money transfers are through M-Pesa. Mobile phones in Africa are multi-purpose devices. Mobile can be used as a wallet, for education, health, even government. Affordability issues for many Africans mean that a mobile device can be the most important thing to have. There is no need for fixed lines in Africa, only wireless. Mobile technology should be used for education, in order to develop a skilled labour market in Africa.

The assumption with all of these applications is that there is connectivity, but this is not always the case across Africa. There is a requirement from customers for the industry to keep investing in infrastructure. There is also public sector recognition

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that connectivity increases economic growth. There is a push from the public sector to invest in this infrastructure, but it is not as straightforward as it was 10 years ago.

The status of telecommunications networks now shows that the only way to bring down connectivity costs was with the construction of the submarine cables. Current connectivity is due to this. Now the focus is shifting to access networks. The mobile side of 3G and 4G is the best in bringing mobile access to people. More pockets around the continent are opening up with fibre optic connectivity, but they are still not close to 100 percent access. Video is becoming more and more popular. Networks were built for voice, not data, so adding data on is becoming a challenge.

More universal coverage means more investment in infrastructure. It is estimated that US$100 billion investment in voice and broadband infrastructure is needed to ensure 100% connectivity across continent. However, the questions remains of exactly what does 100% coverage actually mean?

However the estimated costs exclude the energy investment needed. Data centres in America and Europe hold “the internet”. It is important is to bring these data centres into Africa, because if content is held in local data centres, then the connectivity requirements can be reduced by about 30%. MTN in Ivory Coast has done this. Data centre companies have been trying to serve the demand for Facebook. MTN and other stakeholders are going into the field of data centres, which creates a more resilient infrastructure. There is great demand on the east and west coasts of Africa.

The private sector (operators) and governments are the main players and investors. PPP examples are making sense, and so they need to move forward as the standard model. Innovative responses from government will assist such as in Mozambique, where the government offers a tax break to development projects in rural areas. In addition, operators need to partner up to create stronger networks (e.g. shared towers).

There are two new trends on the continent: first, energy service companies (ESCOs) that feed multiple customers on the same site; second, tower companies are becoming a part of solar sites, and moving around. This contributes to the context of ensuring mass coverage. Often, mobile applications drive the need for infrastructure. Cashless banking happened in Africa, but in India, tax breaks were implemented to drive this. A cashless economy equals clearer lines of transfers, which equals less corruption.

Network development often requests that applications are bundled in order to make the network more effective for citizens.

Internet should be a basic right, especially in regards to education; an example is Project Isizwe in South Africa. Educational improvement and income growth occurred in Korea and India due to the lower cost of internet access due to government subsidies.

There must be a plan to close the gap between urban and rural. This is difficult because the private sector looks for the highest uptake opportunity, meaning where the people are, which is urban areas. Sustainability efforts in rural areas have been failures. However, some brands want to access rural areas, and they could become sponsors using permission marketing. There could be an offer of access in exchange for attention to brand. There are many different ways to address this issue.

Partnerships between governments, operators, the regulatory environment, NGOs, and industry are needed so that they can play together in one ecosystem.

The technology risk involved affects the environment. There is the greatest risk closest to the consumer. There is always risk in applications. The least risk exists in infrastructure and physical elements, which are not going to change drastically in the next 10 to 15 years. Fibre is safe, and radio networks will change over time (no one will invest in 2G now).

The barrier to get connectivity in rural areas is not the demand, but rather it is the high cost of building towers, as well as power. Deregulation of power could create new solutions, however that is a sensitive topic. PPPs are needed in rural areas, especially when building rural schools with power and internet, which is something that Safaricom in Kenya is doing. Africa has to innovate from within Africa.

A monopoly of network operators would affect the cost of access. There are eight operators in Tanzania, which is too

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many, and consolidation is necessary. Selling licenses is an easy way for the government to make money. There have been advances in infrastructure sharing, however there are still different networks. Billing is the heart of every network in Africa. However in the US and Europe, quality of service is the biggest competitive advantage, and this shift could be seen in Africa in the future.

There are only four carrier neutral data centres in Africa. There is interest in this opening up though.

Installation is where fibre is expensive. For those who already have copper in the ground, it would be more affordable to use copper. The value of what you can get out of copper has increased greatly over the past five years. No one would bring copper to a new place though, but in South Africa where there is already copper, which can be used for connectivity.

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BREAKAWAY PANEL 8: EAST & CENTRAL AFRICA TRANSPORT CORRIDOR

Moderator: Prof. Wiseman Nkhulu, Chancellor, University of Pretoria

Panel Members: Philip Wambugu, Director: Infrastructure, East African Community Joshua Ogwal, Partner, Ligomarc Advocates Paul Runge, Managing Director, Africa Project Access Mtchera Johannes Chirwa, Chief Infrastructure & PPP Specialist, AFDB Rajen Pillay, Chief Executive Officer, Garuda Finance

Key questions:

• How can Africa’s transport costs be lowered through investment in corridor infrastructure?

• What politics and policies are needed to enhance regional integration?

• How can Africa’s transport corridors succeed in aligning national goals with regional goals?

• What progress has been made and challenges exist in bringing Africa’s corridors online?

Key points:

• There needs to be a free trade agreement in Africa

• More one-stop border posts need to be instituted in order to reduce corruption

• The East African Community has been revived and this is assisting with ensuring good governance in the region

• The commitment of all member states of the corridors is necessary

• Measures at the port at Dar es Salaam have been introduced to eradicate bottlenecks

Synopsis:

The impetus for cross-country projects in Africa has always been motivated by the cost of doing business on the continent. There have been noticeable improvements in sectors such as the ICT sector, however progress in other sectors, such as transport has been slow. What factors need to be present in order to guarantee the success of projects? From an operator’s view, a big issue is the cost of trade between countries on the African continent. There is a need for a free trade agreement and that many businesses are sceptical about the potential success of African projects, despite a number of very successful African projects, such as the Pedicle Road on which one-stop border posts have been implemented. The introduction of these border posts has reduced customs-related corruption significantly.

It is necessary to get captains of industry into one room in order to try and kick start development and that more control over costs is necessary.

Corridors do seem to be making a difference: roads are being improved as is infrastructure, which saves on travel time and thus reduces costs. The example of measures at ports in Dar es Salaam, which were instituted to reduce bottlenecks, is a further case of the cost-saving measure that had been introduced.

In order to guarantee the success of corridors it is vital that the commitment of member states is obtained. One-stop border posts and the implementation of the requisite technology at these border posts are essential to the free flow of people and goods throughout the corridor. In the development of a Central African corridor, those responsible for the

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development of this throughway would be able to learn a great deal from what has been done in the East Africa Corridor.

The role of financial and information intermediaries is crucial as the operators may know the workings of their projects, inside out, but they do not always know how to convey the information surrounding their projects to others. The financial intermediary is generally approached at the time of going to market. It was suggested that approaching some multinational financing companies could be a good way to get a large cash injection into a project in order to get it started.

The East African Community (EAC) has been revived. This has contributed greatly to the success of East Africa. Governance in this area is of the highest order and the heads of East African states are heavily involved in EAC summits and the like. There is a new generation of leaders in East Africa who are focused on achieving their milestones, all of which is contributing to the success of the region

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PLENARY PANEL 2: AIR TRANSPORT DEVELOPMENT

Moderator: Seán Cleary, Strategic Concepts

Panel Members: Iyabo Sosina, African Civil Aviation Commission (AFCAC) Joachim Vermooten, Aviation Specialist Tabassum Qadir, Skywise Hayley Walters, Accenture

Key questions:

• What air transport concessions are needed to overcome high landing charges and lower operating costs?

• What factors need to be considered to improve Africa’s transport safety record and overcome its high transport costs?

• How are the policy challenges of strengthening regulatory oversight and ensuring full liberalisation of the transport sector to be achieved?

Key points:

• Providing adequate and effective transport is one of the quickest ways to boost economic activity.

• Aviation is a supporting leg of any transportation system and it is essential for the import and export of goods, driving the economic development currently underway in the region.

• Air transport has grown strongly in certain regions in Africa in recent years, which has helped boost exports.

• Air transport in Africa is still expensive, connections are patchy, and safety is a major problem.

Synopsis:

Airlines do not have the necessary infrastructure to thrive in Africa. This is especially evident in many airports across the continent, which are generally not up to par with international standards, with the exception of one or two airports, particularly South African airports. Air traffic services also show some decay in Africa.

The future of aviation is bright in Africa: the sector has been positioned for transformational growth. The African Civil Aviation Commission (AFCAC) deals with all different aspects of air travel, specifically with the various states and ministers. AFCAC is an agency of the AU and reports to them (but they work closely with international aviation to ensure that standards are adhered to.

Studies show that emerging economies (especially African countries) will lead the pack in aviation growth. Between now and 2032, Africa will have a greater growth in passengers and cargo than the global average. However, Africa represents only three percent of global world air traffic. Yet, the International Monetary Fund (IMF) says that seven of the fastest growing economies are in Africa, proving that the future is bright.

The airline industry requires guts and a background in trade. All that an airline is, is a mode of transport. Destination development is important to help airlines succeed. Obtaining an airline license is a challenge. To date, 11 airlines have failed in South Africa. People and things need motivation to move, and government needs to help with this.

There currently is a “scramble for Africa” with regard to airlines. Big airlines are trying to grow, rather than encouraging more airlines to begin. Africa does not need airlines to be in a subsidy race. The European Union ended subsidies, and Africa should too. Africa has started new airlines with new equipment. More private sector development should also occur. The

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principle of economies of scale applies in the airline industry, in order to keep the cost sustainable. In addition, government regulations sometimes limit the ability for more airlines to comply. One challenge in the airline industry in Africa is the retention of trained staff who often leave African airlines for the Gulf where they get paid five times as much. For this and many other reasons, Africa needs a bigger scale of aviation operations.

Furthermore, governments were not giving support or providing a level playing field, they were holding onto national airlines rather than allowing private sector airlines to develop, and also not letting go of air traffic. It should be realised that government support in the aviation field does not mean subsidies, but rather a level playing field and strong platform for air travel to grow. Lessons should be learnt from other contexts: national airlines are not only dying in Africa, but also in Europe. Airlines must be run as businesses.

A further challenge stems from issues of air traffic control and safety standards, which can limit big airlines from expanding more throughout Africa. Recent work has been done to improve safety. In 2012, ministers responsible for aviation met in Abuja and set clear targets for all participants in the industry to achieve. AFCAC monitors to see that these targets are met and they report that since the targets were set, airlines have been audited and improved a few notches.

Airline challenges are not unique to Africa, all airlines have a huge need for capital infrastructure, which requires a competitive landscape, and at times, subsidies added in.

In 30 years, it is anticipated that African aviation will be in the same place as European aviation is now. The Yamoussoukro Decision (YD) can possibly get Africa to where it needs to be. However, if the YD is not appropriately implemented, Africa will not be where it needs to be in aviation in 30 years. The YD means access to markets. It does not advocate a bilateral model, however that is what is used, because governments like it. The opposition to YD is starting to change. The YD was presented in 1999, approved in 2000, and to this day, still has not been fully implemented. It has been more fully implemented in the SADC area. Small private airlines are fighting against national carriers. Countries should have the right to have national carriers, but these should not be priorities. If a country has a national carrier, then it should then have private managers. National carriers should consider private carriers as partners, not competition.

Airline profitability improved in 2010 for the better. There was consolidation of American airlines, and the low-cost area has increased. There is freedom of access and capitalisation. Measures around political angles need to be handled better to allow for aviation to do more.

There are a number of factors that need to be put in place to improve the sector: there is a need to develop an intra-Africa network; a continental free trade agreement is in the pipeline and will assist; and the sector needs to promote carriers.

National carriers should not be appendages of governments; rather they must operate as businesses. Ethiopian Airlines is succeeding because they are being run as a business, and the government is not interfering.

US President Obama met with African heads of states last year and said that your greatest trading partner is your neighbour. Until Africa understands that our greatest strengths lie within the continent, the continent’s economies are not going to grow. Governments and the sector need to look at the YD with an open mind. The reason it has not been fully implemented is that it has been kept in the aviation arena for too long, now it needs to get it out there.

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PLENARY PANEL 3: ALTERNATIVE FINANCING: PENSION FUND AND PRIVATE EQUITY FUNDING INVESTMENT INTO AFRICA

Moderator: Andrew Johnstone, Phoenix Infraworks

Panel Members: Jurie Swart, African Infrastructure Investment Managers Brett Botha, Eaglestone Capital Advisory Heleen Goussard, RisCura Adré Smit, ASISA Christopher Clarke, Inspired Evolution Investment Management

Key questions:

• What examples exist of where pension funds and private equity funds has been used successfully in infrastructure projects?

• What can African countries do to attract private and innovative funds on favourable terms?

• How can the public and private sectors work together to find financing models that are mutually beneficial?

• What mitigation instruments can be employed to minimise the risk associated with doing business on the continent?

Key points:

• The innovative financing sources for infrastructures that have emerged across Africa so far include local and foreign currency bonds, private equity, sovereign wealth funds, and emerging South partners.

• Public- private partnerships can be made more effective and remittances better utilised for development purposes.

• There are limits to what the private sector can do in closing the infrastructure gap, especially in rural areas.

• The public sector has a role to play through strengthening domestic resources and catalysing private investments.

Synopsis:

The South African pension fund has invested ZAR1.3 trillion into infrastructure, against the government balance sheet, which has been stretched. Now it is difficult to fund long-term projects. What informs investors’ decisions with regard to pensions, is trying to find assets to match liabilities. Long term savings capital is growing. Pension funds often are invested in real estate. Assets under management in the savings industry in South Africa total about ZAR8.8 trillion, including state, public, private pensions. Less than one percent of that is directly invested in infrastructure, which is similar to most other countries. The outliers when it comes to investment in infrastructure are Canada and Australia where it is 12-15%.

On the African continent, there are not enough good projects. If there were good projects, the money would be there. What makes a good project is the proper legal framework, an enabling environment, and political certainty. These elements go a long way in addressing uncertainty. The Lekki Toll Express Highway is an example of innovation: a display of how a government can procure infrastructure innovatively.

These projects should not be too complex or too big. It is important for African governments to be practical. Government budgets can only fund so much, but PPPs should not be a wish list that is not possible. Projects must have a good advisor. A new programme has created a competitive environment. In each round, the Request for Proposals is tailored slightly and is improving every time, due to engagement with stakeholders.

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A company approached agencies to see what was prohibiting engagement with infrastructure investment. The answers included poor lead times, a lack of certainty, the need for more bankable projects, and the need for a centrally published pipeline of bankable projects. The industry is not geared up for investing in infrastructure. Members need to see a pipeline of bankable projects in order to help with the lead up.

When raising capital, such as private equity funds and greater pension funds, there are different approaches to get them on board. Private equity looks at the team before looking at the underlying assets. The ability to trust the team is based on their track record and credentials. The team’s skill set is matched with the project. The Environmental, Social and Governance (ESG) approach is monitored, and financiers are looking for a sophisticated manager that can monitor these issues . There is one big element needed to convince pension funds to invest: liquidity. Investors need to be able to sell what is bought. A well-packaged, diversified portfolio, plus a good team and good governance, as well as choice is what the market and pension funds are looking for. DFIs, however, have different agendas in terms of financing. Getting the funding once the project is bankable is not the challenge. First-time investors are looking for safe investments. The trust issue with the government has been huge. Pension money is not gambling money.

There is a need for different types of capital. Pension Funds are one, but there is a funding gap in the early stage, a role that private equity needs to play; different investor sets have different risks. Most pension funds would look for later stage and lower-risk projects.

Africa’s political risks and uncertainties are the main risks. A PPP is meant to mitigate this, but they take everyone around the table to be equally well-informed.

Creativity around capital structure is important, but there are also basic building blocks around risk, so you cannot get too crazy there. Gautrain is an example, because they chose to drive down a private route, but still needed government buy-in.

The leverage involved in these projects is high, and a small movement in risk makes a big difference in the final amount of equity to the investor. Capital efficiency from early on, as well as a good team are both necessary. It is a details game, and there is no one-size fits all solution.

There are many categories of risk, such as countries, political, development, regulatory, and many more that must be considered before entering into any transaction.

Project finance needs all the necessary project ingredients to be accounted for. Land tenure is one of most complex issues in any project, and many glance over this, and it comes back to haunt them. Funders must evaluate how the rights were given and if that process was globally acceptable. In addition, having asset managers who are properly incentivised is important. The project team must also look at exit options right up front. Export agencies play a pivotal role, and payment mechanisms by the government help as well.

There will always be a quid pro quo. One big risk in mobilising pension funds is the construction risk, which is usually understood. However, even this risk can be hedged out by working with an experienced contractor who will take the pricing risk. If construction risk is eliminated, then more money flow will occur. The right players in the same space are also required, especially the developer (private equity and commercial banks). This should then be flipped to yieldcos, but that is not what is happening. Splitting the funding into two stages would help allow pension funds to come in later. However, a critical mass is needed before blended finance can be available.

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CLOSING REMARKS: PROGRAMME DIRECTOR

Speaker: Seán Cleary Strategic Concepts

Synopsis:

It is evident that the challenges concerning infrastructure have not gone away, rather infrastructure problems are still delaying economic growth. Roughly ZAR90-100 billion a year over 10 years would be needed to overcome the current deficit. There is a serious need for bankable projects as well as the need to close the gap between bankable projects, finances available, and ability to implement.

Sources of finance include the Overseas Development Institute, Chinese investment, and there has been an increase in private sector funding, which now constitutes over 50% of all sub-Saharan Africa infrastructure funding. These changes have increased the pool of available funding for projects. It has not solved the problem though.

Many are confused by what we mean by “infrastructure”. Not all infrastructure projects are equal. Some are there to deliver public goods, and the ability to finance them via cash flows does not exist without higher capital availability. Conversely, infrastructure provided for private purposes should be done by PPPs.

Africa has huge shortages when it comes to project preparation processes. Sometimes this is due to finances, and sometimes due to skills. At times, institutions do not have the capabilities to conceptualise projects. They need a second dialogue on the levels of public and private sectors, as well as an understanding of how to use trans-border (integrated) infrastructure to open markets and increase export market.

Africa’s population is the fastest growing in the world today. If these problems cannot be solved there will be an enormous number of unemployed, unskilled youth in peri-urban areas. The solution is to solve these infrastructure problems, and in doing so improve education, quality of life and economic development.

CONFERENCE PROCEEDINGS 1 – 2 SEPTEMBER 2015 · CONFERENCE PROCEEDINGS 1 2 SEPTEMBER 2015 TABLE OF CONTENTS ... The Impact of Transport on the Development of Infrastructure in Africa

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