East Africa Rising: Construction Opportunities

As the international construction market becomes more globalised and competition for untapped markets increase, Africa especially East Africa has seen extensive influx of foreign capital. Increasingly firms are taking advantage of the lucrative potential of a continent that is still largely lacking access to basic infrastructure, to build adequate transport networks, water supply, functional power grids and formal housing for its growing population. A recent report by Deloitte remarked that “in a short space of time, [Africa] suddenly resembles a massive construction site” and according to KPMG’s Global Construction Survey, over 50 per cent of senior leaders in the industry see the continent as one of the most popular prospects for corporate expansion. Three key engineering segments are seen as most lucrative for investment: transport, water supply, and power.

Forward thinking international construction and engineering firms will find the influx of capital for infrastructure projects of great interest. Particularly in countries like Tanzania, where the industrial sector is expected to be the key driver behind economic growth through development in the mining and manufacturing sub-sectors. This makes not just Tanzania, but all of East Africa a hotbed of opportunity. There is a need for international building expertise, which the international construction industry can supply. At Spencon, we’ve been working with international firms and development agencies to deliver regional infrastructure projects in East Africa for over 35 years.

Against this backdrop, African governments have made infrastructure spending a priority, following Tanzania’s example. In the financial year 2013/2014, Tanzania’s government increased spending on infrastructure to 2,16trn Tanzanian shillings (US$ 9,96bn), up from 1,94trn (US$ 8,95bn). This is not a phenomenon that is restricted to Tanzania. In 2014 alone, over US$ 4bn was raised by private equity funds for infrastructure investment in Africa. This has acted as an incentive for continued investment inflows in the construction industry and underscored the opportunities for international companies in Africa and East Africa.

The following areas have proved key for private investors:

Transport
Business and economic growth in Africa have increased the urgency for a complete revamp of the continent’s crippled transport network. In our 35 years of operation, we’ve seen a surge in demand for implementing road projects to improve East Africa’s transport networks, and have witnessed a growing trend of international experts collaborating with regional firms that have the necessary knowledge and local networks.
The Portuguese construction giant Mota-Engil, Engenharia E Construcao SA is just one example. The company won the €60m (US$ 67,45m) contract to construct the second phase of the Kampala Northern Bypass in East Africa.

Water
With water and waste management certain to play a critical role in the near to medium, and long-term future of the continent, international construction firms are well placed to invest in the sector as it is expected the number of projects are likely to grow by two or threefold.
We’ve been involved in numerous water and sanitation projects working with international companies for the design, construction, supply, installation, testing and commissioning of water and wastewater treatment plants. Recently, Spencon, in consortium with Degrémont, completed the design and construction of a 90,000 cubic meters /day water treatment plant in Lower Ruvu, Tanzania.

Power.
Over the last five years, there have been a wealth of new power projects across Africa as the continent seeks to address its power issues. This includes the $684 million power-plant in Tanzania to plug regional energy shortages which will be built by China National Machinery & Equipment Import & Export Corporation (CMEC) and German engineering group Siemens. As Kenya, Uganda and many other African nations focus on improving their power networks, more of these contracts will become available to international firms.

The case for international construction firms to approach the African market is strong. Rapid urbanisation, a rising middle class and continued economic growth have created an ample environment for the construction industry. Furthermore, increasing collaboration and strategic regional integration within the region have paved the way for cross-border infrastructure projects. Efforts by the East African Community (EAC) to facilitate this growth has also led to increasing demand for expertise, which has opened up opportunities for international construction firms. Over the past decade, Spencon has worked with a number of international firms to implement these cross-border projects, due to our local knowledge and flexibility across borders.
Africa is showing exceptionally promising economic growth numbers and as regional integration continues to provide more opportunities for cross-border expansive projects, the time for international firms to get involved is now.