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Working for African solutions

Guest Report

Working for African solutions

Roads, bridges, hospitals and commercial centres… to the creation of new cities. Africa is at work! But nevertheless, the infrastructure deficit remains one of the continent’s main challenges, to the tune of 130 to 170 billion dollars in annual investments.  But with Africa’s population set to double in a few years, so will its needs, and therefore, Africa must innovate, think local, and think smart! Report compiled by Dounia Ben Mohamed (with the Africa News Agency)

The continent will have to mobilise between 130 and 170 billion dollars in annual investments in order to resolve its infrastructure deficits, said Vera Songwe, executive secretary of the Economic Commission for Africa (ECA), on the fringes of the 52nd Conference of African Ministers of Finance, Planning and Economic Development, which took place in Marrakesh in March. The infrastructure deficit demonstrated by the continent is one of the main obstacles to its economic emergence.

But nevertheless, Africa is hard at work! In its vast conurbations and within the territories, construction work is proliferating. As well as roads, bridges, schools and hospitals built by the African States, there are residential buildings, commercial and business centres, and other buildings designed by property developers. There are even whole new cities being created. These new cities, which include living space, and places for work and leisure, comply with the new international construction standards and even exceed them through the use of innovative new technologies. And in doing so, they offer “turnkey solutions” to the various issues that African States are facing due to increasing urbanisation and the challenges this presents in terms of sanitation, traffic, sustainable development and financing. These “smart cities” are multiplying across the continent, with ambitious projects inspired by Konza Technology City, about sixty kilometres from Nairobi, also known as Silicon Savannah.

This not just a new city – it is a sketch of tomorrow’s Africa. And in neighbouring Rwanda there is Kigali Innovation City, which aspires to become the Mecca for Made in Africa innovation. Another pharaonic project currently under construction is Diamniadio, a shop window to the emerging Senegal.

Solutions from China, France, Morocco or Turkey

This is the model operating in Africa – integrated projects, from conception to delivery, via financing. Under one of the simpler schemes, the State provides the vision and the framework within which the property developers will bring the plan to life, contributing both their expertise and finance. In short, these are public-private partnerships, adapted to suit local realities. While the Chinese are the masters in this field, they are closely followed by the French, who are still in the game despite serious competition from the Turks, Moroccans and other new actors on the scene. This situation, if well managed, can be to the States’ advantage – competition between sector heavyweights helps to raise the bar and gives local decision-makers the freedom to be more demanding. For example, they can stipulate the use of local workers and subcontractors through a skills transfer clause. Or – and this is the current trend – they may ask operators to come up with innovative financing solutions. Money is still the crux of the issue and often the glitch in bringing ambitious projects to fruition.

The Ivorian model

The model being implemented in Côte d’Ivoire is the result of the economic dynamism that this ‘regional hub’ has seen over recent years, and the emergence of a new middle class of heavy consumers; the construction industry is booming with local and international actors engaging in a competition where the State is the judge.

Accordingly, to finance this social housing at the lowest possible cost, as much for the public purse as for citizens, the government initially committed itself, during President Alassane Ouattara’s first term, to a construction programme for 60,000 social housing units, costed at 600bn FCFA (914m euros). The funds available via the “housing mobilisation account” (Compte de mobilisation pour l’habitat, CDMH) were then increased to 19bn FCFA. It was therefore decided to use public-private partnerships.

Property developers were selected to build the housing and partnerships were agreed with financial institutions to raise funds for the projects. In practical terms, the social housing built by private operators was financed thanks to a partnership with the Ivorian construction and property management company, SICOGI, and the Ivory Coast Atlantic Bank, BACI. As a result, plots were allocated after the very first transfer of funds.

In addition, as the construction programme stretched to 250,000 social and affordable homes during the new five-year term, a reform allowed the bank interest rate on buyer’s credit to be reduced from 15% to 5.5%. At the same time, the creation of specialised property investment funds, which support the classic financing mechanisms, while commercial banks are also starting to relax the conditions for approving mortgages (lower rates, longer repayment terms, lower deposits), has helped to establish an ecosystem in which the State, just like private operators and citizens turned first-time buyers, comes out on top.

This is especially true given the demand. 150,000 units by 2020. 46 developers, of whom 42 are Ivorian, have committed to building homes as part of this programme. “Infrastructure requires a lot of capital. That’s why a project like Diamniadio needed an innovative approach.”

The Senegalese model

Another country, another model. Neighbouring Senegal prides itself on using equity to fund the construction of modernising infrastructure for the country. But although the country, like its neighbours, is facing the challenge of galloping urbanisation – it anticipates a housing shortage of one million homes by 2030 (the current deficit is 145,000 homes) – the State has committed to an ambitious construction programme enshrined in the Plan for an Emerging Senegal (PSE), which aims to build 15,000 homes per year.

Faster, cheaper, sustainable and local construction: these are the challenges facing Senegal’s “State Management Agency for Built Heritage” (AGPBE). For its director, Abdou Karim Fofana, the solutions are local. “The challenge for Africa is growth. Strong and sustainable growth. This growth can only be achieved in a competitive environment. It requires three factors: available human resources, cost control, and an infrastructure that will connect markets with consumers to create value. But infrastructure requires a lot of capital. That’s why a project like Diamniadio needed an innovative approach.”

Diamniadio sprang up from the earth a few kilometres from Dakar, with its airport, companies and industries, and residential areas. A shop window to an emerging Senegal, this new city also represents the policies adopted on infrastructure financing. “Senegal follows the principle of budget sovereignty, which means that half of the investment is funded by the national budget, and we will raise the rest of it from the market or from overseas businesses who come with something called export credits, says the director. In this way, the Turkish take part in the development of Diamniadio. For the motorway building element, Chinese businesses came with financing that enabled them to carry out this type of project very quickly. To give you a comparison, the first toll road, measuring 25 km, from the exit of Dakar, was built within ten years for a sum of 400bn FCFA (602m euros). Now Senegal can travel five times further in terms of motorway distance for the same amount of money and in a third of the time. This is the challenge. Creating significant infrastructure for the lowest possible cost in the shortest possible time. To achieve this, we need diversity and openness to investors and overseas businesses, but also financing offers that meet the requirements of the market and the African States.”

To this end, the country has equipped itself with all the fiscal and legal arsenal it needs to attract international investors. “In Senegal, access to housing is still a significant concern for the population and is a priority focus of the PSE which aims to achieve emerging status by 2020,” highlights Ousmane Wade, director of the Senegalese ministry for housing. “To do this, we have been working on three things: revenue from land ownership, taxation and financing. For land revenue, the government has implemented a planning policy for the new urban centres and the areas intended for development with a target of 27 centres over 20,000 ha including Diamniadio, where it is currently being implemented, and Lake Retba, etc. This shows how much the land ownership constraints have been overcome. In terms of tax incentives, the government has set up an exemption and relief scheme and a Guarantee Fund for housing. Meanwhile, the social housing fund is already operational. Initiatives have been taken by financial institutions, most notably the Banque de l’Habitat (“the Housing Bank”), which launched new products to reduce its interest rates. All of these measures aim to make housing more accessible to a larger proportion of the population, including Senegalese people living abroad.”

The diaspora, whose money transfers to their home country have exceeded Official Development Assistance (41bn dollars in 2018 according to the World Bank), is, at last, a recognised alternative source of infrastructure funding.  NA

 


 

KEY FIGURES

The global construction market is expected to grow by 70% between now and 2025. Africa is at the heart of this dynamic. Nigeria, with over 170 million inhabitants in 2012, is currently facing a housing deficit of around 17 million homes. The country has committed to building new homes, mainly social housing, with another of the targets being an increase in the proportion of owner occupied households to 25%.

The rise of African cement manufacturers is revolutionising the market. The continent’s colossus, Dangote Cement, hopes to invest 1.7bn euros over five years for an annual production of 50m tonnes by setting up cement factories in at least ten African countries. Some of these units are already in operation, and other companies are joining the race. One of these is Lafarge Holcim, the construction giant in Africa, which is to open its third cement plant in Cameroon in April. This new factory will have a production capacity of 2.2m tonnes. With the proliferation of “small cement-makers”, Africa will also see a reduction in one of its biggest construction costs – the importation of cement.

According to the AfDB annual report, the continent must invest between 130 and 170bn dollars in infrastructure each year, but this investment amounted to only 62bn dollars in 2016. Stressing that substantial growth in infrastructure remains the most important task for African development because it drives the growth of other sectors, the report highlights recent trends, linked to the various strategies of the States and other actors – new cities, clean energy, water sanitation, and so on.

 

 

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