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Tough Calls Are worth it

Published 6 years ago
By Forbes Africa

Africa has 54 diverse countries, a billion people on the move, an abundance of raw materials, the largest new market for goods and services, a food for generations and an insatiable infrastructure market for a hundred years.

Despite fragmented infrastructure delivery, due to a lack of domestic fiscal strength, weak regional integration and inexperienced internal project delivery capacity, Africa’s foreign direct investment (FDI) inflows have quadrupled since 2000.

Although FDI projects in Africa fell 8.4% in 2014, the continent’s share of global capital investment and job creation hit an all-time high, attracting more FDI than North America, Latin America and the Caribbean, and Western Europe.

Despite claims to the contrary, European investors continue to dominate investment in Africa as American interest rebuilds, while the commitment from Asia-Pacific has weakened over the past decade.

Projects are getting more complex, with the average investment of $174.5 million per project in 2014, up from $67.8 million in 2013; a 68% increase that created 188,400 jobs.

Many of the basic public infrastructure contracts in poorer countries are implemented through diverse aid agencies, barter deals, or in rare cases, through public-private partnerships.

The more than 70 Chinese contractors in Africa benefit from barter deals in relation to energy and minerals, or aid-related projects tied to the State. Many smaller Chinese contractors battle with indigenization, and the interpretation of local contract specifications, leaving technical and socioeconomic problems and a legacy of unfulfilled expectations. Group Five were called to rectify a partly constructed commercial building in a neighboring country. It had been poorly constructed by a Chinese contractor, somewhat to the architect’s specification, but as the program became tighter and the cash flow ran out, innovation ran wild. The photographs amused us for years.

Government-funded infrastructure on open tender is the area where acquiring projects can be the most difficult, and then there is the matter of securing payment. These are highly contested bids where innovation in packaging the right mix of local resources, commitment to local communities and skills development make all the difference. In some cases, corruption rears its ugly head and staff come under duress in difficult locations. Zero tolerance is mandatory. Management needs to train employees to deal with corruption and to uphold the international standards by which a business should be judged. Contrary to popular misconception, it is possible to uphold ethical business values in Africa. Robust risk assessment of counter parties is a key factor in preventing corruption.

Foreign-financed-loan or aided-public-infrastructure projects favor their own contractors, providing a partnering or sub-contracting opportunity for the larger African-based contractors.

Projects funded by the World Bank and the African Development Bank are open tenders and often bureaucratic and highly contested, with strong competition from Asia and Eastern Europe. Often funding is inadequate – causing disputes. I remember a 10-year dispute where the specifications were completely at odds with the actual site, meaning additional work was required to build the road. The dispute ended favorably, but with significant cost and delayed payment.

Technically complex projects in power, oil and gas, mining and agriculture are available in the private sector.

The Independent Power Project market is exciting but requires time and resources to support the developers. My previous company built more than 1,200MW of power plant capacity across Africa with at least another 1,000MW now in construction in renewables and gas-fired power. Mining plant construction has provided a massive boon to local construction companies in gold, copper, cobalt, uranium and coal as far afield as Madagascar, Liberia, Mali, the Democratic Republic of Congo, Ghana, Malawi, Mozambique and Sierra Leonne.

Local knowledge, the best people, the right partners, efficient execution and innovation wins these bids.

Sites are manned by a multinational workforce, so there is substantial risk in the assumptions made at the bid stage on local manpower skills, rates of production and quality of work which will determine the cost and duration. The industry exists on incredibly low margins, yet takes on massive risk. One has to see through the complexity of a multi-year project to get your bid cost accurate. It’s a tough call, yet very rewarding when it comes off.

On the flip side, the most successful long-term client relationships have been born out of managing adversity and still delivering the project.

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Related Topics: #December 2015, #Infrastructure, #market, #Raw Materials.