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Foreign Construction Companies vs Ebola and other nightmares

KIEL/GERMANY, November 18, 2014 - The outbreak of Ebola, Boko Haram rampaging, political unrest, expatriates being killed or kidnapped – while Sub Sahara African economies are fast growing, crisis management of foreign construction companies participating in the region is at its peak.

Work force safety, risk of third party exposure, necessity of evacuation from a project site, delay in construction projects. These are the challenges many foreign construction companies deal with these days in Sub Sahara Africa. And yet: „If in the next 30 years anyone can do what China had done in the past 30 years, then it is Africa.“ Charles Robertson a leading emerging markets specialist and lead author of “The fastest Billion” states on a TED Talk in Edinburgh, Scotland in June 2013.

the ebola virus, one of the major challenges for foreign construction companies in 2014

The year 2014 is witnessing the most widespread Ebola virus epedemic disease in African history causing significant mortality in some Sub-Sahara African countries. | photo: Fotolia

It’s difficult to decision makers of foreign construction companies these days to recognize the fact that African economic development has been on the rise. That debt forgiveness programmes have halved the debt-rate from over 70% of GDP to an average of below 40%, that there is steady increase of capital inflow, that foreign direct investment has been poured into Africa for the past 15 years and that new portfolio investment has been continuously increasing. According to Deutsche Bank Research published in October 2012 foreign direct investment and portfolio investment quadrupled from US $ 13.2 billion in 2003 to US $ 48.3 billion in 2012 and according to African Economic Outlook is expected to reach a record of US $ 80 billion by the end of 2014

But these clear indicators of the new Sub Sahara African economic dynamics are highly vulnerable to internal crisis. This can presently be witnessed as Africa’s economy is taking a hammering from the Ebola crisis. In some countries there is almost a mass movement of foreign expatriate workers back to their home countries leaving critical sectors of the economy unattended. A World Bank road construction project of building a road between Liberia and Guinea has been suspended, because the Chinese contractor, China Henan International Cooperation Group pulled out its workers and ArcelorMittal, one of the world’s largest steel producer, had to delay expansion plans at its Liberia plant.

With the delays in the construction of planned infrastructure projects, GDP growth in Sub Sahara Africa may be lower than projected. Alhaji Aliko Dangote, Chairman and CEO of the Dangote Group and according to Forbes Magazine the richest man in Africa, reckoned in a Bloomberg TV interview, that “the economies of Sierra Leone, Guinea and Liberia may lose 1 percentage point of growth because of the disease”. According to Matt Robinson, senior credit officer at Moody’s Investors Service, Ebola may cause “an indirect effect arising from an Ebola-induced economic slowdown on government revenue generation”.

The spillover effect of the Ebola disease is crossing far beyond the three main afflicted countries in Sub Sahara Africa. Worst so as Ebola cases have reached Europe and the USA and foreign anxiety really hurting investment in the region.

But for the time being Africa’s macro economic prospects, though fragile, remain favourable. Better than the global economy with a growth rate of 3 %, Sub Sahara Africa maintained a growth rate of 5% in 2013 and is projected to be 5.8 % in 2014. Some individual countries baffle international observers. Nigeria’s real GDP for instance increased from 6.7 % in 2012 to 7.4% in 2013 and is still expected to reach 7.2 % in 2014.  As a result, the country now boasts of having the largest economy in Africa with an estimated nominal GDP of US $ 510 billion, surpassing South Africa’s US $ 352 billion nominal GDP. And yet, conflict related challenges are predominant in many parts of the region especially because the benefits of economic growth have not sufficiently trickled down to the poor.

There is desperate need in African countries to develop the under-performing infrastructure. This on the other hand is directly linked to huge opportunities for foreign construction companies. There is demand for reliable power supply, water resources and underground infrastructure, real estate, extended road network, wide spread railway systems, telecommunication projects, internet penetration. These are to mention but a few sectors where foreign construction companies need to get involved.

And many do. In May this year, the Canadian investor, Sky power Energy has signed a Memorandum of Understanding for investing US $5billion for the production of 3,000 mega watts of solar powered energy in the Delta state of Nigeria. Global Business Resources, FlatBush Solar, Global Resources Network and Charbourne & Parke, all based in the US, will also invest US $ 212 million in Nigeria’s power sector. At a total cost of US $ 316million Kipeto Energy Limited (KEL), majority owned by the US-based General Electric will provide the wind turbines needed for the Kenya-Vision-2030 project aimed amongst others at adding 5000 mega watts to the national grid. The China South Locomotive and Rolling Stock Corporation has signed a contract of bringing in US $ 400 million worth of locomotives to South Africa and with a total of US $ 4 billion the China EXIM Bank is financing the Mombassa-Nairobi railroad line, while the Addis Ababa-Djibouti lain is being rehabilitated at a cost of US $ 3 billion.

Sub Sahara Africa is fast growing into a macro economy with diverse opportunities and interesting projects to the construction industry. But how about government stability to secure long term planning for construction companies? What about blatant corruption?  How far with recognizing human rights to ensure an acceptable environment? How are pandemic diseases dealt with to ensure a reasonable standard of living? What about personal security? Why cumbersome business regulations? How about skills shortage?

Charles Robertson in Edingburh Scotland holding a speech at TEDglobal, June 2013 on the prospects of economic growth on the African continent. | source: Youtube

General improvements in the business environment is a necessary part of the solution. According to a world Bank Group report, 2013 and 2014 Sub Sahara Africa has the highest number of business regulatory reforms worldwide. 39 reforms in the region were thereby focussed on reducing cost and complexity of regulatory procedures and 36 reforms aimed at strengthening legal institutions. So while for instance in 2005 it would take an average of 116 days to start a business in Sub Sahara Africa by 2014 the average period is 44 days. Therefore though still lengthy, the improvement is quite significant and may stand for an indication of change in the business environment.

There has also been political stability in most African countries. Civilian regimes have been in power and the military is trying to keep out of politics. It’s not mere civilian interregnum. But as can presently be seen in Burkina Faso political and social tension could rise with magnificent force especially within the context of the many elections coming up this and next year in several African countries.

But it remains a major obstacle that Sub Sahara Africa is still lacking a robust middle-income group. A strong group that would contribute critically to institution-building. A middle income group that would first of all hold it’s government accountable and does not merely turn to foreign powers to receive aid. A middle-income group that can successfully carry out small and medium sized enterprise. SMEs! This would be so advantageous to Sub Sahara Africa’s economic advancement in general and to its construction industry in particular. It would expand the “missing middle”, broaden the tax base, equip the labour market, level the dearth of  management, administrative and technical expertise and ultimately decrease poverty levels to mention but a few effects.  

Ebola and other nightmares have definitely complicated economic dynamics in Sub Sahara Africa. But despite danger, agony, set-backs and severe challenge foreign construction companies should not sop to intensify their cautious steps of involvement. The mutual benefit may be huge and to Sub Sahara Africa’s economic performance foreign construction companies remain crucial.

Otisi-Schaarschmidt / bi-medien