The Civil Engineering Contractor July 2018 | Page 41

BUSINESS INTEL
where each country typically has a
local content requirement compelling
such partnerships.
In terms of M&A, we have also
seen equity partners looking to do
in-country acquisitions to participate
in the local project pipeline across
Africa. A major trend has been South
African companies moving into West
and East Africa, with EU, US and
Middle East companies moving into
Africa. This is a positive trend for
Africa, as it gets local companies
involved, gives companies exposure
to new technology, and opens up a
pipeline of projects to be harvested
that otherwise might not have
happened.
There is an increasing trend for
private companies to put forward
non-solicited bids, with pre-
feasibility funded by the company,
a consortium, and possibly a DFI.
If the project gets the go-ahead, the
consortium or company will be in
the front seat, but this is dependent
on the maturity of PPP Frameworks
to enable such procurement.
Nonetheless, early participation helps
unlock the pipeline of projects as it is
easier to model the revenue stream.
The types of projects the private
sector will get involved in are those
with an economic impact that can
be monetised. This in turn enables
government to focus its energies on
social projects involving services
projects such as building hospitals,
schools, and prisons.
Government becomes the
regulator, not the executor
whereas in an economic boom more
projects can happen.
In this regard, new artificial
intelligence (AI) technologies can
assist with the project pipeline.
Technology can assist with design and
tracking of projects, bringing them
within the critical five-year timeline
and therefore able to get done. There
have been concerns that AI will reduce
employment, but this has not been
seen. In any case, government will
have a role to play here in insisting
projects have a strong local content
component and that they create
enhanced value-add jobs and re-skill
the workforce. nn
These two types of projects are
increasingly being separated out in
the budget process. However, because
the former are typically larger and
more high-profile projects, there
is still an urge by government to
become involved. Any project does
in any case require government
participation at some stage as the
regulations enabler for infra projects
(for example, right of way legislation
and off-take pricing regulation).
Ideally, governments should focus
on regulation to ensure the country’s
projects are not overpriced and rather
leave the planning around economic-
impact projects to the private sector.
Governments follow a certain cycle:
once a new government is installed,
it embarks on a wave of projects as
it has the timeline to deliver. Closer
to the close of its term, this slows
down as government concentrates
on people-pleasing service delivery
ahead of the election. Projects often
get delayed during that time. Kenya
has recently had a protracted election
process, while both Nigeria and
South Africa have elections scheduled
for 2019. After that, we can expect
an uptick in projects during the next
24 to 36 months.
PPPs overcome obstacles
This is a primary reason why
government should be less involved
in large economic projects. These
typically have a five-year execution
period and are prone to be delayed
for political reasons, as they become
affected by competing social needs
for education, health, and social
grants. It is the private-public-
partnership (PPP) format that best
ensures the continuity of the project.
However, these require clear PPP
Framework regulations providing for
a competitive pricing process, and
education of the public around the
user-pays model, so they understand
that they will ultimately have to pay
for that asset. In this regard, the
public consultation process is vital. In
an economic slowdown, citizens are
often unwilling or unable to pay —
DFIs, like pension funds,
used to have a country-
only mandate, but many
— the African Development
Bank, DBSA, IDC, and the
Nigeria-based Africa Finance
Corporation (AFC) — can
now invest pan-African
into projects up to 10% or
15% of their assets under
management.
About the author
Sandile Hlophe is a CA (SA), a partner
and the market segment leader for the
Africa Government & Public Sector at
EY. He is the former managing partner
of the Africa Transaction Advisory
Service Line at EY, with extensive
restructuring, capital raising, project
finance, mergers and acquisitions
experience. He has over 21 years’
experience in business turnaround,
transaction advisory, restructuring,
commercial and business management
in the public and private sectors. For
six years, he served as CEO of the
Turnaround Management Association
of Southern Africa (a professional
association for business rescue and
turnaround professionals).
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