Construction and activities in the real estate are some of the largest beneficiaries of infrastructure projects in Kenya. At least in the last 10 years, infrastructure projects in the transport, energy and mining sectors have opened up opportunities for real estate developers. It would be important if we took time to look at the third edition of the Deloitte African Construction Trends report which focused on the year 2014.
Compared to the rest of Africa, the number of high capital infrastructure projects in East Africa dropped significantly in 2014. In terms of number of projects, there were 93 projects recorded in 2013 compared to 2014’s 51 projects. In terms of the total value of projects, 2013 recorded projects worth US$ 67.688 billion while projects worth US$ 60.671 billion were recorded in 2014.
The East African region came in third, behind Southern and Western Africa and ahead of Central and North Africa. Within the region, Kenya led the pack.
The rest of the continent, led by Southern Africa, recorded an increase in value of projects that were executed during the year.
“While there seems to have been a dip in current activity, there are a large number of significant projects in the planning phase that have not yet reached financial close and are thus not yet reflecting in the statistics of projects under construction,” explained Dr Mark Smith, the Head of Infrastructure & Capital Projects at Deloitte East Africa.
“This remains critical for Africa’s economic growth momentum, particularly to bolster the manufacturing sector and facilitate trade within the continent,” Dr. Smith added.
Kenya contributed the bulk of large capital infrastructure projects implemented in East Africa in 2014, followed by Uganda, Ethiopia, Tanzania, and Rwanda respectively.
Transport and Energy
The transport sector accounted for 59 percent of all the projects in Kenya, representing a growth of 17 per cent while 37 per cent of projects were focused on energy and power capacity development. Some of the notable projects in the energy sector in 2014 include the expansion of geothermal generation projects which seeks to improve access to grid electricity. The government plans to drill and develop at least 600 wells in Kenya’s Rift Valley by the year 2030. The World Bank has already invested at least US$ 400 million in the geothermal energy production projects.
The Olkaria Geothermal Power Plant was officially opened on February 19, 2015. This is the largest geothermal project in Kenya – with Olkaria IV having started its commercial operation in September 2014, followed by Olkaria I in January 2015.
The Oil and Gas boom in the region continued, despite this not yet manifesting in mega projects breaking ground. It is estimated between US$60 billion to US$70 billion needs to be invested in infrastructure in the oil and gas sector.
Overall, the value of mega projects under construction across Africa in 2014 stood at US$326 billion, a 68 percent growth from US$222 billion the previous year. Whereas the number of projects dropped to 257 from 322 evaluated in 2013, the average value rose to US$1.27 billion from US$689 million the previous year.
The Southern Africa region contributed the biggest share of the projects, accounting for 46 percent of all the projects in the continent, valued at US$145 billion. It was followed by West Africa, East Africa, Central Africa and North Africa.
In 2014, 27 percent of the total projects collected were above the US$1 billion mark in value, an 11 per cent jump.
Who owns these projects?
Over half of the projects executed during the year were owned by the government with the emergence of Australia, the United Arab Emirates (UAE) and India as owners. This reflects an interest in Africa by foreign investors and fund managers, the report concluded, as well as improved political and economic stability on the continent. There was also an increase in the proportion of projects implemented as Public-Private Partnerships (PPPs).
Who funded the projects?
International Development Finance Institutions were the top financiers of majority of the projects while new foreign investors emerged including private Israeli companies, public owned funds and organizations from UAE as well as private Australian companies. The level of government funding increased by a significant 15 percent while foreign institutions showed reduced appetite for funding this year, with a 9 percent drop in this investor category.
About the African Construction Trends Report
The African Construction Trends report monitors progress on capital intensive infrastructure on the continent, with a focus on projects valued at more than US$50 million and had to have broken ground by at least 1 June 2014. You can download the full Construction Trends Report 2014 here.