economic outlook for infrastructure projects: africa ... · pdf fileeconomic outlook for...

Economic Outlook for Infrastructure Projects: Africa PerspectiveMahendra Dedasaniya: Associate Director - Deloitte 7 November 2017

© 2017. For information, contact Deloitte Touche Tohmatsu Limited 2

• Global infrastructure spend ~ US $9.6trillion per year i.e 14% of GDP

• From 2016 through 2030, the world needsto invest about 3.8% of GDP, or anaverage of US $3.3 trillion a year, ineconomic infrastructure just to supportexpected rates of growth

• Infrastructure spending in Africa as apercentage of total emerging market spendis expected to rise from 2.1% in 2000-2015 to 3.4% in 2016 to 2030

• The average ROI on infrastructure projectsis 19-22% across Africa, SA is thehighest @ 25.1%

• A dollar of infrastructure investment canraise GDP by 20 cents in the long run byboosting productivity

• Services have become by far the fast-growing market and largest part of theworld economy which is estimated to 70percent of global GDP.

Global overview of infrastructure investment in emerging markets

Infrastructure Market OutlookGlobal Infrastructure Investment


As the second-fastest growth region globally, Africa remains an attractive destination that cannot be ignored by business

Growth trends & outlook

3

Real GDP growth outlook by region (%), 2012-22f

Source: IMF, October 2017

Over the next 5 years, Sub-Saharan Africa (SSA) is expected to rebound to the second-fastest growing region. SSA saw a short-term and temporary dip in economic growth on account of commodity price adjustments and external headwinds but is expected to approach4% by 2022 (only rivalled by emerging and developing Asia at 6.3%).

11 African economies will be amongst the world’s 20 fastest-growingeconomies between 2017 and 2022.

10 SSA economies will record average GDP growth in excess of 6% between 2017 and 2022.

SSA is set to be the second-fastest growing region in the world by 2022, after Developing Asia, averaging 3.5% over 2017-22

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f 2022f

GD

P gr

owth

(%

)

Advanced economies Commonwealth of Independent StatesEmerging and developing Asia Emerging and developing EuropeLatin America and the Caribbean Middle East, North Africa, Afghanistan, and PakistanSub-Saharan Africa

Emerging and developing Asia

Sub-Saharan Africa


FDI inflows by capital investment in 2016 largely focused on Egypt, Algeria, South Africa and Ethiopia and mostly investors from Asia and the Middle East.

80% of global FDI inflows into Developing Asia (30%), Europe (28%), North America (22%) where as Africa receives 5-6%. In terms of industry split, Services received 51%, manufacturing 27% and primary 22% of FDI inflows.

Capital inflows, top investors & investment by region (based on announcements)

4

FDI by Capital Investment, 2016Top Investors in Africa by Capex (US$bn), 2016

602 projects

US$92.3bn

Source: fDI Intelligence, 2016

FDI into Africa by project number, 2016

Country US$bn % change from 2015

% Africa market share

Egypt 40.0 173% 43%

Algeria 7.4 876% 8%

South Africa 7.0 51% 8%

Ethiopia 6.8 296% 7%

105

80

69

493833

2619

171616

134

South Africa

Morocco

Egypt

Nigeria

Kenya

Côte d’Ivoire

Ghana

Tanzania

Algeria

Ethiopia

Tunisia

Other

0.02

1.3

3.8

8.5

12

15.7

50.8

Latin America &Caribbean

Emerging Europe

North America

Africa

Western Europe

Middle East

Asia-Pacific

North Africa: Capex (US$54.3bn), Projects (184)

Southern Africa: Capex (US$7.9bn), Projects (112)

Central Africa: Capex (US$1.5bn), Projects (28)

West Africa:Capex (US$9bn), Projects (135)

Investment by region, 2016

East Africa: Capex (US$19.4bn), Projects (143)


Some challenges are unique to Africa and require tailored solutions as the extent and complexity of these challenges differ in each country

Infrastructure Investment Challenges: Global vs Africa

Policy UncertaintyRetrospective legislative and regulatory changes on the rise

Policy UncertaintyFrequent changes of government policies due to domestic pressures

Investment ReturnsDeclining ROI expectation due to expansionary monetary policy response to the global financial crisis

Investment ReturnsIncreasing ROI expectations due to higher risk premium

Macroeconomic ConditionsSlow recovery from the financial crisis and more inward focus on investment, except China which has only slowed its pace of global expansions

Macroeconomic ConditionsLow growth levels, most countries growing at single digit levels, currency volatility, high inflation and rising unemployment levels

Technical Skills ShortagesEmergence of conservative anti-immigration governments discouraging talent migration

Technical Skills ShortagesForeign-led investments use imported labour, with limited or no skills transfer

Government FinancesDeteriorating government finances, reduce spending forcing them to have an alternate source of infrastructure funding.

Government FinancesLow growth and currency volatility have constrained – Inflow in USD and outflow in local currency

Infrastructure Investment Challenges

Global Challenges African Challenges

Source: UBS, 2017


African economies are underinvesting in infrastructure compared to Asian economies

0

5

10

15

20

25

30

35

40

45

50

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Gro

ss fix

ed c

apita

l for

mat

ion

(% o

f G

DP)

Nigeria South Africa Kenya China India Indonesia

India

Source: World Bank, 2017

Investment in infrastructure and capital projects is an important aspect for enabling GDP growth, more diversified economic and private sector activity, and providing the platform for such growth to be sustainable and inclusive, Public-Private Partnerships is the key to reduce the infrastructure investment gap

Nigeria

South Africa

China

Kenya

Indonesia


Opportunities across Africa : Committed Investment

Source: Deloitte. 2016. Africa Construction Trends Report

43 projects valued at US$27.4bn

Key project sectors: Transport (47%); Energy and Power (26%); Real Estate (11%)

85 projects valued at valued at US$93.4bn


24 projects valued at US$7bn

Key project sectors: Transport (29%); Energy and Power (42%); Real Estate (8%); Mining (8%)

92 projects valued at US$119.8bn


42 projects valued at US$76bn


6.6%

4.4%

3.0%

3.2%

2.2%


African Construction in Focus: Who owns, funds, builds?

Funding and ownership is defined as the country where the financier or owner of the project is domiciled.

Source: Deloitte analysis, Nov 2016


Opportunities for Growth in the Service Economy

Global service imports is valued at R19.8 trillion with a compound annual growth rate of 5.5%

The sub-Saharan Africa compound annual growth rate is higher at 7.1%

Services are playing an increasingly important role in African economies: the services sector’s share of GDP has increased to over 60% in recent years

South Africa is ranked 5th, with a Services Sector GDP contribution of just above 60%

South Africa is exporting only 2% of its services into sub-Saharan Africa

SA has potential to increase its export share to 15% for services into Africa

This will add an additional R245 billion to GDP and 460k jobs

The largest consumer of imported services are Angola, South Africa, Nigeria, Mozambique and Ghana.


South Africa’s Competitive Advantage (to be continued…)

Labour Market Efficiency, Financial Institutions & Technology Competitiveness

Sources: 1. Global Competitiveness Report 2015 – 2016, WEF; Doing Business 2016, Measuring Regulatory Quality and Efficiency; Global Financial Stability Report, IMF 2. Cushman & Wakefield, Office Space across the World; IBFD, 2016, Portal to Cross Border Tax Expertise

Geographic, Language & Overheads (Cheap office rental ranking) Competitiveness

Ease of Doing Business Competitiveness Tax Structures Competitiveness

49

1

6

8

1930

24

33

0 20 40 60 80 100 120 140

Overall ranking out of 140 countries

Strength of auditing and reporting standards

Availability of financial services

Soundness of banks

Intil internet bandwidth, kb/s per user

Effect of taxation on incentive to work

Reliance on professional management

Business sophistication

USA UK Russia India China Brazil South Africa

SA is highly competitive on

Financial Institutions, Auditing & Reporting Standards, Taxation on incentive to work,

and it’s ranked 49 overall

73 116

5

130

51

6

7

South Africa

Brazil

China

IndiaRussia

UK

USA

SA’s ease of doing business is better than Brazil & India

USAEnglishUTC-05:00Ranked 62 Brazil

PortugueseUTC-03:00Ranked 61

South AfricaEnglishUTC+02:00Ranked 1

ChinaMandarinUTC+08:00Ranked 64

IndiaEnglishUTC+05:30Ranked 60

RussiaRussianUTC+03:00Ranked 65

SA is gateway to Africa, offers cheapest office space, is well positioned to service

the West-East, & uses English as the business language

UKEnglishUTC+00:00Ranked 67

28%

15%

15%

14%

28%

16%

20%

16%

0%

5%

10%

15%

20%

25%

30%

35%

Corporate tax Tax on Dividends Tax on Interest VAT/GST

South Africa Brazil China India Russia UK USA Median

SA’s corporate tax is in line

the with median &

other taxes are below median


Sources: Oanda.com, February 2016; ilo.org, kilm15 & kilm16 ; oecd.org

Currency, Jan 2014 - Jan 2017 ($) Competitiveness

Monthly Wages, 2009 - 2013 (National currency) Productivity Labour Output per Worker, 2010 - 2020 (GDP $ in PPP)

Education & Skills Competitiveness (excluding China)

14

4 7

6776

0.7

50%

70%

8% 9%

125%

14%

0%

20%

40%

60%

80%

100%

120%

140%

0

10

20

30

40

50

60

70

80

S. Africa(USD/ZAR)

Brazil(USD/BRL)

China(USD/CNY)

India(USD/INR)

Russia(USD/RUB)

UK(USD/GBP)

Currency at Jan‐17 24 Months % Change (Jan‐14 to Jan‐17)

SA offers a competitive currency/US$ compared to Brazil and China, and its

currency is more stable to the Russian Ruble

2009 2010 2011 2012 2013

SA Brazil China India

Russia UK USA Median

SA’s wages has only increased

42% over a 5year view, compared to

China’s 60%, India’s 59% and

Russia’s 61%

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Thou

sand

s

SA Brazil China India

Russia UK USA Median

With relatively lower salary increase, SA’s productivity is still in line with the median and still 46% higher than India, China &

Brazil

17%

9.80%13%

56%

39%

22%

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

300

350

400

South Africa India Brazil Russia UK USA

Millions

2013 Labour force 2013 Tertiary (%)

SA has a better % of tertiary

educated workforce than

India and Brazil, and SA also come very close to USA

South Africa’s Competitive Advantage


With the right approach and partnerships, SA engineering companies are well positioned to exploit the abundant opportunities on the continent

A Head for Business and a Heart for Africa

AgilityThe traditional business model and approach may not always succeed, adaptability is required

Risk AppetiteThe continent has its inherent risks, which businesses need to understand and mitigate, but the returns are potentially higher

Strategic PartnershipsCreating competitive edge through strategic partnership with organisations that understand and have vast market experience are critical

Deep Understanding of Africa Africa is not homogenous, thus a deep understanding of each country as a unique environment is vital to developing a compelling value proposition1

23

4


“Africa is ripe and ready for business to

succeed…and so the foundation is laid for

the services industry to sprout and

flourish”

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

This communication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and their related entities (collectively, the “Deloitte network”). None of the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

© 2017. For information, contact Deloitte Touche Tohmatsu Limited

economic outlook for infrastructure projects: africa ... · pdf fileeconomic outlook for...

Documents