World population

YEAR PEOPLE (bln)

1950 2.5 2010 6.8 2050 9

2

$16T $1T $7T

Budget $40 000 000 000 000

Global needs/challenges

2

3

YEAR PEOPLE (bln)

`

`

1950 0.2 2010 0.95 2050 2.00

Africa population

5 Budget $1 000 000 000 000

Africa needs

The African context…

In 2013, Africa was the world’s fastest-growing continent at 5.6% a year

GDP is expected to rise by an average of over 6% a year between 2014 and 2024

Africa’s dependence on primary commodity exports leaves it vulnerable to global market fluctuations

Africa’s institutional, regulatory, and administrative reform processes is only halfway along

Commodity-based industrialization is still largely undeveloped

Africa’s Share of Global Reserves and Production, Selected Minerals (%)

7

Commodity Price Trends

Commodity Price Index, January 1980 – January 2011

Commodity Price Forecast

Source: World Bank, nominal USD, January 2014

Drivers of African commodity demand

■  Global population growth

■  Economic growth

■  Urbanization and labour force expansion

■  Availability of comparatively cheap resources

■  Increasing / increased political stability (less sanctions)

■  Global Economic ties

KPMG outlook for commodity demand

■  Mild acceleration in global growth due to demand in advanced economies during 2014 with some acceleration in 2015 and 2016

■  Cyclical swing in advanced economies boosting trade and exports in emerging markets

■  However, Emerging markets will remain under pressure – US tapering effect and Chinese growth and domestic troubles

■  Global inflationary pressures are anticipated towards end of 2014 ■  Result in increase in certain commodity prices – although US tapering effect

could have a negative on commodity pricing

■  Expectation of inflationary pressures could lead to increased interest rates in 2015 and 2016, tampering global growth and increased inflation over 2017 to 2018.

KPMG outlook for commodity demand (cont…)

■  Further tapering of Quantitative Easing (QE) in the US could potentially negatively affect base metals prices (such as copper) in the future

■  Base metals prices are expected to remain static, but could decline due to weaker-than-expected demand over the medium term

■  Reversal could occur when production of goods increase because of global growth

■  Generally – it is expected global growth will push up overall demand for commodities in the short term – resulting in higher prices

■  Over the medium and long term, prices are expected to slow with supply imbalances catching up with demand as well as further QE tapering

Africa’s Resource Spread

Mineral Resource Deposits

Source: The Economist

Sources of Demand

Africa’s Main Export Destinations and Origin of Imports 2001, 2008 and 2011 (% share)

Top 10 African Exporters

Key Commodity Interest Areas: America

Share of Top Five Exporting Countries and Top Five Export Products to the US under AGOA, 2011 (%)

Key Commodity Interest Areas: China

Special Economic Zones setup by PRC as of 2011

1. Chambishi, Zambia - copper and copper related industries.

2. Lusaka, Zambia - garments, food, appliances, tobacco and electronics. (classified as a subzone of the Chambishi zone)

3. Jinfei, Mauritius - manufacturing (textiles, garments, machinery, high-tech), trade, tourism and finance.

4. Oriental, Ethiopia - electrical machinery, construction materials, steel and metallurgy.

5. Ogun, Nigeria, - construction materials, ceramics, ironware, furniture, wood processing, medicine, and computers.

6. Lekki, Nigeria - transportation equipment, textiles, home appliances, telecommunications, and light industry.

7.  Suez, Egypt - petroleum equipment, electrical appliance, textile and automobile manufacturers.

The African Opportunity

increase diversification in export products

diversification of trade partners

promotion of regional / intra-African trade

commodity-based industrialization

implementation of strategic trade and infrastructure policies

Development of value-add capabilities within the continent

20

Algeria

Morocco

Tunisia

Mali

Cameroon

DRC Gabon Congo

Nigeria

Niger Chad

Libya Egypt

Central African

Republic

Angola

Madagascar

Mauritius

Seychelles

Comoros

Sudan North

Benin

Mauritania

Burkina Faso

Ghana

Senegal

Guinea

Sierra Leone Liberia

Equatorial Guinea

Namibia

Botswana

Zambia

South Africa

Lesotho Swaziland

Mozambique Zimbabwe

Malawi

Tanzania

Kenya

Somalia Uganda

Rwanda

Burundi

Ethiopia

Djibouti

Sudan South

São Tomé and Principe

Cape Verde

Guinea-Bissau

Togo Côte d’Ivoire

The Gambia

Eritrea

Copper

Coal

Iron Ore

Manganese

Africa’s Mineral Deposits

Precious metals

21

Potential African Mining Destinations

Does Country Attractiveness attract FDI?

Types of Project Investment

Source: IJonline

0

2,000

4,000

6,000

8,000

10,000

12,000

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Africa & Middle East Americas Asia & Pacific Europe

Global Equity Investments by Region/Sector - Primary and Secondary Markets 2013 to Sept

Primary market Secondary market Refinancing

USDm

Copper

Coal

Iron Ore

Manganese

Freight

Southern African Corridors

SADC RIDMP Projects by Sector

Botswana

A heavy haul railway line and a port at Ponta Techobanine ((Mozambique, Botswana, Zimbabwe)

TransKalahari/Mamuno OSBP (Namibia, Botswana)

Botswana 8 projects

Botswana has 2 cross border projects with Mozambique/ Namibia

Techobanine Heavy Haul Railway (Techobanine) (Mozambique, South Africa, B o t s w a n a , Z i m b a b w e , Swaziland)

Botswana has 1 cross border projects with DRC/Swaziland/

Tanzania/Zambia

Botswana has 3 cross-border projects with South Africa

Kinshasa-llebo railway link (DRC, Tanzania, Zambia, Zimbabwe, South Africa)

Trans Kalahari Railway (Namibia, Botswana)

Botswana has 4 cross-border projects with Zimbabwe

New Transport Projects

Namibia

TransKalahari/Mamuno OSBP (Botswana, Namibia)

Luanda‐Windhoek Corridor roads (Angola, Namibia)

Trans‐Caprivi‐western Zambia Railways from Kolwezi (DRC), through Solwezi (Zambia) to Mongu, Sesheke (Zambia) and Katima Mulilo (Namibia) (DRC, Zambia, Namibia)

Katima Mulilo/Wenela OSBP (Zambia , Namibia)

Oshikango‐Santa Clara OSBP – Border Post (Angola, Namibia)

Trans Kalahari Railway (Botswana, Namibia)

Ariamsvlei OSBP Border Post (Namibia, South Africa)

New Transport Projects

Tanzania

Transport Nakonde/ Tunduma OSBP (Tanzania, Zambia)

Restructuring of Zambia’s railway systems (Dar‐es‐Salaam Corr idor. From the Zambian Copper Belt to south‐western Tanzania. (Tanzania, Zambia)

Construction of Mtwara – Songea – Mbambabay railway line with Spurs to Mchuchuma/ Liganga (Tanzania, Malawi, Mozambique and Zambia)

Establishment of Cargo Freight Station (CFS) – Kisarawe

Upgrading of Dar Es Salaam (DSM)- Isaka (ISK) railway line to standard gauge and construction of Isaka – Keza Kigali (Rwanda)/ Musongati (Burundi) railway Line

Tanzania Railways Limited Revival

Mtwara Port and EDZ development (Tanzania (bene f i t i ng coun t r ies inc lude Ma law i , Mozambique and Zambia) Kinshasa- llebo railway link: construction

(Tanzania, DRC, Zambia, Zimbabwe, South Africa)

New Transport Projects

Zambia Transport Nakonde/ Tunduma OSBP Border Post Tanzania, Zambia)

Restructuring of Zambia’s railway systems (Dar‐es‐Salaam Corr idor. From the Zambian Copper Belt to south‐western Tanzania. (Tanzania, Zambia)

Construction of Mtwara – Songea – Mbambbay railway line with Spurs to Mchuchuma/ Liganga (Tanzania, Malawi, Mozambique, Zambia)

Mtwara Port and EDZ development

Katima Mulilo/Wenela OSBP Transport boarder post (Between the towns of Sesheke and Katima Mulilo) (Zambia, Namibia)

Mwami‐Mchinji OSBP Transport Border post (Malawi, Zambia)

Trans‐Caprivi‐western Zambia Railways from Kolwezi (DRC), through Solwezi (Zambia) to Mongu, Sesheke (Zambia) and Katima Mulilo (Namibia) (Zambia, Namibia)

Kasumbalesa OSBP Transport Border post (DRC, Zambia)

Chingola‐Solwezi Railway Extension (Zambia, Angola)

Kolwezi- Dilolo Road Rehabilitation (DRC, Zambia, Angola)

Kinshasa- llebo railway link: construction (Tanzania, DRC, Zambia, Zimbabwe, South Africa)

New Transport Projects

West Africa

Nigeria High Speed Rail Nigeria to build a 2,000 mile (3,218 km) nationwide high speed rail (HSR) system.

New Rail Projects

Ghana Eastern Railway Line Project Tema and Tokaradi Port Upgrade

Conducive Environment

  Provision of commercial security   Management capacity and operational agreement   Collaboration between public and private sector addressing liquidity challenge

prevalent in the supply-chain   Governance trends:

–  preserve existing jobs and aim to create new and local participation –  have environmental protection plan –  be social conscious

–  maintain proper commerciality and –  potential stake in projects

Emerging market Political Risk

  Developing economies have had a rough ride since US Federal Reserve mooted a wind-down of its money printing

  This has had detrimental effect on market bonds and equities

  Political risks to FDI go beyond tax hikes or payment risks and extend to expropriation of assets, threats to staff or plant and inventory damage

  Traditionally these risks to FDI have been judged by deep local know-how or by government insurance bodies or bespoke political agencies

  Recent study shows that a 1% rise in political risk spread leads to a drop in FDI of 12%, or some USD305million on average

  Lets not forget CHINA

33

Considerations

  Healthy banking sector, GDP growth and political will are catalysts for local capital investments

  View going forward – make infrastructure, energy and project finance more attractive to larger pools of investment capital

  A new market has emerged which is more conservative, more collaborative and willing to innovate to draw in new sources

  Institutional investors seeking to scale up their investment flows, need to invest in internal competency (esp construction risk), get their heads around illiquidity of assets and political framework and find the right investment structure.

  Governments need to create the right environment, ensure transparency, address market failures, monitor performance and collect data.

  Establishment of great collaboration between African countries for the promotion and enhance great accessibility to markets through rail infrastructure

Thank you Malcolm Pautz

KPMG Infrastructure and Major Projects

+27 79 512 9956 Malcolm.Pautz@kpmg.co.za