East Africa attracts $3.4b in project funding as it exploits oil, gas

Tuesday May 23 2017

Construction of the Northern Bypass road that links to the Entebbe Express Highway. PHOTO | MORGAN MBABAZI

Construction of the Northern Bypass road that links to the Entebbe Express Highway. PHOTO | MORGAN MBABAZI 

By ALLAN OLINGO

The discovery of oil, gas and mineral deposits in East Africa has paved the way for ambitious infrastructure projects that have attracted at least $3.4 billion from international lenders in the past year.

The World Bank, the European Union and China are the region’s main infrastructure financiers.

According to the Deloitte African Construction Trends Report 2016, Kenya had initiated the highest number of projects, 11, followed by Ethiopia and Uganda, with nine projects each, and Tanzania with eight.

China and the EU have been the biggest financiers of Kenya’s infrastructure projects, with roads taking the biggest share of the funds. The EU, in partnership with other lenders — the German Development Bank (KfW), the European Investment Bank (EIB) and the African Development Bank — is funding key roads on the Northern Corridor, including the $151.7 million Mombasa-South Sudan link road and the $152.2 million Mombasa-Mariakani road.

Walter Tretton, head of infrastructure in the EU delegation to Kenya, said the new link roads are a game-changer, in some places cutting the journey from days to hours.

“The new roads will also help reduce congestion while improving the competitiveness of the port of Mombasa,” Mr Tretton said.

Northern Corridor

The EU, through the Africa Infrastructure Trust Fund (EU-ITF), has given $22 million to fund the Mombasa-Mariakani road while KfW and EIB have given $55.2 million each. Kenya is expected to inject $19.8 million.

The proposed Kitale-Morpus road in western Kenya, which is expected to eventually link Tanzania and South Sudan through Kenya, will be constructed through a $27.5 million grant by the EU-ITF and a $99.3 million loan from KfW. The government will put up $24.8 million.

The road is expected to branch from the Northern Corridor to South Sudan in one direction and Tanzania in the other. The EU is also partnering with the AfDB to finance the construction of a road from Isebania to Tanzania.

But the report notes that the number of big projects dropped in 2016, compared with the previous year. It says that 43 big projects were identified in the region, compared with 61 the previous year. The total value of the projects fell from $57.5 billion in 2015 to $27.4 billion last year.

In Tanzania, the drop in infrastructure project financing is attributed to President John Magufuli’s austerity measures, which have seen the government rationalise its big capital projects and cut state spending in order to reduce the budget deficit.

“The suspension of the $11 billion Bagamoyo Port project has seen a significant decrease in the value of ongoing projects. Bagamoyo, which would have become the largest port in East Africa, was suspended by Tanzania’s new government, which has chosen instead to focus on the ports of Dar es Salaam and Mtwara,” the Deloitte report says.

Eurobond

Last month, Tanzania announced that it would use its $700 million Eurobond and concessional loans to fund the construction of its standard gauge railway network.

Finance Minister Philip Mpango said they had initiated talks with UK-based Credit Suisse for a $300 million loan to finance infrastructure projects. They are also in talks with the Kuwait Fund for Arab Economic Development, the Abu Dhabi state fund, Mubadala Development, and the OPEC Fund for International Development for other concessional loans to fund these projects.

Tanzania is looking to raise $936 million in the new financial year for infrastructure projects. The World Bank remains Dar’s biggest partner in infrastructure projects. In March, the Bank announced a $1.15 billion loan for projects in energy, water and transport.

In Uganda, the construction of the $476 million Kampala-Entebbe Expressway, which is due for completion next year, stands out. The country is also building the 600MW Karuma Dam at a cost of $1.65 billion.

Kampala has also seen a drop in infrastructure funding following queries on the management of some of the projects. In September last year, the Bank suspended new lending to Kampala, saying its projects were “characterised by endemic delays in implementation, cost overruns, and corruption.”

Rwanda has in the past year launched its second international airport at Bugesera after the signing of a $418 million construction agreement with Mota Engil Africa SA. It also unveiled its $300 million Kigali Convention Centre. In May last year, it inaugurated the $140 million KivuWatt gas power plant.