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Infrastructure Projects and Assets in Africa During the
Covid-19 Pandemic
Eric Mathuku, BEng, MBA
ericmathuku@gmail.com
I. INTRODUCTION
I nfrastructure gap in Africa has led to a growing appetite for
investors in Africa . Most of the projects have been in the
transport, energy, telecommunication & water infrastructure.
The continent has been keen to close the gap and reap the
benefits of economic growth. The good news is that the
infrastructure development has been growing in the past
15years and international investors have the appetite and funds
to spend across the continent. The average annual capital
expenditure in the continent is estimated at $77billion with most
activity happening in West and East Africa.
II. FUNDING OF AFRICAN PROJECTS
It is unfortunate that very few financial projects reach
financial close with evidence showing that only 10 percent
achieve this milestone and an estimated 80% of the projects fail
at feasibility and business plan stage. The low success rate can
be attributed to several reasons. One of them is that most
government developers lack the capabilities as well as the
financial strength to design and implement infrastructure
projects with commercial potential. In addition to this, the short
political cycles challenge government commitment to long-
term projects as well as the rampant corruption which
sometimes discourages private investments and as result, the
investors lack bankable project pipelines. It is even quite a
challenge to reach financial closure for projects and asset
classes despite them delivering high returns in the past like for
power generation or projects which have had major returns in
the past.
III. CORONA VIRUS AND ITS EFFECTS
The virus was first reported in Africa early in 2020 and its
effects have been felt in the sector. The sector employs a
number because of its casual nature with other people being
employed in the operation once the projects are over and is also
expected to grow at 6.4% from 2019-2024
The impact on the infrastructure companies can be accessed
during all the project phases including development,
construction and execution as well.
EPC contractors are invoking force majeure with the off-
takers defaulting, this is thus creating liquidity and funding
gaps. The pandemic has also affected the supply chain and
therefore most of the projects might delay and hence the
investors don’t realise the benefits by the investors as planned.
IV. COVID ON FINANCING
African government backed projects will get a hit as 2020
economic growth is anticipated to recess as compared to 3.9%
expected before Covid 19.The massive job losses and reduced
companies’ profitability translates to reduced revenues.
Similarly, the governments have to spend huge sums to fight
the virus.
This means there is a very high chance projects won’t move past
the development phase in 2020 or for the next 2 years.
V. COVID ON SUPPLY CHAIN
The ongoing projects are facing a huge challenge with the
procurement of material. It is noted that most shipments are
taking longer than anticipated due to restrictions at the ports and
intercountry transport.
Imported manufactured items are also taking longer as most
manufacturers are operating at minimal capacity, thus leading
to delays. Due to this, the contractors are invoking force
majeure clauses in anticipation of delays, and as well incurring
extra costs of running the projects, how these costs will be
passed to the clients remains debatable.
VI. FINANCIAL COSTS
Though the ongoing projects are operating at reduced levels the
contractors always keep fixed costs in terms of assets and
people.
It is therefore clear that the contractors will have shrunk
revenues or run into losses, the effects of these include
defaulting financial obligations repayments, job losses etc.
Projects under PPP and especially those in power generations
have been hit hard. For instance, Kenya’s power distributor
(KPLC) is facing reduced electricity off-take as industrial
consumers who are the biggest consumers have scaled down
their production, this means the developers might as well
invoke force majeure, default in repayment and as well run into
losses.