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Economic Outlook for Infrastructure Projects: Africa PerspectiveMahendra Dedasaniya: Associate Director - Deloitte 7 November 2017
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• 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
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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
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-1.0
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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
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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)
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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
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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
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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
Key project sectors: Transport (25%); Energy and Power (20%); Real Estate (31%)
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
Key project sectors: Transport (18%); Energy and Power (34%); Real Estate (22%)
42 projects valued at US$76bn
Key project sectors: Transport (43%); Energy and Power (10%); Real Estate (26%)
6.6%
4.4%
3.0%
3.2%
2.2%
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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
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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.
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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
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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
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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
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“Africa is ripe and ready for business to
succeed…and so the foundation is laid for
the services industry to sprout and
flourish”
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