CIC - Construction Intelligence Center

Infrastructure spending rising sharply in East Africa

1 Oct 2018

Investment in infrastructure construction is set to expand at a rapid pace in East Africa. In the three largest markets in the region, Ethiopia, Kenya and Tanzania, total  infrastructure construction output is expected to soar from $25.92 billion in 2017 to $98.82 billion in 2022 (in nominal value terms).

Despite having some of the fastest-growing economies in the world, East Africa remains among the least competitive regions globally, mainly due to poor infrastructure, which constitutes a significant impediment to the achievement of the Sustainable Development Goals. Reflecting this, governments in the region have allocated around a third of their individual budgets in the new financial year towards financing infrastructure development. 

East Africa Community (EAC) reported that it needs more than US$100 billion over the next four years to plug their infrastructure gap, which has kept the cost of doing business in the region high. Of this amount, US$78 billion over the next ten years would be used on railways, roads and energy projects in a bid to ease transportation and boost manufacturing.

GlobalData is currently tracking 287 large-scale infrastructure projects in East Africa in both the public and private sectors, at all stages from announcement to execution; collectively, these projects are worth $209.08 billion. 

Transport (rail and road) and energy sectors account for a large proportion of the project pipeline (37.1% and 45.2% respectively), and have total values of US$77.51 billion and US$94.55 billion. Investment rates in transport infrastructure have been increasing, thanks to major continental initiatives such as the Program for Infrastructure Development in Africa (PIDA) – a strategic continental initiative for mobilizing resources across African countries to transform Africa through modern infrastructure.

However, there are various factors that hinder infrastructure financing in East Africa, including higher transaction costs, inadequate availability of bankable projects, permits and licenses required, and the multi-governmental agencies and institutions that investors must deal with in a typical capital project. There are also obstacles related to limited local capacity for project preparation and tender (financial, technical, legal and environmental feasibility). Owing to these challenges, many projects proposed by governments are not moving ahead. 

Public Private Partnerships (PPPs) have gained popularity in Africa.in high ticket projects in response to the shortage of infrastructure funding but several grey areas and pitfalls still remain. Traditionally, East Africa depended on a mix of foreign aid and commercial borrowing domestically, abroad and from bilateral partners to fund projects, with debt levels continuing to rise. China has made numerous investments across East Africa to support its need for resources becoming a financier of key energy and transport projects in the region. African countries remain open to cooperation, with China on the development of infrastructure projects under the Belt and Road Initiative.