SOEs ROLE

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SOEs ROLE INVESTMENTS IN AFRICA
Presenter Mr. Bongi GasaDate 03 August 2005
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CONTENTS

• Introduction Infrastructure Integration in
  Africa.
• Africa First The role of SOEs in Africa.
• The DPEs Africa Infrastructure Development
  Project.
• Conclusion.

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INTRODUCTION

• Regional integration requires effective regional
  infrastructure transport, communications and
  energy to widen and integrate markets, achieve
  economies of scale, encourage participation of
  the private sector, and attract FDI and
  technology.
• Yet despite efforts to integrate transport,
  communications and energy, gaps still exist in
  infrastructure and services across African
  economies raising the cost of doing business
  and impending factor mobility, investment and
  competitiveness.

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Introduction (contd)

• Poor infrastructure is a critical barrier to
  accelerating growth and poverty reduction.
• Transport costs are amongst the highest in the
  world. For example, shipping a car from Japan to
  Abidjan (CdV) costs US1,500, but shipping that
  same car from Abidjan to Addis Ababa costs
  US5,000 UNECA, October 2004.
• In some regions of Africa, farmers lose as much
  as half of what they produce due to lack of
  adequate post-harvest storage facilities.
• According to ECA estimates, increasing the stock
  of physical infrastructure by 1, could add 1 to
  the level of GDP.
• In some cases the impact has been greater eg.
  the Mozal smelter investment in Mozambique
  doubled exports, added 7 to GDP, created 1000s
  of new jobs, skills transfer, and facilitated
  SMME sector growth.

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Introduction (contd)

• Between 1990 and 2002, relative to total
  infrastructure investment in developing countries
  in the order of US 150 billion, private sector
  commitments for infrastructure in SSA totalled
  only US27.8 billion, and two thirds of this
  amount (US18 bn) was for telecommunications.
• A recent WB research paper estimates that SSA
  needs to spend around 5 of its GDP (between 2005
  and 2015) on infrastructure investments, and a
  further 4 on operations and maintenance
  totaling expenditure of US20 billion/year.

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Introduction (contd)

• The recent Commission for Africa Report 2005
  makes the following recommendation (and
  commitment towards funding) wrt Infrastructure
  Investments in SSA
• Africa needs an additional US20 billion a year
  investment in infrastructure. To support this,
  developed countries should provide an extra US
  10 billion a year up to 2010, and subject to
  review, a further increase to US 20 billion per
  year in the following five years. This should
  support African regional, national, urban and
  rural infrastructure priorities ranging from
  rural roads, railways, ports, ICT and all other
  infrastructure needed to support greater
  integration of Africas regions and to enable
  Africa to break into world markets.
• Clearly, from the above statement, theres a
  major role and opportunities for our SOEs. What
  are the necessary strategic interventions???

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The Role of SOEs in Africa

• AFRICA FIRST A DPE PUBLICATION.
• Perhaps it is important to premise our discussion
  on this sub-topic of Role of SOEs in Africa on
  the following quotation from the Africa First
  booklet, because it clearly outlines governments
  views and objectives on the topic
• From our perspective as government, it is
  important to note where SOEs operate, how they
  operate, what projects they engage in, and how
  their participation contributes to the larger
  agenda of African renewal and rebirth. At the
  same time, it is imperative that we ensure that
  SOEs involvement in Africa conducts itself with
  probity. It must integrate commercial viability
  and returns on investments with appropriate
  policies for procurement, the empowerment of
  SMMEs, the employment of local labour and
  services that serve to build up and encourage
  sustainable development in the countries of
  operation.

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ESKOM in Africa

• Eskom has established a dedicated NEPAD team to
  mobilize Eskoms resources to promote, develop
  and implement NEPAD related projects in the power
  sector.
• Eskoms In Africa grid vision is guiding the
  plans for many power projects and facilitates
  Eskoms involvement in the development of
  southern African regional power highways
  projects. These projects aim at developing the
  appropriate power transfer capacity in the SADC
  region and beyond, so as to exploit the economies
  of scale in developing new generation plants and
  maximise the power trading potential of the
  Southern African Power Pool (SAPP).
• In addition to being a member of SAPP, Eskom is
  also a member of Union of Producers, Transmitters
  and Distributors of Electric Power in Africa
  (UPDEA) an association of African Power
  Utilities.

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ESKOM Enterprises

• The following are just a few of the major
  projects in which ESKOM is involved in the
  continent
• Eskom Enterprises (EE) participates in a range of
  activities, from consultancy to engineering work
  and construction. EE operates in over 20
  countries in Africa, and is pursuing business
  prospects in another 10 more.
• EE projects are related to the development of
  additional electricity generation capacity and
  hydro programmes, and are mostly linked to the
  extension and consolidation of the rapidly
  growing African power grid.

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Eskom Ent (contd)

• EEs Investment Division has concluded
  concessions controlling ownership in 5 hydro
  stations outside SA, with a combined installed
  capacity of 618 MW. double combined Eskom hydro
  output inside SA.
• EE has a contract with Uganda Electricity
  Concession (Nov 2003) which grants it a 20-year
  concession to operate and maintain the two hydro
  stations, Nalubale and Kiiri, with respective
  installed capacity of 180 and 200 MW. The NPV of
  this project to EE for the first 7 years is US65
  million.
• EE has been appointed as the operator for the
  Manantali Project in Mali for the next 15 years.
  The contract includes management and operation of
  the Manantali Dam, a 200 MW hydro power station,
  including associated 225 kV transmission lines
  connecting 3 electricity utilities of Mali,
  Senegal and Mauritania.

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Eskom Ent (contd)

• EE is involved in a major cross-border
  infrastructure investment project in power
  generation, transmission and supply the Western
  Power Corridor (Westcor) project a joint
  venture project put together by 5 national power
  utilities of 5 countries, namely Eskom, BPC of
  Botswana, ENE of Angola, NamPower and SNEL of
  DRC.
• The goal of the project is provide low-cost,
  affordable and environmentally-friendly energy
  and to ensure that economic development in the
  region is not constrained by shortages in energy
  supply.

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Eskom Ent (contd)

• The Westcor project aims to
• Build a 3500 MW Inga III hydro-power station in
  the DRC, and construct inter-connections of
  transmission power lines for the supply of power
  to the 5 countries.
• Build hydro-power stations in Angola on the
  Kwanza River, and also in Namibia, with a
  possible power generation capacity of 6700 MW.
  The extended project, in its final phase,
  includes the development of Grand Inga
  potential supply capacity of 40 000 MW.
• Build interconnections stringed with fibre optic
  for broad-band telecommunication links to be
  leased to private sector operators.
• Increase trade in electricity by investing in JV
  projects that will allow sharing of capital and
  development costs.

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Eskom Ent (contd)

• The estimated cost of the project is US 4
  billion 1st phase, and will be commissioned in
  2010, subject to positive feasibility study
  outcomes.
• The required Inter-Utility Memorandum and
  Inter-Governmental agreements already exist. The
  pre-feasibility and feasibility studies,
  inclusive of EIAs, have commenced.

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Transnet and its subsidiaries

• Transnet is SAs and Africas largest integrated
  transport logistics company with an asset base of
  about US 7 billion and employs a workforce of
  some 76,000 people.
• It is a multimodal transport enterprise, with
  active and niche market representation in road,
  air and rail passenger transport road, air and
  rail freight transport aviation, ports,
  pipelines engineering and design work in rolling
  stock and rail infrastructure and
  telecommunications.

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Transnet and its subsidiaries

• Spoornet - is the largest railway company in
  Africa, - southern hemisphere if we include the
  rail network, locomotives and rolling stock. Owns
  and operates 80 of Africas total rail
  infrastructure. The following are some projects
  across the continent
• Upgrading and refurbishing of rail lines e.g.
  between Eritrea and Ethopia, and many other lines
  in West Africa.
• Development of railway corridors in SADC region.
• Spoornet (and Transwerk) also leases refurbished
  and redesigned locomotives. Leases have been
  effected to the Sudan Railways Corporation,
  Comazar in Tanzania, SNCC Railways in the DRC,
  CFCO Railways in the DRC, BBR in Zimbabwe and
  Swazi Railways. Total revenue of these leases
  around R215 million per year.

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Transnet (contd)

• Spoornet also has Operate, Maintain and Upgrade
  agreements in Zambia (Spoornet Zambia), with BBR
  in Zimbabwe, and Business Interface Agreements
  with railway corporations in DRC, Swaziland,
  Mozambique, Namibia and Botswana, resulting in
  the facilitation of millions of tons of
  cross-border traffic (mainly goods trade) per
  year between South Africa and these countries.
• Transtel - the companys expertise in
  telecommunications originates from its position
  as service provider to Transnet and its
  subsidiaries.

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Transnet (contd)

• Transtel currently operates satellite based
  networks in 16 African countries, where more than
  150 remote terminals deliver a wide range of
  mainly business services.
• Transtel also provides radio access through Radio
  Train Warrant systems and provides maintenance
  for all related radio equipment on the Ressano,
  Garcia to Maputo project in Mozambique. Similar
  services are provided in Zambia and Swaziland.
• Lastly, Transtel provides CFBU satellite
  services, to enable point-to-point data network
  systems for private customers such as banks, and
  telecommunications customers in Botswana,
  Zimbabwe, Zambia, Tanzania, Angola, Mozambique,
  Nigeria, Uganda, Namibia, Kenya and Lesotho.

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South African Airways (SAA)

• SAA is the largest airline company in Africa and
  is five times larger than any other African
  airline.
• SAAs main growth areas are Nigeria, Angola,
  Zimbabwe, Senegal, Ghana, Tanzania and Mozambique
  where markets are growing in excess of 10 per
  annum.
• In 2003, SAA acquired a 49 stake in Air Tanzania
  (ATCL). The remaining 51 is owned by the
  Tanzanian government. hub and spokes strategy.

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SAA (contd)

• SAA sees Africa as the biggest growth potential
  and key to SAAs return to profitability.
• Africa provides 16 of total SAA revenue. 40 of
  SAA African traffic, connects onto the SA
  International Network in JHB.
• African air traffic is projected to maintain
  strong growth for the next two decades.
• World-wide, GDP growth is the biggest driver in
  air traffic (passenger and cargo traffic), with a
  roughly 2 to 1 correlation.

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arivia.kom

• The company inherited the work of its component
  elements in Eskom, Transnet and Denel that were
  forged together to form arivia.kom.
• Since 1998, these components have provided a
  fully computerised transport information system
  in Malawi, motor vehicle registration systems in
  Tanzania, Egypt and Zambia police Ids in Uganda
  and Botswana electoral registration systems in
  Lesotho and other SADC countries, social welfare
  payment systems in Uganda and Namibia and
  drivers licence systems Lesotho, Zambia and
  Uganda. Together these projects were valued at
  almost US27 million in 2004.

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arivia.kom (contd)

• An Africa division was created in 2002, with a
  specific mandate to focus on the rest of Africa
  ICT markets, their requirements and how SA
  expertise could be leveraged to the benefit of
  all African countries.
• The next move was then to establish regional
  offices for arivia.kom to have presence in
  countries with a high potential for growth in the
  ICT industry, and for these offices to serve as a
  hub for further growth throughout the regions.
  

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arivia.kom

• Through SA/Nigeria bilateral agreements,
  arivia.kom Nigeria Ltd, with a 49 Nigerian Govt
  shareholding, has been established initial
  capital investment of just over R3 million. A
  further US 900 000 has been injected for
  projects funding and an additional US 900 000 as
  loan guarantees from aravia.kom.
• arivia.kom also has a 70 stake in Ariel
  Technologies Botswana (Pty) Ltd 30 held by
  Botswana business partners. The company is self
  sustaining and offers sound business
  opportunities for growth.
• A regional office has also been established in
  Ghana, in collaboration with two Ghanaian ICT
  companies aim is to have presence in Ghana and
  West Africa. Several business opportunities have
  been identified, especially in the banking and
  telecommunications sectors in the region.

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Denel

• Africa is a growing market for Denel, especially
  in the area of aircraft maintenance.
• Denel is the primary defence products
  manufacturer on the African continent, with a
  much wider resource, product and service base
  than any other arms industry in Africa.
• Denel fulfils a key role in the SA national
  defence capabilities, and in particular the
  mission support capabilities required by the
  SANDF for peace-keeping operations in Africa.

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Denel (contd)

• Since its inception in 2004, the Denel Centre for
  Learning and Development (DCLD) has trained
  students from Botswana, Namibia, Zimbabwe,
  Swaziland, Uganda, Kenya, Zambia and Angola.
  Training is in areas of aerospace engineering,
  avionics, civil aviation regulation, and
  management.
• Denel, as part of its marketing strategy to
  enable its customers to become self-reliant, has
  sold many transfer-of-technology packages to
  African countries, thereby providing a growth
  catalyst to their technology and expertise base.
  

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Denel (contd)

• Denel is very active in the area of de-mining
  through one of its division MECHEM. Mechem has
  been conducting humanitarian de-mining operations
  since 1991, most of these in Africa.
• Mechem has successful de-mining operations in
  Mozambique, Angola, Uganda, DRC, Eritrea, Somalia
  and Sudan.
• The company is currently in discussions with the
  Nigerian Defence Force to repair and upgrade
  their airport hangars and develop an aerospace
  maintenance and repair facility for their old
  military airplanes.

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Infrastructure DPE Strategic Interventions

• DPE Perspective
• There are three main problem areas that emerge
  out of our experience of leading infrastructure
  development in Africa. The first is the lack of
  coordination leading to an inability to provide a
  comprehensive project development service. The
  second is the risk profile of investment in
  Africa and the adverse impact this could have on
  the ability of the SOE to raise capital. Lastly,
  there is the difficulty of the regulatory and
  investment environment in many African
  countries.
• - Minister Alec Erwin, September 2004.

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Africa Infrastructure Project

• The Africa Infrastructure Development project is
  one of 5 DPE projects currently underway. It is a
  3-phased project.
• The focus is on reviewing existing SOE activities
  in Africa, assessing areas of future SOE
  involvement, and developing proposals for the
  optimal long-term management of these SOE
  activities in order to maximize the developmental
  impact through sustainable operations.
• The ultimate aim is to develop an over-arching
  strategy for these SOE activities and designing
  an appropriate vehicle to oversee a coordinated
  and cohesive implementation, and financing of
  this strategy.

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Africa Infrastructure Project (contd)

• Phase One - deliverables
• A comprehensive report detailing the current
  state of SOE activities in Africa.
• A knowledge base of lessons about risks and
  opportunities associated with doing business in
  Africa.
• Phase Two - deliverables
• The objective of phase two will be to produce a
  report that provides a framework to prioritize
  future SOE activities and identify pilot projects
  that can be targeted to demonstrate success.
• This will essentially be a scanning/analysis
  phase and a country (risk profile) assessment
  phase. The objective here is to identify quick
  wins type of investments that will maximize the
  developmental impact.

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Africa Infrastructure Project (contd)

• Phase Three - Developing and Documenting a
  Framework for Implementation of agreed projects
  in priority countries
• Defining specific objectives and targets
• Devising methods of involving the private sector
  and SEPs where appropriate
• Quantifying of capital investment and working
  capital, and bridging finance where required and
• Identification of potential strategic financial
  partners and methods for leveraging the
  investment capital.

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CONCLUSION

• It is critical that we (as DPE) do a realistic
  assessment and evaluate the impact of SOE
  investments on the African continent.
• Ensure that SOE investments in Africa are in line
  with their core business mandates and activities.
  
• The massive infrastructure investment projects
  that SOEs have embarked upon inside SA dictates
  that as SOEs increase their investments in
  Africa, we need to protect SOE balance sheets
  from high risk investments to avoid high costs
  of borrowing in the capital markets.
• Assist African countries in which SOEs
  investments occur to strengthen and improve their
  policy and regulatory environments.

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Conclusion (contd)

• As President Thabo Mbeki once remarked SoNA
  2004
• Other regions of the world, including the most
  developed countries, are hard at work to change
  their neighbourhoods for the better. We can only
  ignore or minimize this task with regard to
  ourselves at our own peril, driven by a lingering
  sense that we are not an integral part of the
  African continent. This we will not do.

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Thank you