SA builders aim for Africa

Johannesburg - African governments will have to spend $93bn (about R700bn) per year for the next 10 years to provide basic infrastructure, which is one reason why local construction firms are crossing the border to fatten up their order books.

Almost half of this amount is needed to address the continent's power supply shortage.

According to a recent study conducted by the Africa Infrastructure Country Diagnostic, African governments already spend a collective $45bn on infrastructure per year, much higher than previously thought.

The study found that a poor electricity and water supply as well as inadequate road and ICT technology infrastructure has cut the continent's economic growth by two percentage points every year, reducing productivity by as much as 40%.

Companies like Raubex, Stefanutti Stocks and Esorfranki are among the many JSE-listed construction firms that aim to claim a stake on the continent.

Raubex has in the last year won road upgrade contracts in Namibia and Limpopo for over R1bn, and is bidding for an €8.5m (R95.37m) contract in Malawi. Esorfranki has secured R905m contracts ranging from coal, gas and telecommunications work in countries like Mozambique, Tanzania and Angola.

Bigger players like Aveng and Group Five are planning to target water and power projects in Africa, over and above work secured locally.

Linguistic constraints

Analysts have warned there are plenty of risks associated with operating in Africa, but also agree that success will earn high rewards.

"Moving across the border means companies are stepping into unknown territories with areas exposed to their own laws, politics and competition. There's also an exchange rate risk," said BoE analyst Leith Wimble.

SA construction firms normally price costs in rands, and receive revenue for contracts in foreign currency. If the rand strengthens, it has an effect on margins. The opposite also applies, which can benefit firms.

One barrier that may keep many companies away is language, as most deals are done in either French or Portuguese.

"Language barriers are a concern," said Wimble. He said road builder Raubex reportedly did not expand in Angola because it doesn't have Portuguese language expertise.

Nowadays more firms are forming joint ventures with local companies to control these type of risks.

Construction groups should also prepare themselves for competition in the industry from elsewhere, especially China.

- Fin24.com