"One Belt, One Road"- An Economic Roadmap
Comment of the Day

September 30 2016

Commentary by Eoin Treacy

"One Belt, One Road"- An Economic Roadmap

Thanks to a subscriber for this report from the Economist Intelligence Unit focusing on Africa which may be of interest. Here is a section:

According to the World Bank’s Private Participation in Infrastructure Projects Database and InfraPPP, Kenya and Tanzania have awarded 12 PPP infrastructure projects since 2011. These represent investments of more than US$1.3bn (see Africa table 1). All projects relate to electricity generation, mobile-phone networks and roadway construction. As the power networks of the African countries individually profiled in this report still demonstrate high infrastructure risk with their domestic power networks, demand for continued energy sector enhancements is likely to persist until more such projects come online. 

Among projects in various stages of pre-development with confirmed investment values, the largest directly concerning any of the African countries profiled here is the US$7.6bn Dar es Salaam-Rwanda-Burundi Railway, which involves Tanzania (see Africa table 2). For single country projects, Zimbabwe’s US$2.3bn Southern Energy Power Project is being planned around multiple financial contributors including US$1.3bn in debt and US$105m in equity from Chinese sources. Officials in Kenya at present are seeking to address their country’s deficiencies in transportation and energy with two big-ticket projects. The first and most prominent is the US$2.3bn extension of the Standard Gauge Railway connecting the capital, Nairobi, to Malaba, on the border with Uganda, and Kisumu, on the edge of Lake Victoria. The other is a US$2.2bn, 1 gigawatt solar energy programme. Dar es Salaam, Tanzania’s commercial capital, will further benefit from US$2bn in transportation improvements going towards the city’s bus system 

Another 57 identified infrastructure projects are at stages of pre-development or partial completion. Most (nearly 90%) target transportation, water and waste, social and health, energy and telecom needs in Kenya. Tanzania’s projects mainly target port facilities in Dar es Salaam and other commercial centres.

Eoin Treacy's view

Here is a link to the full report.

Africa will be responsible for the majority of population growth over the coming decades. It therefore represents an important potential market for globally oriented companies and countries. China has been at the forefront of developing relationships with African countries not least to secure preferential access to essential resources to fuel its own growth. The building of infrastructure to facilitate the trade between China and East Africa in particular is a major endeavour and should help foster economic development not least as increasing numbers of very low cost manufacturing jobs migrate from China. 

Kenya’s country index is back testing the region of the 2011 lows following a steep, more than yearlong, decline and has found at least near-term support. Potential for an unwinding of the short-term oversold condition is improving but a potentially lengthy period of support building might be required before it can muster the wherewithal to sustain a move above the trend mean. 
The decline seen in Kenya and a number of other African countries is a least partially in response to the weakness of commodities last year and the relative strength of the Dollar which has been a headwind for many frontier markets. With commodity prices now recovering the potential for Africa to begin to attract more interest is improving. 

The Africa Opportunities Investment Trust is trading at a discount to NAV of 28% and has at least steadied in the region of the February through March lows near 60p. 

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