Unique challenges need unique solutions: setting up programmes for success in Africa

Successful investment in any market requires strong local expertise and on-the-ground planning, and nowhere more so than in Africa. Those planning a capital programme here must understand and adapt to Africa’s exceptional and unique challenges to access its opportunities.

 

With a population treble that of the USA, a fifth of the world’s oil reserves and nearly a third of global mineral reserves, Africa’s extraordinary economic potential – and the challenges it poses to those keen to unlock it – attracts and intimidates foreign investors in equal measure.

Even seasoned global players who have successfully invested in other developing markets have been caught out by unforeseen difficulties with their projects in Africa that resulted in schedule overruns and spiralling costs.

Being a frontier in a changing world, Africa can be a demanding and unpredictable region in which to invest, but there is nothing inevitable about such issues. With the right market intelligence, planning and cultural awareness, challenges can be anticipated and mitigated, but it’s essential that this process begins right at the outset.

The myth of the single African approach

Capital projects across Africa are likely to encounter similar problems, but the solutions are seldom the same. Huge cultural, linguistic, financial and political divisions separate Africa’s 54 sovereign nations, so those setting up a project should never assume that what worked elsewhere will work again.

This has also been true for neighbouring markets with a common language and similar legal systems – such as Kenya, Uganda and Tanzania – and even across different regions within the same country.

For example, an investor working in Nigeria planned to move a group of skilled welders from a project that was nearing completion to a new project in a different state within the country. The idea was to take lessons learned from the first project to boost productivity on the second project.

But differing regulatory systems between the two Nigerian states meant that when the welders got to the new site they were not permitted to work. Instead local welders had to be trained and upskilled urgently, which brought about major delays.

The investor’s understandable but mistaken assumption that regulations would be standard within Nigeria led them to a decision that would ultimately reduce the project’s efficiency by half, instead of doubling it, from the previous project.

With the right market intelligence, planning and cultural sensitivity, challenges can be anticipated and mitigated – but it’s essential that this process begins right at the outset.

Looking beyond logistics

Many of the challenges posed by construction projects in remote areas are obvious; the lack of power, water and road or rail networks able to bring people and materials to the site, must be identified and addressed early on.

But allowances must also be made upfront for ongoing difficulties in getting materials through ports and to the site. The average time for a consignment to clear customs at an African port is between 42 and 60 days. This compares to an average of two days in some East Asian ports. Poor road links will slow the progress of heavy loads, as can border posts – which frequently delay trucks for more than two days.

Transnational projects can be particularly challenging, as they require the project team to align the timing on approvals across countries and maintain good relationships with multiple governments that may have divergent goals and drivers.

It’s essential that investors take expert advice at the feasibility stage, on how such complex and interlocking issues might impact their project’s delivery. Without it, informed decision-making will not be possible.

Navigating shifting sands through early stakeholder engagement

Global investors may commit to a project in an African country with the backing of the national leadership, only to realise once on the ground that there are multiple layers of stakeholders with decision-making power, from provincial governors to local communities, to consider.

For this reason, investors should make time at the very earliest stages to communicate with those communities, through someone who understands the local language and culture. Communities need to know what the project involves, how they will be involved and what legacy will be left behind.

People in rural Africa are not anti-development per se, but like communities in any developed country, they need to be informed. If left in the dark, they may create huge problems leading to significant delays or even derailing projects altogether.

Clarity on contracting strategy

A common mistake made by global firms investing in Africa for the first time is to impose unfamiliar forms of contract on African markets. In Africa, the international federation of the consulting engineers (FIDIC) is by far the most commonly used contract and most contractors are familiar with its contents.

The form of new engineering contracts (NEC) have been successful in some instances, there are also many examples where global companies that insisted on using NEC contracts in Africa in order to comply with their corporate governance have hit problems. Consequently, there is a strong case to be made for adapting contract strategy to one that Africans are familiar with, and which has been used successfully in the market before.

Distribution of risk is another sensitive contractual issue. While it is understandable that a client moving into a new market may want to transfer all risk onto the contractor, it is not always achievable in Africa. Investors should instead work with consultants who have regional expertise to create an equitable contractual relationship with the supply chain, where the risks are shared appropriately and allocated to those most able to manage and mitigate them.

Communities need to know what the project involves, how they will be involved and what legacy will be left behind.

Risk mitigation and setting up for success – starting early is key

In this changing world, Africa’s huge, untapped potential offers an attractive proposition to foreign investors but the key is understanding how to deliver successful projects there. There are many success stories among those who have already taken the plunge. While no two projects will ever be the same in such a huge and diverse region, some themes are universal:

  • Investors should ensure their project team has the right commercial, project management and soft skills alongside the technical ones
  • In-country experts should be engaged at the earliest possible stage of the project, and certainly by the time technical design work begins
  • More upfront effort with logistics planning, stakeholder engagement and contracting strategy is required during project set-up than in other markets, but this need not mean an uplift in overall project costs
  • Given that failure to set up properly and early enough may add exponential risk to the project, such upfront investment is vital not just for risk mitigation, but also to deliver a successful outcome and maximum reward.

The continent is exceptional in many ways – and certainly in both the scale of its opportunities and the complexity of its challenges. The best way to secure the former and overcome the latter is with the help of world-class local expertise and pragmatic, on-the-ground planning right from the feasibility or even concept phase of a capital programme.

For further information, contact:

Mark Haselau
Director

t: +27 (0) 11 214 1400
e:

Africa