Africa
KPMG Opinion on ifrastructure

Infrastructure development in Africa 

The biggest hurdle in mining development in Africa is the affordability of road, rail and port infrastructure.

Infrastructure costs hamper mining development in Africa

The buoyant project development mood at the height of the commodity cycle of unlocking African resources seems now but a distant memory of good times passed. On reflection, how many of these large Greenfield mining pit to port projects have actually materialised. The disappointing reality at the moment is very few.

There is little doubt that the continent has an abundance of both resource and market potential yet continues to struggle to deliver these large projects. The outlook of an upturn in commodity prices pertinent to the continent, also appears unlikely over the short to medium term and with traditional investors adopting an almost speculative approach to the industry, it seems unlikely that funding for these types of projects will improve. Yet the continent sits on an opportunity that if unlocked will have a significant beneficial socio-economic impact on millions of people.

So why is this mining development not happening? African country political risk and declining cost competiveness, due to a multitude of hidden costs, have invariably been key factors. At the heart of the problem however is the affordability of road, rail and port infrastructure.

 

Most mining companies no longer have the balance sheets to financially support these costly long-term infrastructure developments and, coupled with increasing pressure from investors to deliver short-term returns, they are unlikely to take on this risk. Many African Governments are also simply unable to fund this type of infrastructure cost, the development of which is so vital for economic prosperity.

To deliver these game changing infrastructure projects will require a different way of thinking and collaboration across Governments, communities, producers, financiers, labour and suppliers. At the forefront of this thinking is the operationalisation of the African Unions’ African Mining Vision.

Plans need to be turned into actions and Governments and others need to hold each other accountable. In order to for the development corridor concept, identified in these plans, to be operationalised, political will and the development of power as an industry enabler are imperative. There is also sound empirical research supporting the need for focusing on viable projects, clear and consistent regulatory policy, use of Public Private Partnerships (PPP’s) and the need for inter and intra- government co-operation.

We see Infrastructure Funds as a key source of funding for PPP’s and here we believe these funds can play an instrumental role in realising the corridor development concept.

 

Access to other developmental and donor based funding could be sourced where infrastructure can be used for multi-purposes such as transporting agricultural inputs and outputs.

A further area of opportunity is to bring the cost of infrastructure and operating costs down and this will require all parties to work closely with each other. An obvious area is to spend adequate time on pre-construction engineering to avoid costly mistakes. This invariably requires a clear set of objectives and execution strategy with an understanding of where risks lie and who takes ownership of managing these risks. The adoption of a modular approach that is able to efficiently match capacity and demand, and then to be easily replicated, are all areas that need to be considered.

If Africa is to realise its resource potential, the unwavering commitment of a collaborative group of visionary leaders prepared to take a long term view will be required.

We have a Mining Vision for Africa, what we now need is this vision to be turned into actionable plans and a high level of trust between leaders to allow this all important collaboration to happen.

Contact
Wayne Jansen
Head of Mining - Africa
Tel: +27 (0)83 357 2131
wayne.jansen@kpmg.co.za