West and Central Africa Infrastructure Report Q3 2012

Gabon BMI View: Despite the fact Gabon is one of West Africa's oil producing countries, with respectable output of 243,000b/d in 2011, oil windfalls have not translated into investment in the country's deteriorating infrastructure. Over Q112, there was a virtual absence of activity in the sector in terms of new project announcements or developments. Gabon relies on official development assistance and foreign funding to support infrastructure projects, a pattern we believe will continue in the coming years as oil output declines. Low industry value and minor expansion make for an unimpressive construction sector growth story to the end of our forecast period in 2021.

Key developments in Gabon’s infrastructure sector include:

The news that Indian infrastructure firm RPP Infra Projects has secured funding from ECOBANK of Libreville and BDEAC Bank for the first phase of a EUR250mn (US$356mn) housing project in Gabon is a positive development in a country where access to finance remains prohibitive.

We believe Gabon's construction sector will continue to rely heavily on official development assistance.

French infrastructure companies spearhead foreign involvement in Gabon. Major players active in the country's infrastructure sector include Bouygues, EDF and Veolia. However, bilateral ties with China and India have strengthened, with China's Sinohydro having been awarded the largest road reconstruction contract: the PR1 highway project.

A small construction industry and prohibitive business environment limit the potential returns from Gabon's infrastructure sector. In BMI's infrastructure risk/reward ratings (RRRs), Gabon scores 28.9 out of 100, the second lowest in Sub-Saharan Africa (SSA).

Political risk is a pivotal consideration in Gabon. The situation deteriorated in August 2011, when Gabonese President Ali Bongo Ondimba dissolved the main opposition party, reversing previous minor democratic successes. We estimate that Gabon recorded real GDP growth of 5.6% in 2011 on the back of elevated oil prices, but this figure will begin to tail off from 2013 onwards, in line with declining output from maturing fields. We have revised up our forecasts for Gabon’s construction industry value, following a significant revision of historical data. Construction industry value has increased from our previous forecast of XAF192bn (US$0.4bn) to XAF302bn (US$0.6bn) for 2012. Our revised forecast suggests that by 2016, Gabon’s construction industry value will increase to XOF343bn (US$0.7bn), with annual average growth of 0.5% forecast between 2012 and 2016.

Ghana BMI View: Ghana has a nascent oil and gas sector which, as it grows, will drive demand for auxiliary infrastructure. This is fully in line with BMI’s view that mining in frontier markets will drive investment in transport and energy infrastructure in order to support the demands of extracting and, crucially, exporting minerals. A second, though certainly not secondary, driver of infrastructure development – which is closely linked to the development of the oil and gas industry – is Chinese credit, which has buttressed infrastructure spending in other resource-rich countries in Sub-Saharan Africa (SSA). Key themes for Ghana’s infrastructure sector:

The merits of a US$3bn Chinese credit facility to finance gas pipelines and other infrastructure remain at the centre of political debate in Ghana, with the opposition New Patriotic Party (NPP) aiming to renegotiate the loan if it to win a closely fought presidential election in December 2012. Though this development throws a spanner in the works for several projects that were to receive financing from this loan, it also highlights in our view the checks and balances in the Ghanaian policy making process that ensure a higher level of transparency compared to its peers.

Due to the collapse of the STX housing project and the likely stall of the Chinese credit agreement, we have revised down our forecasts. We are estimating real construction industry value growth of 21.3% for 2011 and forecast a moderation in growth for 2012, with industry value set to expand by 10.5%. In light of the project’s demise – and given its significant size – we have also downwardly revised our forecasts for the country's construction sector between 2013 and 2015. Buttressed by one of the strongest business and political environments in SSA, Ghana has good prospects and will develop its infrastructure sector by attracting foreign expertise and capital. With a greenfield airport PPP in the planning stages – which is likely to act as a litmus test for the PPP model – the market could emerge as one of the most desirable infrastructure investment destinations on the continent.

BMI holds a bullish outlook on Ghana’s macroeconomic prospects. The country's objective of securing a middle income level by 2015 (predicated on successful oil windfall management) suggests Ghana is likely to rapidly outperform other markets in SSA.

BMI's risk/reward ratings (RRRs) suggest Ghana has a favourable business environment, with scores for components such as the level of institutional quality and market orientation indicating the country is a clear outperformer in Africa and the Middle East.

However, there are a number of risks, most notably the ‘oil curse’ trap, which has been responsible for the decay of governance and stability in several oil-rich West African markets, particularly Nigeria and Angola. Efforts have been made to implement standards, checks and balances, to avoid problems arising from Dutch Disease, rent-seeking behaviour and the entrenchment of patronage networks.