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January 28, 2020

Renewing UK-Africa ties with a rich infrastructure pipeline promise

Foreign investor interest in Africa continues to rise, supporting major construction projects in the infrastructure, commercial and industrial space across the continent. In the latest of the ‘Africa Plus One’ Summits, the UK-Africa 2020 Summit, total commercial deals amounted to US$8.5 billion (£6.5 billion), including a $32.6 million (£25 million) investment by Matalan in Egypt to launch eleven new shopping outlets.

GSK is investing a further $6.5 million (£5 million) in their operations in Egypt. Diaegeo is investing $218.5 million (£167 million) in Kenya and East Africa to support the sustainability of breweries. The Department for International Development (DFID) and the African Development Bank (AfDB) are in the course of establishing a new partnership with UK aid providing $111.2 million (£85 million) that will lead to infrastructure development and financing in Africa across water, transport, energy and ICT sectors. This will help deliver quality infrastructure investment in member countries to spur economic growth.

GlobalData expects ongoing investments, especially in the transport, telecommunications, energy and utility sectors, will support growth in new infrastructure in Africa. With the continent’s economic growth projected to reach 3.9% in 2022, along with the increasing rate of urbanization and the rise of middle-class housing, this will continue to support the expansion in overall construction activity – GlobalData forecasts that construction output growth in the region will rise above 6% in the next five years.

In the summit in January, it was revealed that the UK will partner with some of the fastest-growing countries in the region in terms of construction output such as Egypt, Ethiopia, Ghana, Kenya and Uganda to develop a rich pipeline of infrastructure projects that are attractive to businesses and investors. Ethiopia is set to continue to record the fastest pace of growth in construction output over the next five years, with GlobalData predicting growth of 11.2%, driven by higher public spending on infrastructure and higher foreign direct investment. It also expects growth momentum to be sustained in Kenya in 2020 at 6.5%, thanks to healthy domestic demand. Kenya secured over $1.6 billion (KSh170 billion) worth of investment deals during the summit in sectors such as housing and entrepreneurship. Demand for housing continues to grow with more than 210,000 new residential units needed to be built annually to keep pace with Kenya’s expanding population. Kenya’s first green bond also listed at the London Stock Exchange (LSE). Construction in Ghana is expected to recover in 2020, expanding by 2.0%, having dropped by 2.5% in 2019. The economy is projected to grow 6.8% in 2020 on the back of increased oil production and balance of payment surplus, as well as extensive investment in construction and the development of the manufacturing sector. The summit comes at a suitable time for an economy such as South Africa as it is on a path to attract more than $83.2 billion (R1.2 trillion) in investment over five years.

The UK can play a significant role in bridging Africa’s huge infrastructure gap and LSE can be a pivot in the new relationship with the continent. The continent’s $68-$108 billion infrastructure investment gap per year is massive and so infrastructure investment opportunities in African countries are lucrative. The summit comes at a time with Brexit moving things into sharper focus. With the UK on the verge of leaving the European Union (EU) on terms yet to be agreed, it needs to shore up its trading relations with other parts of the world. In addition, London considers China to be its main competitor in Africa. China currently ranks 5th in terms of investment in Africa. According to the UK Department for International Trade, bilateral trade with Africa in Q2 2019 reached $46 billion. At the same time, Africa’s bilateral trade with China, the continent’s largest trading partner, was $208 billion in 2019.

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