. Okwuosa seeks increase in funding from African devt funders
Stakeholders yesterday, raised concerns over the cost of funds to finance infrastructure development in Nigeria and other African countries, especially in the oil and gas sector.
Speaking at the IATF 2023 Trade Conference, in Cairo, Egypt, Chairman of Oilserv Group, Emeka Okwuosa, said while access to funding is critical, the cost of funds remained a critical issue.
“Most African countries are not in a position to access funding in a way to be able to compete in terms of cost of the funds relatively compared to the Chinese companies. This is because, if you are bidding for an Engineering, Procurement and Construction (EPC) contract and the cost, apart from your ability to execute in terms of your technical capacity, the cost enables you to win and executive the project profitably,” Okwuosa said.
According to him, competing with the European, Chinese companies is quite difficult because at the end of the day the margin of an African companies does not come close to competing with the financial muscles of the Chinese which often than not does not build indigenous capacity but rather giving way to capital flight which are repatriated to develop their countries rather than injecting such in Africa.
Okwuosa asked the AfreximBank to step up and create more access to funding for African EPC companies, stressing that the funding should also be at a good rate because “that is the only avenue capacity can be built.
Okwuosa said: “When we talk about financing, from placement of guarantee for a project of a billion dollars project, the Chinese would present less than the budget because it’s been backed up by their government. Afreximbank can leverage on its position of strength and be able to work with other financial institutions across African countries like the NEXIM banks of these countries.”
Okwuosa said having access to cheap funds would enable more African companies to compete for EPC related jobs within the continent and beyond.
Referencing the critical role of funds in infrastructure development, which leads to economic transformation, he said, “When we talk about finance and funding, for us, in the oil and gas sector, we have a success story of the ongoing construction of the AKK pipeline at $2.4 billion.”
Okwuosa said the African Continental Trade Agreement protocols could be considered for a better synergy to be able to provide the basis for a more competitive financial system for such projects by Africans.
“However, when you talk about Chinese and others coming in to run a project, they come in with finance at a cheap rate. However, these funds are being met with difficult conditions and part of which would be that minimum involvement of local content to provide finance for labour, materials and equipment. If Afreximbank can take up the challenge, the value system will be improved.
“Another challenge is the ease of moving labour across Africa as well as building up local content. When we tackle these challenges very well, capacity will be built. The ease of moving labour in Africa is very poor. For instance, Nigeria has, to a greater extent, grown capacity, but the ease of navigating this capacity across Africa is not too welcoming and seems impossible. This should not be so as we can grow the capacity of Africans for development,” he said.
Chief Executive Officer, Elsewedy Electric, Ahmed Elsewedy, frowned at the current inconsistency in the political system in Africa, as many projects are either delayed or frustrated by this system.
He said, “the political uncertainty in Africa has made it challenging for EPC projects. For instance, in a switch from a government to another after an election, oftentimes, projects are dragged backwards thereby, undergoing renegotiation. This process can sometimes take more than two years to be approved. That alone is a major setback to the EPC projects across Africa and this does not look good, but because we are ready to work, we continue with the project despite being unattractive and unprofitable.
On capital flight, he added: “Capacity is never achieved when the projects are contracted to the Chinese or European companies. Africa has the capacity and the idea of taking the money back to China or Europe to develop is a system and challenge that will never grow capacity.”
Speaking on the challenges faced by EPC companies in Africa, another panelist, Chief Executive Officer of Hassan Allam Holding, Hassan Allam, identified infrastructure deficit, lack of funding as a crisis rocking the sector.
According to him, “the first challenge is the infrastructure deficit. Most of the Africa countries are faced with infrastructure challenges, which include logistics and that of supply chain which is impacted on project executions. The second which is limited access to finance and skills gap in the African space and its contractors.”
