Investment bonanza predicted for 2014

It looks like 2014 will be one of the busiest years for Africa on the investment front. Scores of mega projects, ranging from mining and hydrocarbons to construction and transport are likely to draw in billions of dollars of investments. Sherelle Jacobs reports.

 
Increased investment flows will drive much of this economic boom. It is estimated that in 2013, foreign direct investment to Africa reached roughly $40bn and experts expect healthy figures this year too.

Much investor interest will, unsurprisingly, be focused on Africa’s natural resources, including minerals and oil and gas extraction. Investment in renewable energy mega-projects is set to be another big focus in 2014. Infrastructure mega-projects will also attract vast capital flows to the continent, as investors seek to profit from opportunities to get involved in huge construction projects with eye-watering price tags.

Exploitation of Africa’s vast natural resources will, of course, continue to generate much interest and attract large-scale investment in Africa over the course of 2014. According to a report by Frontier Market Network, South Africa, Ghana, Guinea and Burkina Faso should benefit from increased investment in gold mining this year.

Democratic Republic of Congo and Zambia should also enjoy robust investment in copper and cobalt exploration. Investment in Namibia’s and South Africa’s uranium deposits should also be on the up this year. China will, to a large extent, determine demand: “Demand for acquisition opportunities in iron ore, copper, cobalt, hard coking coal and manganese is primarily determined by China’s urbanisation and steel industry. In addition, Africa’s infrastructure development will also drive steel demand,” says Werner Jacobs, the senior manager of corporate finance and metals e-mining at KPMG in the Frontier Market Network report.

There will be strong focus on investing in Africa’s oil refineries too. For example, Uganda is to build a $2.5bn oil refinery. A number of firms are interested in taking on the project, which will eventually be able to process 60,000 barrels of oil per day. The country aims to start producing its own oil by 2018. In December, the Ugandan government announced the second phase for the project’s public tender. Six out of 75 firms which applied have been shortlisted for the Request for Proposals. The final firm is to be selected by the middle of 2014. The six shortlisted firms in the running are UK firm Petrofac, China Petroleum Pipeline Bureau, Japan’s Marubeni Corporation, South Korea’s SK Energy, the Dutch company Vitol and the Russian corporation RT – Global Resources.

The firms are required to iron out detailed proposals for the project before the final firm is chosen. The refinery is expected to be built in the Hoima District. The construction of the project should provide 6,000 jobs.

Oil and gas investments to increase
Investment in oil and gas exploration is also on the up. For example, Africa Oil Corporation is to drill a minimum of seven wells over the next year in the area of northwestern Kenya after discovering oil there. It is anticipated that Tullow Oil and Africa Oil Corporation will drill more extensively in the Turkana County region. Tullow Oil recently made its fifth consecutive oil discovery at its Agete-1 well, which is located in northern Kenya. The find is a further indication that Kenya is emerging as a key location to watch in terms of investment in oil and gas exploration.

Tullow Oil’s Exploration Director, Angus McCoss, said in relation to the development: “A fifth consecutive oil discovery onshore Northern Kenya highlights the emerging world class exploration and production potential within our rift basin acreage. An intensive campaign for 2014 includes appraisal and exploration within this first basin and pioneering wells targeting the prospectivity throughout the entire chain of similar rift basins.”

Neighbouring Tanzania is another place where interest in oil and gas exploration is set to rise in 2014. The government wants to hold its eight offshore gas blocks. In December, ExxonMobil and Statoil announced what is its fifth offshore natural discovery in Tanzania in its Block 2. The discovery is significant as it amounts to an extra two to three trillion cubic feet of natural gas, and the in-place volumes should rise to between 17 and 20 trillion cubic feet in Block 2.

Overall, the country predicts that gas reserves should increase five times to 200 trillion cubic feet by 2015. In May, Sospeter Muhongo, Tanzania’s Minister for Energy and Minerals, said that firms are set to drill 17 further wells up until June 2014, ventures which are estimated to require an investment of at least $680m. Companies currently licensed to explore oil and gas in the country include Statoil, Royal Dutch Shell, Exxon Mobil, BG Group, and Petrobras.

Investment in the gas industry by junior companies is also a trend to look out for this year: “It is not only the majors that can be successful in Africa. Cove Energy was acquired for about $2bn by Thailand’s PTT in 2012 after gas discovery in the Rovuma Basin, offshore Mozambique, while Ophir Energy sold 20% stake in its Tanzania blocs to Singapore-based Pavilion Energy for $1.3bn,” according to Frontier Market Network report.

“More of such deals should be expected for two reasons. Firstly, East Africa’s geographic proximity to Asia makes it a very appealing source of gas supply. Secondly, holding stakes in the export industry itself could eventually translate into Asian companies securing cheaper imports for their respective countries,” adds the report.

A number of major energy projects are in the pipeline for Africa in 2014, which will also attract vast amounts of private capital. The construction of what will become the continent’s biggest solar power facility is set to start in 2013, for example. The power plant, which is expected to generate 155 MW of power, will be located in western Ghana, near to Aiwiaso village and will cover 183 hectares.

Blue Energy, a UK-based renewable energy investment firm, is behind the Nzema project, which should have the capacity to power 100,000 homes and is intended to be operational by 2014. It is estimated that the project will cost $400m to build. There are reports that 500 locals are being hired to get to work on the project this year and 200 more people will also be hired to oversee maintenance and operations.

This development is an impressive start to implementing Ghana’s 2011 Renewable Energy Act, which brought a system of feed-in tariffs into place and sets a target for Ghana to generate 10% of its energy from renewables. Ghana also aims to increase its installed capacity from 2,600 MW to 5,500 MW by next year.

Energy demand in Ghana is growing at a rate of between 10 and 15% every year but the country’s energy supplies remain patchy and power shortages have proved costly to the economy. Ghana is currently relying heavily on expensive oil as a source of energy in addition to  hydroelectricity, which can be compromised by water shortages.

Blue Energy says that it “plans to develop further renewable energy power plants in West Africa and has a number of projects in the pipeline.” The CEO of Blue Energy, Chris Dean, says “Ghana’s forward-thinking strategy puts it in a strong position to lead the renewable energy revolution in sub-Saharan Africa. Nzema is a case study in how governments can unlock the huge potential for solar energy in Africa.”

He added: “There’s huge potential to develop renewable power in the region. We believe Nzema will show other countries what can be achieved and spur them to action.”

Renewable energy projects are also taking off in South Africa. Another mega renewable power project which should make progress over the course of 2014 is the Jasper Power Project in South Africa, which is set to become one of the largest solar photovoltaic plants on the African continent, with a capacity of 96 MW. Among the investors is Google, which has pumped $12m into the $260m project, which should generate roughly 300 jobs in construction and 50 permanent operational posts.

UK company, Globaleq Generation Limited, is also involved in the building of two solar installations and a wind farm in South Africa, which should be connected to the national grid at some point this year. The wind farm will be located in Jeffreys Bay, Eastern Cape, and have an energy-generating capacity of 138 MW. The two solar installations, which are to be constructed in the Northern Cape, will have a collective energy capacity of 100 MW.

The projects come under the South African government’s Renewable Energy IPP Procurement Programme. As with the Ghana solar power project, the construction of the South Africa projects should employ hundreds of construction workers. When completed, they should also provide energy for over 156,000 homes and trim 580,000 tons from South Africa’s annual carbon emissions. 

Part two: Infrastructure investments set to rise