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Title: SOEs ROLE

Presenter Mr. Bongi GasaDate 03 August 2005
  • Introduction Infrastructure Integration in
  • Africa First The role of SOEs in Africa.
  • The DPEs Africa Infrastructure Development
  • Conclusion.

  • Regional integration requires effective regional
    infrastructure transport, communications and
    energy to widen and integrate markets, achieve
    economies of scale, encourage participation of
    the private sector, and attract FDI and
  • Yet despite efforts to integrate transport,
    communications and energy, gaps still exist in
    infrastructure and services across African
    economies raising the cost of doing business
    and impending factor mobility, investment and

Introduction (contd)
  • Poor infrastructure is a critical barrier to
    accelerating growth and poverty reduction.
  • Transport costs are amongst the highest in the
    world. For example, shipping a car from Japan to
    Abidjan (CdV) costs US1,500, but shipping that
    same car from Abidjan to Addis Ababa costs
    US5,000 UNECA, October 2004.
  • In some regions of Africa, farmers lose as much
    as half of what they produce due to lack of
    adequate post-harvest storage facilities.
  • According to ECA estimates, increasing the stock
    of physical infrastructure by 1, could add 1 to
    the level of GDP.
  • In some cases the impact has been greater eg.
    the Mozal smelter investment in Mozambique
    doubled exports, added 7 to GDP, created 1000s
    of new jobs, skills transfer, and facilitated
    SMME sector growth.

Introduction (contd)
  • Between 1990 and 2002, relative to total
    infrastructure investment in developing countries
    in the order of US 150 billion, private sector
    commitments for infrastructure in SSA totalled
    only US27.8 billion, and two thirds of this
    amount (US18 bn) was for telecommunications.
  • A recent WB research paper estimates that SSA
    needs to spend around 5 of its GDP (between 2005
    and 2015) on infrastructure investments, and a
    further 4 on operations and maintenance
    totaling expenditure of US20 billion/year.

Introduction (contd)
  • The recent Commission for Africa Report 2005
    makes the following recommendation (and
    commitment towards funding) wrt Infrastructure
    Investments in SSA
  • Africa needs an additional US20 billion a year
    investment in infrastructure. To support this,
    developed countries should provide an extra US
    10 billion a year up to 2010, and subject to
    review, a further increase to US 20 billion per
    year in the following five years. This should
    support African regional, national, urban and
    rural infrastructure priorities ranging from
    rural roads, railways, ports, ICT and all other
    infrastructure needed to support greater
    integration of Africas regions and to enable
    Africa to break into world markets.
  • Clearly, from the above statement, theres a
    major role and opportunities for our SOEs. What
    are the necessary strategic interventions???

The Role of SOEs in Africa
  • Perhaps it is important to premise our discussion
    on this sub-topic of Role of SOEs in Africa on
    the following quotation from the Africa First
    booklet, because it clearly outlines governments
    views and objectives on the topic
  • From our perspective as government, it is
    important to note where SOEs operate, how they
    operate, what projects they engage in, and how
    their participation contributes to the larger
    agenda of African renewal and rebirth. At the
    same time, it is imperative that we ensure that
    SOEs involvement in Africa conducts itself with
    probity. It must integrate commercial viability
    and returns on investments with appropriate
    policies for procurement, the empowerment of
    SMMEs, the employment of local labour and
    services that serve to build up and encourage
    sustainable development in the countries of

ESKOM in Africa
  • Eskom has established a dedicated NEPAD team to
    mobilize Eskoms resources to promote, develop
    and implement NEPAD related projects in the power
  • Eskoms In Africa grid vision is guiding the
    plans for many power projects and facilitates
    Eskoms involvement in the development of
    southern African regional power highways
    projects. These projects aim at developing the
    appropriate power transfer capacity in the SADC
    region and beyond, so as to exploit the economies
    of scale in developing new generation plants and
    maximise the power trading potential of the
    Southern African Power Pool (SAPP).
  • In addition to being a member of SAPP, Eskom is
    also a member of Union of Producers, Transmitters
    and Distributors of Electric Power in Africa
    (UPDEA) an association of African Power

ESKOM Enterprises
  • The following are just a few of the major
    projects in which ESKOM is involved in the
  • Eskom Enterprises (EE) participates in a range of
    activities, from consultancy to engineering work
    and construction. EE operates in over 20
    countries in Africa, and is pursuing business
    prospects in another 10 more.
  • EE projects are related to the development of
    additional electricity generation capacity and
    hydro programmes, and are mostly linked to the
    extension and consolidation of the rapidly
    growing African power grid.

Eskom Ent (contd)
  • EEs Investment Division has concluded
    concessions controlling ownership in 5 hydro
    stations outside SA, with a combined installed
    capacity of 618 MW. double combined Eskom hydro
    output inside SA.
  • EE has a contract with Uganda Electricity
    Concession (Nov 2003) which grants it a 20-year
    concession to operate and maintain the two hydro
    stations, Nalubale and Kiiri, with respective
    installed capacity of 180 and 200 MW. The NPV of
    this project to EE for the first 7 years is US65
  • EE has been appointed as the operator for the
    Manantali Project in Mali for the next 15 years.
    The contract includes management and operation of
    the Manantali Dam, a 200 MW hydro power station,
    including associated 225 kV transmission lines
    connecting 3 electricity utilities of Mali,
    Senegal and Mauritania.

Eskom Ent (contd)
  • EE is involved in a major cross-border
    infrastructure investment project in power
    generation, transmission and supply the Western
    Power Corridor (Westcor) project a joint
    venture project put together by 5 national power
    utilities of 5 countries, namely Eskom, BPC of
    Botswana, ENE of Angola, NamPower and SNEL of
  • The goal of the project is provide low-cost,
    affordable and environmentally-friendly energy
    and to ensure that economic development in the
    region is not constrained by shortages in energy

Eskom Ent (contd)
  • The Westcor project aims to
  • Build a 3500 MW Inga III hydro-power station in
    the DRC, and construct inter-connections of
    transmission power lines for the supply of power
    to the 5 countries.
  • Build hydro-power stations in Angola on the
    Kwanza River, and also in Namibia, with a
    possible power generation capacity of 6700 MW.
    The extended project, in its final phase,
    includes the development of Grand Inga
    potential supply capacity of 40 000 MW.
  • Build interconnections stringed with fibre optic
    for broad-band telecommunication links to be
    leased to private sector operators.
  • Increase trade in electricity by investing in JV
    projects that will allow sharing of capital and
    development costs.

Eskom Ent (contd)
  • The estimated cost of the project is US 4
    billion 1st phase, and will be commissioned in
    2010, subject to positive feasibility study
  • The required Inter-Utility Memorandum and
    Inter-Governmental agreements already exist. The
    pre-feasibility and feasibility studies,
    inclusive of EIAs, have commenced.

Transnet and its subsidiaries
  • Transnet is SAs and Africas largest integrated
    transport logistics company with an asset base of
    about US 7 billion and employs a workforce of
    some 76,000 people.
  • It is a multimodal transport enterprise, with
    active and niche market representation in road,
    air and rail passenger transport road, air and
    rail freight transport aviation, ports,
    pipelines engineering and design work in rolling
    stock and rail infrastructure and

Transnet and its subsidiaries
  • Spoornet - is the largest railway company in
    Africa, - southern hemisphere if we include the
    rail network, locomotives and rolling stock. Owns
    and operates 80 of Africas total rail
    infrastructure. The following are some projects
    across the continent
  • Upgrading and refurbishing of rail lines e.g.
    between Eritrea and Ethopia, and many other lines
    in West Africa.
  • Development of railway corridors in SADC region.
  • Spoornet (and Transwerk) also leases refurbished
    and redesigned locomotives. Leases have been
    effected to the Sudan Railways Corporation,
    Comazar in Tanzania, SNCC Railways in the DRC,
    CFCO Railways in the DRC, BBR in Zimbabwe and
    Swazi Railways. Total revenue of these leases
    around R215 million per year.

Transnet (contd)
  • Spoornet also has Operate, Maintain and Upgrade
    agreements in Zambia (Spoornet Zambia), with BBR
    in Zimbabwe, and Business Interface Agreements
    with railway corporations in DRC, Swaziland,
    Mozambique, Namibia and Botswana, resulting in
    the facilitation of millions of tons of
    cross-border traffic (mainly goods trade) per
    year between South Africa and these countries.
  • Transtel - the companys expertise in
    telecommunications originates from its position
    as service provider to Transnet and its

Transnet (contd)
  • Transtel currently operates satellite based
    networks in 16 African countries, where more than
    150 remote terminals deliver a wide range of
    mainly business services.
  • Transtel also provides radio access through Radio
    Train Warrant systems and provides maintenance
    for all related radio equipment on the Ressano,
    Garcia to Maputo project in Mozambique. Similar
    services are provided in Zambia and Swaziland.
  • Lastly, Transtel provides CFBU satellite
    services, to enable point-to-point data network
    systems for private customers such as banks, and
    telecommunications customers in Botswana,
    Zimbabwe, Zambia, Tanzania, Angola, Mozambique,
    Nigeria, Uganda, Namibia, Kenya and Lesotho.

South African Airways (SAA)
  • SAA is the largest airline company in Africa and
    is five times larger than any other African
  • SAAs main growth areas are Nigeria, Angola,
    Zimbabwe, Senegal, Ghana, Tanzania and Mozambique
    where markets are growing in excess of 10 per
  • In 2003, SAA acquired a 49 stake in Air Tanzania
    (ATCL). The remaining 51 is owned by the
    Tanzanian government. hub and spokes strategy.

SAA (contd)
  • SAA sees Africa as the biggest growth potential
    and key to SAAs return to profitability.
  • Africa provides 16 of total SAA revenue. 40 of
    SAA African traffic, connects onto the SA
    International Network in JHB.
  • African air traffic is projected to maintain
    strong growth for the next two decades.
  • World-wide, GDP growth is the biggest driver in
    air traffic (passenger and cargo traffic), with a
    roughly 2 to 1 correlation.

  • The company inherited the work of its component
    elements in Eskom, Transnet and Denel that were
    forged together to form arivia.kom.
  • Since 1998, these components have provided a
    fully computerised transport information system
    in Malawi, motor vehicle registration systems in
    Tanzania, Egypt and Zambia police Ids in Uganda
    and Botswana electoral registration systems in
    Lesotho and other SADC countries, social welfare
    payment systems in Uganda and Namibia and
    drivers licence systems Lesotho, Zambia and
    Uganda. Together these projects were valued at
    almost US27 million in 2004.

arivia.kom (contd)
  • An Africa division was created in 2002, with a
    specific mandate to focus on the rest of Africa
    ICT markets, their requirements and how SA
    expertise could be leveraged to the benefit of
    all African countries.
  • The next move was then to establish regional
    offices for arivia.kom to have presence in
    countries with a high potential for growth in the
    ICT industry, and for these offices to serve as a
    hub for further growth throughout the regions.

  • Through SA/Nigeria bilateral agreements,
    arivia.kom Nigeria Ltd, with a 49 Nigerian Govt
    shareholding, has been established initial
    capital investment of just over R3 million. A
    further US 900 000 has been injected for
    projects funding and an additional US 900 000 as
    loan guarantees from aravia.kom.
  • arivia.kom also has a 70 stake in Ariel
    Technologies Botswana (Pty) Ltd 30 held by
    Botswana business partners. The company is self
    sustaining and offers sound business
    opportunities for growth.
  • A regional office has also been established in
    Ghana, in collaboration with two Ghanaian ICT
    companies aim is to have presence in Ghana and
    West Africa. Several business opportunities have
    been identified, especially in the banking and
    telecommunications sectors in the region.

  • Africa is a growing market for Denel, especially
    in the area of aircraft maintenance.
  • Denel is the primary defence products
    manufacturer on the African continent, with a
    much wider resource, product and service base
    than any other arms industry in Africa.
  • Denel fulfils a key role in the SA national
    defence capabilities, and in particular the
    mission support capabilities required by the
    SANDF for peace-keeping operations in Africa.

Denel (contd)
  • Since its inception in 2004, the Denel Centre for
    Learning and Development (DCLD) has trained
    students from Botswana, Namibia, Zimbabwe,
    Swaziland, Uganda, Kenya, Zambia and Angola.
    Training is in areas of aerospace engineering,
    avionics, civil aviation regulation, and
  • Denel, as part of its marketing strategy to
    enable its customers to become self-reliant, has
    sold many transfer-of-technology packages to
    African countries, thereby providing a growth
    catalyst to their technology and expertise base.

Denel (contd)
  • Denel is very active in the area of de-mining
    through one of its division MECHEM. Mechem has
    been conducting humanitarian de-mining operations
    since 1991, most of these in Africa.
  • Mechem has successful de-mining operations in
    Mozambique, Angola, Uganda, DRC, Eritrea, Somalia
    and Sudan.
  • The company is currently in discussions with the
    Nigerian Defence Force to repair and upgrade
    their airport hangars and develop an aerospace
    maintenance and repair facility for their old
    military airplanes.

Infrastructure DPE Strategic Interventions
  • DPE Perspective
  • There are three main problem areas that emerge
    out of our experience of leading infrastructure
    development in Africa. The first is the lack of
    coordination leading to an inability to provide a
    comprehensive project development service. The
    second is the risk profile of investment in
    Africa and the adverse impact this could have on
    the ability of the SOE to raise capital. Lastly,
    there is the difficulty of the regulatory and
    investment environment in many African
  • - Minister Alec Erwin, September 2004.

Africa Infrastructure Project
  • The Africa Infrastructure Development project is
    one of 5 DPE projects currently underway. It is a
    3-phased project.
  • The focus is on reviewing existing SOE activities
    in Africa, assessing areas of future SOE
    involvement, and developing proposals for the
    optimal long-term management of these SOE
    activities in order to maximize the developmental
    impact through sustainable operations.
  • The ultimate aim is to develop an over-arching
    strategy for these SOE activities and designing
    an appropriate vehicle to oversee a coordinated
    and cohesive implementation, and financing of
    this strategy.

Africa Infrastructure Project (contd)
  • Phase One - deliverables
  • A comprehensive report detailing the current
    state of SOE activities in Africa.
  • A knowledge base of lessons about risks and
    opportunities associated with doing business in
  • Phase Two - deliverables
  • The objective of phase two will be to produce a
    report that provides a framework to prioritize
    future SOE activities and identify pilot projects
    that can be targeted to demonstrate success.
  • This will essentially be a scanning/analysis
    phase and a country (risk profile) assessment
    phase. The objective here is to identify quick
    wins type of investments that will maximize the
    developmental impact.

Africa Infrastructure Project (contd)
  • Phase Three - Developing and Documenting a
    Framework for Implementation of agreed projects
    in priority countries
  • Defining specific objectives and targets
  • Devising methods of involving the private sector
    and SEPs where appropriate
  • Quantifying of capital investment and working
    capital, and bridging finance where required and
  • Identification of potential strategic financial
    partners and methods for leveraging the
    investment capital.

  • It is critical that we (as DPE) do a realistic
    assessment and evaluate the impact of SOE
    investments on the African continent.
  • Ensure that SOE investments in Africa are in line
    with their core business mandates and activities.
  • The massive infrastructure investment projects
    that SOEs have embarked upon inside SA dictates
    that as SOEs increase their investments in
    Africa, we need to protect SOE balance sheets
    from high risk investments to avoid high costs
    of borrowing in the capital markets.
  • Assist African countries in which SOEs
    investments occur to strengthen and improve their
    policy and regulatory environments.

Conclusion (contd)
  • As President Thabo Mbeki once remarked SoNA
  • Other regions of the world, including the most
    developed countries, are hard at work to change
    their neighbourhoods for the better. We can only
    ignore or minimize this task with regard to
    ourselves at our own peril, driven by a lingering
    sense that we are not an integral part of the
    African continent. This we will not do.

Thank you
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