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Infrastructure

Kenya Menengai Geothermal Project

Immediately post-conflict, construction is generally the first sector to receive FDI. Infrastructure is extremely weak across the region, but the ambition to improve is creating investment opportunities in both energy and transport.

The Horn has large infrastructure deficits and performs poorly against other African countries, as assessed by the African Infrastructure Development Index (AIDI). Low AIDI scores indicate low access to improved infrastructure. But infrastructure in the Horn has been improving. Between 2014 and 2016, improvements in ICT infrastructure have given Ethiopia and Sudan the largest gains for countries in the Horn in the AIDI.

The governments of Djibouti, Ethiopia, Eritrea and Somalia intend to increase infrastructure investment in their national development plans. Recent external investments have largely gone to Ethiopia for electricity generation and transmission projects valued at USD 1.9B.

The Horn of Africa Initiative (a regional infrastructure plan created by the Intergovernmental Authority on Development) has facilitated infrastructure investment although gaps remain. Projects under preparation still need an investment of USD 1.4B and projects not yet prepared need a USD 1.3B investment.

Potential entry strategy for new investors:

  • Country governments select the required projects, in association with Export-Import Bank of Korea (EXIM Bank), that support Korean companies’ involvement in overseas infrastructure development.
  • Korean firms could engage with contracts for construction and management of infrastructure, based on development bank financing.
  • The Economic Development Cooperation Fund of EXIM Bank could incentivize Korean investors to participate in infrastructure investments. Korea has signed a co-financing agreement with the AfDB valued at USD 600M to support Korean firms investing in Africa.

Case Study: Hyundai and Toyota Tsusho geothermal power plant in Kenya

Investment value: USD 1B
Investment type: Geothermal power plant
Project completion date: 2015

  • Hyundai E&C, in alliance with Japan’s Toyota Tsusho Corporation, constructed a geothermal power plant in Kenya. The project was funded by the Kenyan government, World Bank, and other European and Asian development institutions.
  • Kenya signed a deal with the consortium in 2011 to construct its 280MW Olkaria IV geothermal plant as an extension to the Olkaria I and II plants which collectively produced 115MW. The Kenya Electricity Generating Company Ltd awarded the project as a full turnkey contract to the consortium.
  • As the first country in Africa to drill for geothermal power, Kenya aims to reduce the country’s dependence on hydroelectric power, typically affected by variable weather.
  • The consortium viewed the project as an inroad to the East African market, and a springboard to a wide range of other projects in automobiles, oil export, pipelines, fertilizers, port development and desalination plants.
  • The total cost of the Olkaria IV power plant was reportedly USD 1B.

Korean companies targeting the infrastructure sector

Samsung C&T

  • Samsung Construction & Trading is building civil infrastructure and constructing houses and plants. It operates 28 offices in 23 countries, trading in chemicals, industrial materials and fashion.
  • Samsung C&T operates in and out of Africa. In 2014, the company won a bid to build two power plants in Algeria. The next year, it won a USD 1.8M contract for a 2,500MW combined cycle power plant in Qatar.
  • The company was the main contractor for Dubai’s Burj Khalifa.

Hyundai E&C

  • Hyundai Engineering & Construction engages in civil engineering and construction activities in South Korea and internationally.
  • In 2013, Hyundai E&C (in consortium with a Japanese firm) won a USD 128M contract to build a 525-meter bridge across the River Nile in Uganda. Two years later, the company completed the expansion construction of the Azito thermal power plant in Cote d’Ivoire.

Daewoo E&C

  • Daewoo Engineering & Construction operates within and outside South Korea.
  • In Africa, Daewoo E&C has built a liquefied natural gas plant in Nigeria and is part of a joint venture to construct the 923-meter-long rail-and-road bridge between Zambia and Botswana worth USD 234M.
  • The company has delivered infrastructure projects like nuclear and production plants, dams, and housing units around the world.

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