Road Infrastructure in Africa: A step-by-step guide to avoiding potential potholes

Many African economies have experienced significant growth in recent years. This growth could have been even greater if the countries concerned had had appropriate transport infrastructure in place. Transport, of course, is not just about roads. In Africa, as everywhere else, passenger and freight travel are, for the most part, intermodal, involving transport by land (road and rail), air and sea.

Over the past 15 years, however, the road sector in Africa is the one where most progress has been made in both institutional and financing terms. The creation of road agencies and road funds financed, in many countries, from fuel levies, has meant that 80 per cent of the main road network in Africa is now deemed to be in either good or fair condition.^[1]

While there has undoubtedly been progress, the challenges remain immense. With an average of 204 kilometres of roads per 1,000 square kilometres, of which only one quarter is paved, the density of national roads lags far behind the world average of 944 kilometres per 1,000 square kilometres, of which more than half are paved. According to the World Bank, in addition to the small number of major regional trunk roads currently linking deep-sea ports to economic hinterlands, which comprise no more than 10,000 kilometres, “[b]etween 60,000 and 100,000 kilometres of roads are required to provide … intracontinental connectivity” in Africa. Low road density also means that Africa’s fast-growing cities are affected by increasing congestion, which has an adverse impact not only on economic development but is also a significant source of pollution and accidents. With a road traffic injury fatality rate of 32.2 per 100,000 inhabitants^[2] – the corresponding rate in countries such as Sweden, the UK and France is between four and eight deaths per 100,000 population – African roads are the most dangerous in the world.

The sub-Saharan African^[3] road network is still underdeveloped. Medium- and long-distance national and international corridors need to be developed or improved, to facilitate connectivity between capitals and other major urban and industrial centres. Such international corridors will benefit landlocked countries in particular, providing them with much-needed road access to deep-sea ports. There is also a need to facilitate all-season road connections between major cities and provincial regions, in particular “higher value agricultural regions” and mining areas, and to decongest high-density cities by building new, wider and safer paved roads facilitating access to, and circulation within, these cities.

The situation is difficult but improving, and the needs have been identified in numerous studies and reports.^[4] There has been an increasing number of privately-financed road projects in various parts of Africa – some already completed, some currently under development – indicating that private financing can – and will – play an increasing role in the financing and development of the African roads network.

Certain legal and institutional issues must be identified and addressed to ensure the successful implementation of road PPPs in Africa. Most of them are, of course, no different from those encountered when developing and financing roads in other parts of the world; the solutions in Africa will, however, sometimes differ significantly from those which apply elsewhere.

Legal and institutional issues

Road projects must make sense

Going back to first principles, in the same way as for any infrastructure scheme, a new-build, project-financed road project must make economic sense. It must be affordable for the public authority and, where the road is tolled, for users. Affordability is not only an issue in relation to the original construction investment but also relates to the ability – from an institutional, operational and budgetary perspective – to maintain and renew the road infrastructure in a consistent and efficient manner. This ongoing obligation can become a significant issue, particularly in countries with difficult weather conditions such as a marked rainy season or harsh desert conditions. The project needs to bring clear economic benefits; for instance, by connecting an urban or industrial centre to a port or another mode of transport infrastructure (such as an airport) or by “de-bottlenecking” a congested urban area and facilitating the segregation between freight and other traffic. For example, the Dakar-Diamniadio Highway project in Senegal^[5] not only creates a more rapid, safer and efficient link between the city centre of Dakar and the new economic centre of Diamniadio, and the Blaise Diagne airport, but also operates as a junction between Dakar port and the Dakar-Bamako-Ouagadougou-Niamey trans-West African highway.

Institutional frameworks

Although roads are not the most complex form of infrastructure to develop and manage, the proper planning, financing, management, maintenance and policing of road infrastructure require a solid institutional framework. It is generally acknowledged that countries with road funds – in particular, those that set fuel levies at a reasonably high level – have systematically better road funding and are much more likely to successfully implement road maintenance requirements than those which do not.^[6] Several African countries (such as Nigeria, Senegal, South Africa and Uganda) have road agencies with varying degrees of autonomy and responsibility, ranging from full independence in road network management (including the contracting out of public works) to limited responsibility for the implementation of governmental road programmes. Many African countries also have ring-fenced funding for the financing of maintenance and new roads, either funded from fuel levies (such as in Tanzania and Rwanda) or from budget allocations (such as in Benin, Côte d’Ivoire, Ethiopia, Zambia and Gabon).

Legislation and procurement/contracting schemes

The creation of institutional frameworks for road infrastructure goes hand in hand with the adoption of enabling legislation to create an appropriate framework for private sector involvement in the road sector.

Such enabling legislation will typically provide for the adoption of appropriate procurement and contracting schemes, ranging from fixed-payment, performance-based maintenance contracts to various forms of privately-financed schemes typically used for the procurement of privately-financed roads, such as concessions or availability-based PPPs. For example, Uganda has recently adopted enabling legislation to facilitate the forthcoming launch of the Kampala-Jinja Expressway project.^[7] Uganda’s new PPP law sets out the required tender process to be followed, and the approvals required in order to bring PPP projects to fruition.

Regulation framework

Enabling legislation is also often required to provide a robust and stable road regulation framework. Legislation will be required to permit and organise toll collection and enforcement. In several countries, where specific laws already exist regulating the establishment of roads (including planning, land acquisition and contracting), access to roads and the regulation, operation and policing thereof, it will often be necessary to review and amend the existing legislation to ensure that it allows for privately-financed projects and provides a clear, exhaustive and stable framework for the development and operation of such projects. This will involve, for example:

• improving the enforcement of rules against encroachment (which is a widespread issue in many African countries);
• limiting the right of landowners to build their own access to roads;
• authorising private operators to fully perform their safety and maintenance functions in order to operate the road, without competence overlaps or interference from other authorities; and
• clarifying the powers of the roads authority, in particular in relation to financing, and toll revenue management and disposal.

Land acquisition and environmental impacts

Land acquisition is always a sensitive issue in road projects (as with any linear infrastructure projects, such as rail and pipeline projects). Land acquisitions in sub-Saharan Africa and the safeguarding of the selected land corridor raise issues which are common to the development of infrastructure in most developing countries. For example, urban road projects crossing shanty towns raise not only individual expropriation compensation issues but also wider social concerns, as they generally require the displacement and resettlement of families as well as of economic and commercial activities. The concession or PPP contract will often impose certain specific compensatory obligations on the private sector concessionaire or the PPP company which can sometimes extend beyond the normal scope of obligations of a roads concessionaire; for example, noise protection walls, planting of green spaces, improving sanitation and funding of community activities.

In rural areas, tribal land ownership rules can make land acquisition a long and complex exercise. Similarly, the environmental impact of the proposed road must be assessed and taken into account, including through environmental mitigation and compensation measures. For example, the first stretch of the Dakar-Diamniadio Highway project crosses the Mbao and Sébikhotane classified forests, which has resulted in the contract imposing specific environmental protection constraints and measures. As in the case of other infrastructure and power projects, the identification and proper management of environmental issues is particularly important for road projects involving multilateral agencies and international commercial lenders, which have increasingly stringent environmental and social impact management and compensation requirements.

Traffic risk and optimal payment structure

As in the case of privately-financed road projects anywhere in the world, a key issue is how to manage traffic risk and to determine the optimal payment structure. Common sense would normally lead to the conclusion that the African roads market is not sufficiently stable and mature to enable traffic risk to be transferred to the private sector. With developed countries recently experiencing a string of high-profile failures of revenue risk on toll road projects, how could such a model be expected to work in less developed African countries? While it is probably correct to state that the revenue risk model is unlikely to be the most attractive model for sponsors or for lenders, it has an obvious advantage from the public authority’s perspective, in that the public sector does not have to contribute from its own funds or, at the very least, that such contributions are minimised.

Revenue risk model

That the revenue risk model can be successful in Africa is illustrated by the Dakar-Diamniadio Highway concession in Senegal, which includes a 25-kilometre stretch of tolled road.^[8] With a total cost for travelling the Dakar-Diamniado Highway of FCFA 800 for motorcycles, FCFA 1,400 for cars and FCFA 2,700 for trucks, and average traffic in excess of 40,000 cars per day,^[9] the project proves that, where all the necessary conditions are met, it is perfectly possible to privately finance a revenue risk road project in Africa. In fact, for the Dakar-Diamniado Highway, using the tolled section of the road is faster (allowing saving of up to 75 minutes’ travel time as well as on fuel costs), safer and cheaper than the former route on which drivers had to regularly pay amounts significantly higher than the cost of the toll to informal “toll collectors”. It is fair to acknowledge, however, that although the Dakar-Diamniado Highway project has been “project financed”, in strict terms “private finance” represents only a limited portion of the financing package for the project. Of the €230m financing package, €38m (16.5 per cent) of the financing was provided by the project co-sponsors, French company Eiffage (€32m in equity) and a Senegalese commercial bank CBAO (Attijariwafa Bank) (€6m), the rest being provided by the Senegalese State (€120m) funded by Agence Française de Développement (AFD) and the African Development Bank (ADB), and by multilateral development banks (€56.5m provided by the International Finance Corporation, the West African Development Bank (BOAD) and the Economic Commission for Africa (ECA)). Similarly, the 16.5-kilometre extension to the Blaise Diagne airport required €122m in total of new investment, primarily funded by way of a public subsidy and by development banks.^[10] Clearly, project-financed revenue-risk road projects in sub-Saharan Africa will continue to require the support of strong multilateral institutions and the ECA for a long time to come.

It is likely, however, that, other than in specific instances where the traffic risk appears manageable for the private sector (such as the Dakar-Diamniado Highway), revenue-risk-based structures will not be the norm for road projects in Africa. In any event, where traffic risk is to be transferred to a concessionaire, an adequate level of flexibility in the structure will be required to allow for adjustments should the project dramatically underperform or substantially overperform.

Availability risk model

Public authorities and funders will instead often prefer to opt for the established availability risk model, a model with which the market is familiar and for which lenders have an appetite. The model also appears more adapted to the financing and development of non-standard projects in untested environments, without a reliable traffic history or any certainty about public acceptance of road user charging.^[11] This does not mean that structures will never involve real toll but rather that traffic risk will ultimately be retained by the public sector (the state and/or the relevant roads authority) with the private sector operator being paid by way of an availability payment and, where a real toll is implemented, toll revenues being collected on behalf of, and paid to, the authority.

Government support

In turn, the structuring of availability-based projects raises the difficult question of government support in guaranteeing availability payments, in particular where the payment is being made by a roads agency established in the form of a corporate entity. It will often be considered necessary for central government to guarantee the obligations of road authorities to make the relevant project bankable. Beyond the natural reluctance of public authorities to structure their infrastructure projects on the basis of a government guarantee, the granting of such guarantees will often require parliamentary approval, which is, in itself, another potential risk factor for the project.

Conclusion

The challenges to the development of privately-financed road infrastructure in Africa are significant. There is still a long way to go before project finance becomes the norm for the development of the African roads network. However, the few completed African road projects – South Africa’s N3 and N4, Senegal’s Dakar-Diamniado-Blaise Diagne Airport Highway – have shown that, where all the necessary conditions are met, project finance can be a solution, even for revenue-risk-based projects. Projects will require strong governmental and multilateral support to come to fruition but it is likely that, when availability-based or other non-revenue risk structures are put in place for sound projects, the appetite of private sector players for projects will grow, and the sponsors and commercial lenders’ share in the financing of projects will progressively increase.

As a closing note, it is worth mentioning that the improvement of road infrastructure is only part of the solution. Economic research shows that, while the quality of road infrastructure is important, regulation and the market structure are the “binding constraints on performance in the international corridors” in Africa.^[12] Therefore, while improving and developing road infrastructure is essential, at the same time it is also necessary to liberalise and regulate transport services generally, using the new infrastructure to ensure that the African economy as a whole (and not just the haulage and logistics industries) truly reaps the benefits of better road infrastructure.

Click here to download a PDF version of this article in Issue 6 of our InfraRead publication (September 2015).

_Notes

_{[1]“Africa’s Infrastructure: A Time for Transformation”, World Bank/Africa Development Forum report (2010).}

_{[2]“Global status report on road safety”, WHO (2009).}

_{[3]Africa is a continent comprised of 54 countries with different economies, legal and political systems, languages and cultures. Therefore, when this article refers to “sub-Saharan Africa” it is for simplification purposes only.}

_{[4]See, for example, “Study on Road Infrastructure Costs: Analysis of Unit Costs and Cost Overruns Statistics of Road Infrastructure Projects in Africa”, African Development Bank (2014) and “Africa’s Transport Infrastructure: Mainstreaming Maintenance and Management”, International Bank for Reconstruction and Development/World Bank (2011).}

_{[5]The project (phases 1 and 2) consists of a 48.5 km road connecting Dakar to the Blaise Diagne airport outside Dakar. The road is partially tolled. The financing, construction and operation of phases 1 and 2 of the highway concession were awarded to Eiffage in 2009 (phase 1) and 2014 (phase 2). Phase 1 started operation in August 2013. Phase 2 is expected to commence operation during 2016.}

_{[6]“Africa’s Transport Infrastructure”, as footnote 4.}

_{[7]The project consists of a 75 km, four-lane, dual carriageway motorway in Uganda. Ashurst is currently advising the International Finance Corporation, which is retained by the Uganda National Roads Authority to assist in the structuring and tendering of this project. Requests for qualification are expected to be issued by the end of 2015, with the PPP procurement process expected to commence in the first quarter of 2016.}

_{[8]The tolled section comprises an open toll system (lump-sum payment) in the urban part of the highway (Patte d’Oie Thiaroye) and a closed toll section in the peri-urban and rural part (Keur Massar Diamniadio).}

_{[9]Figures extracted from “Dakar Diamniadio Toll Highway (P087304)”, World Bank Implementation Status & Results Report (2015).}

_{[10]The financing structure of the extension is as follows: €16m equity provided by the sponsor and €76m of new debt provided by the World Bank, BOAD, ADB and CBAO to part refinance the debt of the phase 1 project and part finance the extension, and approx. €85.5m as a subsidy from the Government of Senegal, itself financed by a sovereign loan from AFD.}

_{[11]Beyond toll evasion, a key risk to be dealt with in this respect is that of traffic diversion onto competing roads, the existence and maintenance of which is generally required by roads regulations.}

_{[12]“Africa’s Infrastructure: A Time for Transformation”, World Bank/Africa Development Forum report (2010).}