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Andrew Shaw,

  1. 1. Laying the foundations for growth – What is rail’s role in the big picture? HEAVY HAUL RAIL AFRICA 19th March 2014 Dr Andrew Shaw
  2. 2. PwC Table of Contents 1. The link to Commodities 3 2. Africa ‘Gearing Up’ 7 3. A closer look at a few key African countries 15 4. The future of ‘Heavy Haul’ rail 24 5. Conclusion 27 2
  3. 3. PwC The link to Commodities 3
  4. 4. PwC Source: PwC Mine (2012) • The growing disconnect Global commodity price & demand regaining strength 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2007 2008 2009 2010 2011 2012 Monthly average coal, copper, gold, iron ore commodity prices, HSBC Global Mining Index (2007 = 1) Gold Coal (Australian thermal) Iron ore (CFR 63.5%) Copper Source: Bloomberg, The World Bank (April) Source: The World Bank, AME Outlook Source: The World Bank, BP Statistical Review of World Energy June 2011 429% increase 30% increase - 1.0 2.0 3.0 4.0 5.0 2005 2006 2007 2008 2009 2010 2011 Annual average CFR China iron ore prices, total global iron ore production (2005 = 1) Iron ore price Global iron ore production 245% increase 20% increase - 0.5 1.0 1.5 2.0 2.5 3.0 2005 2006 2007 2008 2009 2010 2011 Annual average Australian thermal coal prices, total global thermal coal production (2005 = 1) Thermal coal price Global thermal coal production
  5. 5. PwC Capital expenditure up to $98 billion by the top 40 global miners - 5 10 15 20 25 Capital expenditures by commodity ($ billion) 2011 2010 - 5 10 15 20 25 30 35 Capital expenditures by location ($ billion) 201 1 Source: PwC Mine (2012) • The growing disconnect Source: PwC Analysis
  6. 6. PwC Iron ore leads the way = bulk of 2011’s EBIT gains Source: PwC Analysis - 20 40 60 80 100 120 Revenue by commodity ($ billion) 2011 - 10 20 30 40 50 60 70 EBIT by commodity ($ billion) 2011 Source: PwC Mine (2012) • The growing disconnect
  7. 7. PwC Africa ‘Gearing Up’ 7
  8. 8. PwC Africa gearing up Africa is the next place-to-be for doing business  The lions follow the tigers: • 6 of the top ten fastest growing economies 2001-10 were in Africa • Between 2010 and 2016 it will be another 6 • Africa is home to 1 billion people • By 2035, Africa’s labour force will be larger than China’s  Growing demand offers huge potential for T&L companies 8
  9. 9. PwC 10 Countries in profile 10 most relevant economies for T&L due to: • Significantly high GDP • Strong growth expectations • Rich in natural resources • Natural exit to land-locked adjoining countries  high transit traffic volumes • Potential gateways to the region • Rapidly improving transport infrastructure Coverage of all major regions: • North Africa • Sub-Saharan Africa (east, west and southern regions) DRC Angola South Africa Mozam- bique Tanzania Kenya Egypt Algeria Nigeria Ghana 9
  10. 10. PwC ‘Sizing up’ the growth potential The size of the bubbles represents the size of the economy (GDP 2012) Sources: World Bank, International Monetary Fund Algeria US$ 209bn Angola US$ 115bn DRC US$ 17bn Egypt US$ 257bn Ghana US$ 40bn Kenya US$ 41bn Mozambique US$ 14bn Nigeria US$ 270bn South Africa US$ 384bn Tanzania US$ 28bn 0 20 40 60 80 100 120 140 160 180 200 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% GDP annual growth estimates for the period 2012-2017 shown as a % for each country EstimatedpopulationasatmidOctober2013(Millions) 10
  11. 11. PwC Basis of the PwC “Africa Gearing Up” study Use of leading independent economic consultants: Econometrix The 5 –Pillar approach 1. Demographics & resources 2. Economics 3. Business environment 4. Trade & logistics 5. Transport infrastructure Interviews with executives operating in Africa & industry specialists Investment potential assessments 11 lAttractive lAverage lUnattractive  Strong Improvement Expected Some Improvement Expected Stagnation / marginal change expected 
  12. 12. PwC Current state Demographic & Resources Economics Business Environment Trade & Logistics Transport Infrastructure Algeria Angola DRC Egypt Ghana Kenya Mozambique Nigeria South Africa Tanzania l l lAttractive Average Unattractive l l l ll l l l l l l l l ll 12 l l l l l l l l l l l l l l l l
  13. 13. PwC 5 Years forward Demographic & Resources Economics Business Environment Trade & Logistics Transport Infrastructure Expected Growth (GDP 2012-2017) Algeria 3,6% Angola 5,7% DRC 8,6% Egypt 3,4% Ghana 5,9% Kenya 6,2% Mozambique 8,0% Nigeria 6,8% South Africa 3,0% Tanzania 7,0%  Strong Improvement Expected Stagnation / marginal change expected l l lAttractive Average Unattractive                      13Some Improvement Expected 
  14. 14. PwC The way Africa rolls Future growth & development will rely on quality & efficiency of its transport networks Mining, oil & gas Retail & Consumer Agriculture Manufacture Improvement in rail and port infrastructure Efficient, secure logistics & improvement in road, ports and air infrastructure and cold storage Efficient low-cost logistics supporting fresh produce and rapid export Efficient low-cost cross-border logistics aligned to growth in broader African economy Logistics Requirements 14
  15. 15. PwC A closer look at a few key African countries 15
  16. 16. PwC Business Environment • 3rd largest African economy. Oil accounts for 98% of revenue and a current account surplus, • Business environment rated weakest in SADC, Trade and Logistics • Improvement in customs, although logistics performance remains weak, • Waiting times at Port of Luanda average 144 hours, and traffic frequently diverted to Walvis Bay. There are however considerable port expansion plans, • Road infrastructure dilapidated in the east, yet one of Africa’s largest investors in road infrastructure. Rail Infrastructure • Rail rehabilitation has been ongoing since 2005, reconstructing 2,700 km of railway at a total cost of US$ 3.3 Bill. Country Highlights - Angola 16
  17. 17. PwC Tanzania – a rapidly growing economy Liberalised trade regime and regional integration Member of The East African Community (EAC) and The Southern African Development Community (SADC) Fairly broad export base Among the world’s fastest-growing economies over the medium term (6.6%-7.2% between 2012-17) Challenging business environment Unskilled local workforce is a major challenge – 80% of labour force employed in agricultural sector Port of Dar es Salaam in competition with Mombasa to become gateway to East Africa:  Good performance of port KPIs, but high shipping costs  Due to be expanded 17 Africa gearing up
  18. 18. PwC Business Environment • 7% average annual growth rate over last decade, • Improved trade integration, but corruption remains a concern. Trade and Logistics • Diverse natural resources attracting investment, • Logistics Performance Index shows significant improvement over last few years, • Port of Dar es Salaam remains a bottleneck, Rail Infrastructure • Infrastructure performs better than other African country’s but rail requires significant investment, • US$42 bill Chinese agreement to rehabilitate Tazara line. • US$5.1 bill plan for Dar es Salaam - Kigali/Musongati line • Mwambani (Tanga) port and rail project will create new link to Lake Victoria Country Highlights - Tanzania 18
  19. 19. PwC Mozambique – a case in point How inadequate infrastructure can stall growth Massive reserves of coal and natural gas that can’t get out - Potential to be world’s 3rd largest exporter of liquified natural gas Estimate of $20-25 bn required for infrastructure Major success stories: • Expansion of energy sector – capacity exported to South Africa • $2bn bid for railway and port developments in pipeline • Maputo Development Corridor • Major private sector improvements eg. Vale & Nacala Railway Corridor 19 The weak institutional & business environment offers massive potential for improvement.
  20. 20. PwC Business Environment • 3rd poorest country in the world, • Limited by bribery, corruption, red tape & Government decision making takes long. Trade and Logistics • Represents a natural entry point for its landlocked neighbors to the west but is frequently by-passed, • Narrow export base dominated by aluminum. Infrastructure • Transport infrastructure investment of US$17 planned, mostly connecting mining and agricultural clusters to export ports. Projects hampered by implementation delays, • Significant need to upgrade and improve the rail network and connected ports. • Heavy haul access linked to appropriate ports is key to opening up Tete province. Country Highlights – Mozambique 20
  21. 21. PwC Business Environment • Considered to have the largest endowments of minerals in Africa, • Weak business environment characterised by political turmoil. Trade and Logistics • Logistics potential limited by lack of infrastructure, • Regulations and corruption in customs negatively impact trade and result in considerable delay, Infrastructure • Port infrastructure is poor and goods often diverted to Point Noire in Congo. • Due to poor transport infrastructure country is poorly connected with much of the south focused on linkages to Zambia, & then on to SA or Tanzania. • Lobito to Kolwezi line & inland waterways would open up mineral export capability. Country Highlights – Democratic Republic of Congo (DRC) 21
  22. 22. PwC Nigeria, Nigeria, Nigeria….. 10 out of 16 executives interviewed rate Nigeria 50% of population urbanised – attractive for retail/consumer sectors Ranks world’s 4th fastest growing economy - oil exports & government stability Already diversifying into agriculture (42% of GDP) Ambitious plans by gov’t to expand infrastructure: • Roads carry more than 90% of passengers & freight • New deep sea port at Lekki planned to ease congestion • $2bn Rail rehabilitation to reconstruct 2000km 22
  23. 23. PwC Kenya - Entry point to East Africa Rising consumption and oil discoveries Entry point to East African Community (EAC): • Port of Mombasa faces congestions due to high demand • Port of Lamu is one of the largest African port projects • Lamu planned to connect to South Sudan and Ethiopia via rail and road (LAPSET corridor) Diversified economy:  Large agricultural sector – largest tea producer in Africa, largest exporter of flowers  Significant opportunity for growth in light manufacturing  Developed oil fields will change Kenya from a net oil importer to a net exporter of oil 23
  24. 24. PwC The Future of ‘Heavy-haul’ Rail 24
  25. 25. PwC 25 Rail Africa’s rail networks are generally in worse shape than its roads. In many countries, rail is in poor repair and out of date. Rail investments are set to increase in the coming years, but only South Africa has implemented a comprehensive rail investment strategy. Getting Around Africa’s Markets Regional integration with new rail lines … has started in southern and eastern Africa. South Africa is collaborating with Swaziland. In the East, Tanzania is working with neighbours Rwanda and Burundi on plans to link the gateway city of Dar es Salaam with Kigali in Rwanda and Musongati in Burundi. And Kenya is already connected to neighbouring Uganda via rail. But rail integration in the west is nearly nonexistent. Trans-African corridors, gateways and infrastructure projects
  26. 26. PwC Drivers for change in heavy-haul rail • Keep pace with demand, and align to the new commodity wave (post 2008 crisis), • Build more efficient supply chains, pit-to-port and port-to-market, • Improve the port rail interface, 26 • Enhanced train/line capacity: • Axle weight, • Train length, • Line capacity • All of these possibly impacted by gauge.
  27. 27. PwC Conclusions 27 DRC Angola South Africa Mozam -bique Tanzania Kenya Egypt Algeria Nigeria Ghana
  28. 28. PwC Conclusion There is evidence of post 2008 global commodity price & demand strength in commodities Ghana and Nigeria offer the greatest overall investment potential of the group PwC studied Build more efficient rail supply chains. Need for greater rail capacity to address commodity growth requirements Countries such as South Africa, Tanzania, Kenya, Angola, Mozambique have major new rail line plans South Africa has implemented a comprehensive rail investment strategy Rail integration in between African countries remains weak with integration in the west almost nonexistent There are many operational challenges for railways in Africa with a number of concessions having being terminated 1 2 3 4 5 6 7 28
  29. 29. Thank You … “The information contained in this publication by PwC is provided for discussion purposes only and is intended to provide the reader or his/her entity with general information of interest. The information is supplied on an “as is” basis and has not been compiled to meet the reader’s or his/her entity’s individual requirements. It is the reader’s responsibility to satisfy him or her that the content meets the individual or his/ her entity’s requirements. The information should not be regarded as professional or legal advice or the official opinion of PwC. No action should be taken on the strength of the information without obtaining professional advice. Although PwC take all reasonable steps to ensure the quality and accuracy of the information, accuracy is not guaranteed. PwC, shall not be liable for any damage, loss or liability of any nature incurred directly or indirectly by whomever and resulting from any cause in connection with the information contained herein.” © PwC Inc. [Registration number 1998/012055/21](“PwC”). All rights reserved. PwC refers to the South African member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. No. 2 Eglin Road, Sunninghill, 2157 Private Bag x36, Johannesburg, 2000 South Africa T: +27(0) 11 797 5395 M: +27(0) 82 941 6257 Andrew Shaw Associate Director