Building up the economy: Large-scale infrastructure investment offers opportunities for growth

The construction industry has driven much of the country’s economic expansion since 2010. This trend is set to continue from 2012-13 as Gabon makes a push to improve its national infrastructure. Activity is increasing for foreign companies, which have a critical technical and strategic role to play in ongoing and current construction projects, although there are obstacles to overcome to unleash the sector’s potential. Fortunately, the government has begun implementing an ambitious set of reforms to tackle various challenges.

NATIONAL PLAN: The country’s National Infrastructure Master Plan, formally launched in June 2012, identifies 21 priority projects that should help to establish Gabon as an emerging global economy by 2025. The new government agency responsible for the plan’s implementation, the National Public Works Agency (Agence Nationale des Grands Travaux, ANGT), has indicated that it hopes to draw €15.99bn in public and private investment between 2011 and 2016 to finance these building projects. If this goal is reached, construction will be an important growth sector for the Gabonese economy in 2012 and beyond.

Construction has come to play an important role in the economy as infrastructure building accelerated from 2009-10. The government estimated that as construction projects picked up before the African Cup of Nations (Coupe d’Afrique des Nations, CAN) football tournament, the sector contributed 30.8% of GDP growth in 2010. The state continued to prioritise infrastructure building in 2011, setting aside about 25% of its investment budget, or €234m, for infrastructure and equipment. The focus in the sector now is to continue the momentum generated by the building projects undertaken in the last two years.

The launch of the National Infrastructure Master Plan has brought coherence and a strategic focus to this growing industry. The master plan will centre on improvements to key sectors, primarily transport, energy and real estate. Henri Ohayon, the director-general of the ANGT, indicated that between 2011 and 2016, total estimated investment in these areas, including existing projects and new ones under the master plan, is $6bn for road transport, $5.5bn for railway transport, and $2bn for other transport needs such as air, maritime trade and waterways. A further $2.8bn is projected for water and energy projects, and another $2.8bn for housing. Given this ambitious vision, private sector and international financing partners will be critical. The ANGT has indicated that in addition to government funds, it will seek project financing from private investment and international financial institutions, public-private partnerships and concessions.

KICK-OFF: A number of major construction and infrastructure projects were undertaken in preparation for the CAN, which Gabon co-hosted from January-February 2012. The government set aside a budget of CFA103bn (€154m) for infrastructure projects related to the CAN, which included the construction of a 40, 000-seat stadium in Libreville and a 20,000-seat stadium in Franceville, five training stadiums and a number of hotels. In addition, several road segments in Libreville were resurfaced, and three interchanges were constructed at key traffic points will help to ease circulation in the capital long after the tournament’s end. Indeed, as Ohayon told OBG, “The CAN has been a launching pad for many important infrastructure and construction projects. As such, we are undertaking an ambitious slate of projects for 2012 that includes improving road networks in Libreville and provincial capitals, and constructing new university and high school buildings, hospital infrastructure in the interior of the country and urban housing.”

Although there was some concern that the raft of projects related to the CAN would not be completed on time, the ANGT managed the process effectively. Workers were brought in to work both day and night shifts on several major projects in order to meet deadlines. Jim Dutton, the Gabon programme director for international engineering firm Bechtel, told OBG, “The completion of the tournament infrastructure on time proved that Gabon was able to deliver major projects, and put the country on the map in Africa in a way that would have been difficult to do otherwise.”

SPECIALIST CONSTRUCTION: Gabon will also be seeking to collaborate with specialist construction firms that can contribute their expertise on technologically sophisticated projects like road and energy infrastructure building. Transport infrastructure represents the bulk of public works projects in the short term. While much of the basic transport infrastructure is in place, outdated equipment, few paved roads and insufficient intermodal linkages pose an obstacle to economic growth (see Transport chapter).

Gabon aims to triple energy production by 2020 in an effort to support industrial growth and several major hydroelectric projects currently under way. The Grand Poubara hydroelectric dam is under construction by the Chinese firm SinoHydro on the Ogooué River near Franceville for an estimated cost of €304m. The dam is expected to be operational by mid-2013 and will produce 240 MW to power mining operations in the southeast. In 2010 the Ministry of Energy signed a CFA124bn (€186m) public-private partnership with the Renewable Energy Development Company for the construction of two additional hydroelectric dams. Impératrice Dam on the Ngounié River is expected to produce 42 MW, for a total investment of CFA70bn (€105m). A second hydroelectric dam on the Okano River, FE 2, is expected to generate a minimum of 36 MW for a total project cost of CFA55bn (€82.5m).

ONGOING PROJECTS: Work has been under way since 2009 on the Programme Routier, a €280m road project financed primarily by the African Development Bank (AfDB). The programme will ultimately provide a paved highway between Libreville and Tchibanga, the capital of the south-western province of Nyanga. Under the first phase of the programme (PR1), three segments of Route Nationale 1 (RN1) are set to be widened and paved over a total of 236 km.

Contracts for all three segments were awarded to Chinese companies, namely China Communications Construction Company (CCCC), SinoHydro and the Chinese Overseas Engineering Company (COVEC). The AfDB has approved financing for the programme’s second phase (PR2), which will complete the north-south highway and create a much-needed road link between Port-Gentil and cities in the interior. The international tender for PR2 contracts is expected to be launched by early 2013.

The ANGT is also overseeing work to widen and pave 163 km on the critical RN1 between Libreville and Bifoun. Construction is under way and being overseen by the local subsidiary of the Chinese construction firm Entraco, under contract with the Spanish firm Cedex. Work on the segments varies between 25% and 75% completion, and is largely being financed by the Spanish arm of Deutsche Bank.

In addition, the government has outlined a number of future road projects that will create opportunities for companies in the medium term. By 2014, the ANGT has set the goal of building a road link between the north-eastern Belinga iron ore deposit and the Transgabonais corridor at Ovan, paving a road between the northern agro-industrial zone of Bitam and the border of Cameroon, and completing the entire RN3 stretch between Libreville and Franceville.

Infrastructure projects across a number of other transport sectors, including the construction of a new, 5800-sq-metre international terminal at Port-Gentil International Airport and a 300-500-metre extension of the Port of Owendo’s main quay, will demand a variety of technical expertise in the next five years.

URBAN DEVELOPMENT: A variety of upcoming real estate projects, including major urban developments as well as social housing programmes, should create a steady stream of construction projects. The ANGT is also planning to turn the Port Môle and coastal area around the base of the Boulevard Triomphale in the capital into a city centre, which does not currently exist in Libreville. The Port Môle area, with a surface area of 15 ha, is slated to benefit from several infrastructure projects, including a marina with hotels, businesses, leisure and public spaces as well as restaurants. Site studies are currently in progress, and the first calls to tender will be launched once the plan has been approved in late 2012 or early 2013. The waterfront project is expected to be the launching pad for the development of one of the city’s arteries, the Boulevard Triomphale, with residential and mixed-use projects. Many real estate firms, however, have encountered problems and delays, with rapidly changing decisions from officials regarding authorisation for specific construction firms to participate in designated projects, creating some confusion and financial challenges for investors.

The state is also making an effort to increase the housing stock in order to overcome an estimated deficit of 200,000 homes nationwide. Work began on a new urban settlement in Angondjé, a northern suburb of Libreville, in late 2011. The ANGT expects that the first 1000 homes to be available by the end of 2012, but there is some uncertainty about whether this goal can be met. Full-scale construction is scheduled to begin in 2013 with the goal of 5000 new units per year, although as of the end of 2012 the social housing project will be 15,000 units behind schedule if the first 1000 units in Angondjé are not ready. A major reason for this delay has been the lack of land equipped with the necessary infrastructure for residential development, such as sewer systems and electricity.

LAND ACCESS: Obtaining land titles for development purposes has been a slow, problematic process in the past, particularly for individuals and small-scale builders. Recent administrative reforms should remove some of the structural obstacles to growth in the sector. In May 2012 the new National Agency for Urban Planning, Topographical Works and Land Registry (Agence Nationale de l’Urbanisme, des Travaux Topographiques et du Cadastre, ANUTTC) introduced a simplified procedure for land purchases. The ANUTTC will coordinate with all relevant ministries on behalf of prospective developers, thereby reducing the time required to obtain a title deed from 10 years to six months, and reducing the number of steps from 134 to seven. However, it will take some time for these reforms to take effect, with developers confirming that so far they have not yet felt an impact. Furthermore, during the long waits for land title deliveries, squatters have occupied some properties, and developers with valid land titles are now facing some difficulties in removing such persons from their property.

The World Bank ranks Gabon 58th out of 183 economies based on its 2011 performance for the ease of construction permits, up two places from 2010. Indeed, it is now possible to obtain a construction permit within 4-6 weeks, while under the previous president, typically only provisional permits were issued. Meanwhile, the country moved down three spots on the World Bank index to 134 in terms of the ease of registering property. The ANUTTC was meant to create a centralised, coherent national land registry, which should increase regulation and the clarity of land ownership once properties are brought into the system. The new administrative procedures should ultimately foster a more attractive environment for developers, but it will take time for them to fully come into effect.

SPECIAL ECONOMIC ZONES: The establishment of two greenfield special economic zones (SEZs) will also create considerable opportunities for construction. The Nkok SEZ is being developed on a 1126-ha site 27 km east of Libreville. According to Gagan Gupta, country head of Olam Gabon, a Singapore-based agricultural supply chain company, 85% of lots on the site have already been reserved. A total of 58 companies have committed to setting up operations in the zone that are scheduled to start by 2013.

A second SEZ is planned in the Port-Gentil area. Like Nkok, the Port-Gentil SEZ is being managed through a public-private partnership with Olam. The SEZ is slated for development on a 2000-ha plot and is set to be operational by 2016. The first phase of construction will cover the preparation of the site, arrange transport access, and support infrastructure such as electricity, water and telecommunications systems.

INCREASING COMPETITION: With an ambitious number of infrastructure projects planned in the near term, international firms have a critical role to play in terms of project financing, as well as technical and management expertise (see analysis). Foreign construction firms have always held a strong position in Gabon. A number of French and other European firms have traditionally dominated the sector; those active today include France’s SOGEA-Satom – part of the Vinci Group – Colas, DTP Dragages and ETDE, which specialises in energy and power supply projects. Major Spanish firms include Acciona Infraestructuras and Cedex, which primarily focus on road infrastructure projects.

European firms are facing increasing competition from a number of Indian and Chinese companies. In 2011 the Indian firm RPP Infra Projects secured a CFA163bn (€244.5m) contract from the Ministry of Housing to build 10,000 homes nationwide over a period of 36 months. A second Indian firm, M3M, has also announced plans to build 5000 low-cost housing units between 2012 and 2014 for an estimated total investment of €70m. Chinese firms have also started carving out a significant share of the market in recent years. Companies currently on the market include CCCC, COVEC and SinoHydro, which was responsible for the construction of the 40,000-seat Sino-Gabonese Friendship Stadium in Libreville, as well as a number of ongoing hydroelectricity and road infrastructure projects.

CAPACITY BUILDING: Several local companies are also active on the market, including Socoba-EDTPL, SocoBTP and Sericom. Contracts for large-scale infrastructure builds usually go to international firms with wider scope and capabilities. However, rather than crowding out local companies, the presence of many international contractors is expected to raise the skill level in Gabon and strengthen the industry in the long term. For example, Socoba-EDTPL was hired as a subcontractor under the Serbian firm Amiga for the construction of the 20,000-seat Franceville stadium.

Gabon’s market for small and medium-sized enterprises (SMEs) is relatively underdeveloped. Smaller companies have limited access to long-term credit, and many SMEs face difficulties proposing professional and cost-effective bids when it comes to larger public works projects. However, smaller construction and maintenance projects are contributing in some measure to SMEs’ development. The Ministry of Transport often makes an effort to give smaller road maintenance contracts, especially those concentrated in Libreville and its environs, to SMEs. However, according to the General Directorate of Road Maintenance at the Ministry of Transport, of the seven road maintenance projects currently under way in Libreville, two were awarded to local SMEs, which is a lower percentage than usual given the pressing nature of road improvement projects in the capital. Of the annual maintenance budget for the nationwide road network maintenance projects, upwards of three-quarters of contracts go to SMEs.

WORKFORCE: The sector is now facing a shortage of qualified workers. Contractors are generally required to recruit upwards of three-quarters of their workforce among Gabonese nationals, and this has proven to be a challenge. Local employment requirements also raise costs, as the Gabonese minimum wage, at CFA150,000 (€225) per month, is much higher than that of other countries in the region. Criticism has been levelled at some Chinese companies for circumventing employment restrictions and bringing in Chinese workers.

CONSTRUCTION MATERIALS: Demand for construction materials is expected to grow rapidly. Whereas much of Gabon’s timber production used to be exported as raw materials, a 2010 ban on log exports led to more processed wood products on the market. About 1.6m cu metres of wood were processed in 2011, including 251,000 cu metres of veneer and plywood.

Cement is produced locally by Cimgabon, a subsidiary of German firm HeidelbergCement. Cimgabon produces cement in its factories in Owendo and Franceville, where it transports clinker by rail. The company estimates domestic demand to be 600,000 tonnes per year, approximately 70% of which goes to public works companies and 30% to individuals for private projects. Cimgabon produced 260,000 tonnes in 2011, but 2012 production is expected to be lower. Transport has become an issue, as a shortage of clinker cars and a spate of recent derailments due to outdated rail infrastructure mean that Cimgabon’s Franceville facility is not operating at full capacity.

The price of locally produced cement has been set by the government at CFA5060 (€7.59) per sack. Cimgabon used to be the dominant player in the market, but it has seen its market share decrease from 60% in 2010 to 39% in 2012 in the face of increasing competition from Chinese imports, which are available at lower cost. Chinese companies have received criticism for circumventing Customs duties to offer cement at below-market prices. The import of building materials was deregulated in 2007, making it difficult to monitor products entering the country. There is some discussion about increasing controls, but in the short term imported cement is likely to continue taking market share.

OUTLOOK: With help from the private sector and international partners, the government’s ambitious development plan should create enormous opportunities in the sector and demand a variety of expertise in housing, hydroelectricity and transport. Although challenges remain with regard to payment delays, outdated infrastructure and the availability of a highly trained local workforce, the structure created by the ANGT and the raft of new projects bode well for sector development.