Introduction The infrastructure sector in the East Africa region is positioned at the intersection of global and regional disruptions including shifts in capital availability, evolving social and environmental priorities, and rapid urbanisation. The emergence of COVID-19 introduces a new set of challenges and exacerbates other existing ones. The full impact of the pandemic will take years to unfold but in the near term, we believe that it will reshape air, sea and inland ports, rail, roads, shipping, transport, logistics, power and telecommunications - all of the infrastructure players in East Africa that contribute substantially to our economies. In the context of COVID-19 and beyond, several factors will play a greater role in the delivery of successful infrastructure: operational resilience, the affordability of infrastructure, the deployment of capital, the deployment of new technologies and sustainability. COVID-19 and the impact on infrastructure The forced cessation of travel, disruptions to supply chains and changes in consumer behaviour are among the COVID-19 impacts affecting every sector in infrastructure. Lockdown and restriction of movement measures in East Africa have resulted in a sudden decline in public transport and road infrastructure usage, causing formerly stable demand and revenues to diminish overnight. However, in this publication, PwC Advisory Partner Simon Mutinda argues that a decline in global trade does not automatically mean a slow and painful recovery for East Africa. The decisions that infrastructure players like ports, shippers and transporters make now will shape their future. It is critical that they take steps to keep operations and markets open, and develop programmes to reorient themselves to succeed in times to come. Questions are also being raised about the air travel and freight industries. If the usage of air transport declines significantly, it is possible that a switch to more localised supply would affect the volumes and demand for port owners and operators, as well. In the power sector, more efficient power distribution would help to bring down costs for consumers. In this publication, a team of PwC practitioners from our Tax and Advisory units argues that the time is now to rethink the power distribution model in Kenya and to consider more private sector competition. In a follow-up article, our Advisory practitioners argue that in addition to comprehensive regulations, appropriate concessionaire payment options and the provision of guarantees are necessary to attract private sector interest in power transmission, particularly for first mover projects. Meanwhile, a decline in demand for power coincides with historically low oil prices. Thermal generated power, which is primarily used as peaking capacity, should become cheaper, with cheaper heavy fuel oil (HFO) prices resulting in lower energy charge pass-through to customers. Cheaper HFO may help to make the case for the increased utilisation of thermal generated power. However, depending on their power generation mix, East African countries may still prioritise cheaper sources of power like hydro relative to other forms of generation like thermal. Operational resilience The COVID-19 pandemic has brought operational resilience into sharp focus, particularly by exposing the fragility of supply chains, which cannot be established or redesigned overnight - especially complex, globalised material supply chains of the kind required for large-scale projects. Yet once the immediate crisis of the pandemic has passed, infrastructure CEOs will need to rethink their supply chains to build in as much resilience to global shocks and disruptions as possible. Infrastructure management teams will also need to re-examine their approach to project delivery and maintenance. COVID-19 has led to the closure of construction sites in East Africa as employee safety plans have been activated; travel bans have also had a direct impact on the availability of labour across almost all sectors. The disruption to staff operations could accelerate new types of remote project workflows. Remote working opens the door to more standardised project designs, streamlined processes and automation incorporating new technologies for the infrastructure sector. Technology adoption Infrastructure sector players will need to invest in advanced technologies as they respond to reductions in capacity and rising costs, including artificial intelligence and robotics. They can also reduce maintenance capital expenses using technologies such as intelligent drones, which can improve safety and maintenance such as by inspecting and scoping work faster and providing more detailed information about required repairs. For infrastructure players like telecommunications companies, the shift to remote working has underlined the growing need for secure, resilient, cloud-based technologies and connective infrastructure. Growing usage of cloud technology will boost demand for data transmission and storage assets including fibre networks, data and towers. As Laolu Akindele discusses in this publication, the value of data is also a commercial advantage for telecommunications companies. Many of them are making significant investments in data analytics and technologies and seeking new ways of using data to grow their businesses by deriving meaningful insights and creating value for their customers.

"The main challenge for the infrastructure sector may be identifying those projects that provide significant long-term contributions to economic livelihood as well as projects that address the need for greater digital connectivity, robust utility infrastructure and healthcare provision."


The infrastructure industry in East Africa already faces a significant shortfall in spending. The measures that governments are taking to support public health and stimulate their economies now may have an impact on infrastructure investment. Spending earmarked for infrastructure projects may need to be channeled into social initiatives such as unemployment benefits and healthcare instead. However, there are also some signs that governments may consider spending on labour-intensive infrastructure projects as part of their stimulus efforts. The main challenge for the infrastructure sector may be identifying those projects that provide significant long-term contributions to economic livelihood as well as projects that address the need for greater digital connectivity, robust utility infrastructure and healthcare provision. For infrastructure projects financed through public-private partnerships (PPPs), demand-based contracts can be vulnerable to shocks, while those financed by government can be exposed to reduced or reallocated budgets. The pandemic is likely to prompt a reassessment of investment risk and stress testing, as well as increased demand-side forecasting and planning and risk allocation. In all likelihood, conservative PPP deal structures and risk aversion will influence the infrastructure sector for the foreseeable future. Government interventions to mitigate the pandemic will also impact the risk perception of infrastructure going forward. Fiscal positions have deteriorated but infrastructure needs have not; narrowing the infrastructure gap in East Africa has just become even more challenging. Perhaps, the focus on ‘financing’ obscured the means to repay those obligations. Time will tell. But there is no question that affordability is key going forward. Sustainability The need for stimulus and recovery presents an opportunity for climate-resilient infrastructure investment. By focusing on activities that reduce carbon consumption like progressing from fossil fuels to renewables, providing incentives for cleaner and greener construction methods and promoting environmentally friendly modes of transport, East African countries can create opportunities to invest in sustainable growth. That focus also aligns well with the significant pools of capital available for investments with a positive environmental impact. Many infrastructure investors are strengthening their environmental, social and governance (ESG) focus. As ESG reporting becomes more mainstream and policy pressure increases, it is reasonable to anticipate more demand for such assets in the future.

In conclusion, although COVID-19 is testing our infrastructure as never before, the sector also remains as essential as ever. Close alignment and collaboration between a wide range of participants, each with their own agenda and interests, mean that no single player acting alone can affect real change in the sector. Our infrastructure development will respond to underlying demand, in time. By understanding how the COVID-19 pandemic has changed industry dynamics, public and private sector leaders can position themselves to capitalise effectively in the present as well as in the future, when the rebound arrives.

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Edward Kerich

PwC Partner, Risk Assurance Services - PwC Eastern Africa

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