West Africa Next Stepping Stone For Brazil's Infrastructure Majors

BMI View: In line with our view that the Brazilian majors would seek to use their existing operations in lusophone Africa as a base to expand further into the region, both Camargo Correa and Odebrecht have been making headway in new markets across Africa. We highlighted West Africa as the most likely beneficiary, based on high growth expectations and ease of market entry. We anticipate the Brazilian companies to perform well in Sub-Saharan Africa, due to their experience operating in similar markets, and their access to cheap Brazilian Development Bank (BNDES) credit.

Brazilian companies have held dominant market positions in lusophone African countries (namely Angola and Mozambique) for some time, however, in line with a broader global expansion strategy; we are seeing these companies expanding their focus outside of their traditional remit. The two companies leading this strategy are Odebrecht and Camargo Corrêa, however we have also seen similar moves by peers Andrade Gutierrez, OAS and Queiroz Galvão.

Leveraging off operations in Angola, West Africa has been at the forefront of this trend. The sub-region is expected to outperform East and Southern Africa in terms of construction growth rates, as hydrocarbons revenues support public investment and progress is made on attracting the private sector through ambitious public-private partnership programmes.

African Opportunities Await
Construction Sector Real Growth, % y-o-y

BMI View: In line with our view that the Brazilian majors would seek to use their existing operations in lusophone Africa as a base to expand further into the region, both Camargo Correa and Odebrecht have been making headway in new markets across Africa. We highlighted West Africa as the most likely beneficiary, based on high growth expectations and ease of market entry. We anticipate the Brazilian companies to perform well in Sub-Saharan Africa, due to their experience operating in similar markets, and their access to cheap Brazilian Development Bank (BNDES) credit.

Brazilian companies have held dominant market positions in lusophone African countries (namely Angola and Mozambique) for some time, however, in line with a broader global expansion strategy; we are seeing these companies expanding their focus outside of their traditional remit. The two companies leading this strategy are Odebrecht and Camargo Corrêa, however we have also seen similar moves by peers Andrade Gutierrez, OAS and Queiroz Galvão.

Leveraging off operations in Angola, West Africa has been at the forefront of this trend. The sub-region is expected to outperform East and Southern Africa in terms of construction growth rates, as hydrocarbons revenues support public investment and progress is made on attracting the private sector through ambitious public-private partnership programmes.

African Opportunities Await
Construction Sector Real Growth, % y-o-y

Ghana in particular is benefitting from an influx of Brazilian construction players and capital. Currently, Ghana follows only Angola and Mozambique in terms of construction market share of Brazilian companies, with US$600mn worth of projects being developed in Ghana by Brazilian companies. This includes a US$200mn deal with OAS for construction of 5,000 houses, for which work started in November following the securing of finance for the project in September, and a US$100mn contract with Quieroz Galvao for upgrading the Tamale Airport, which was agreed in August. We expect further contracts to be announced in light of Camargo Correa's recent announcement that it would seek to develop hydropower projects in Ghana, capitalising on anticipated contract opportunities in line with the country's plans to expand installed electricity generating capacity to 5,000MW by 2015.

We expect a continued expansion in ties between the two countries, in line with an anticipated US$1bn loan facility to be provided by Brazil. Whilst the loan has been discussed since 2011 with no progress as yet, reports in early November suggest the facility could be approved soon.

Ghana Projects Involving Brazilian Companies
Project Name Value (US$mn) Companies Timeframe Start Timeframe End Status Status notes
Tamale Airport PPP (runway extension) 100 Brazilian Development Bank (BNDES), Queiroz Galvao, Ghana Airports Company Limited (GACL) 2013 2015 Contract Awarded August 2013 - GACL signed a $100-million commercial agreement with Queiroz Galvao.
Eastern Corridor road project na China State Construction Engineering Corporation (CSCEC) na 2013 Under construction China State Construction Engineering Corporation (GSCEC) to provide 10% of the total 15% counterpart
Republic of Ghana and Construtora OAS Housing Project (5,000 unit), Saglemi, Greater Accra Region 200 Construtora OAS 2013 2017 Under construction Financing secured Sept 2013. Construction started Nov 2013.
Eastern Corridor Road Project 240 Odebrecht, Andrade Gutierrez 2012 na Contract Awarded Financing from Brazilian government
Aircraft hangar, Accra Air Force Base 17 Contracta 2013 2014 Under construction Financing from Brazilian government
Source: BMI Key Projects Database

Offsetting Domestic Slump With Higher Growth Emerging Markets

Faced with weak growth domestically, Brazilian companies have been looking further afield to shore up order bookings and support their bottom lines. Whilst some interest has been noted in developed market assets - in part to balance out operations which are heavily exposed to more volatile markets, expanding into better performing emerging markets has also been part of the strategy.

So far, the wider Latin America region has been the key target area; however, we would also highlight the opportunities in Africa. Ghana is therefore likely to be the first step as part of a broader strategy by Brazil's biggest construction players to expand their geographical presence. Odebrecht in particular has highlighted further African exposure as a key element of its expansion strategy and is looking to increase revenue share from the 3.2% registered in 2012. In pursuit of this goal, the company established a new unit in 2012 - the Odebrecht Africa Fund - which will undertake investments into the region. The unit currently controls a number of retail and resource assets.

Given the Brazilian companies' established presence in the region already, they are in a strong position to capitalise on existing knowledge of operating in the region, combined with strong technical expertise. This combination is further boosted by access to cheap development bank credit, with BNDES providing long term, low interest financing for projects these companies participate in. In this way, the Brazilian companies are joining a growing list of competition for China's dominant position in African infrastructure development, and we believe they should be successful in eking out greater market share.

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Sector: Infrastructure
Geography: Brazil, Angola, Ghana
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