Road Building Scheme Adds Further Support To Strong Forecast


BMI View : An 8,000km road building plan announced by Zambia has the potential to lift the country's construction sector growth into double digits. We are already optimistic about the country's growth prospects, with a corruption alleviation programme and 'pro-poor' agenda creating a more sustainable platform. The Patriotic Front Government appears to be following up reforms with funding, making the country conducive to growth .

The so-called Link ' Zambia-8000 ' programme is a three - phase road building scheme that envisages the construction and rehabilitation of 8,211km of roads and bridges in Zambia over a five - year period (October 2012-2017) . In total, the programme will see ZMK28trn (US$5.4bn) invested into the country ' s surface transport network. Zambia ' s road network is one of the worst in the region (rank ing 96 th out of 144 countries globally , according to the 2012/13 Global Competitiveness Report) , and is often cited as a barrier to the movement of transport and people . This weighs particularly hard on gr owth and poverty reduction.

Falling Behind
Southern African Road Quality, Rank out of 144 (higher the rank = better road quality)

The project is part of a 'pro-poor' agenda of the Patriotic Front Government, led by President Michael Sata. Sata came to power promising to root out corruption and support poverty reduction; he has made substantial progress on the former and looks set to improve the latter. The anti-corruption agenda has seen tough action, which has negated short-term growth. This has been particularly evident in the construction sector, including management changes at the state-owned utility and a freeze on construction to ensure proper permitting processes.

However, we believe this is creating a more sustainable platform for long-term growth. Fighting corruption has put Zambia back into the good books of development institutions that have resumed loan allocations, with institutional improvements set to reduce wastage. This is especially pertinent given that the 2013 budget appears likely to include considerable social development funding. Initial indications during the opening of the second session of the 11th national Assembly of Zambia include: construction of new universities; rehabilitation and construction of healthcare facilities; building irrigation for 17,000 hectares of land; and new grain silos to support the agricultural industry.

In order to fund these improvements, Zambia is following a growing trend of raising infrastructure capital through government bonds. Zambia issued its first Eurobond in mid-September 2012, raising EUR750mn, most of which will be dedicated to infrastructure investment. Zambia follows Kenya, Ghana and Cote d'Ivoire is utilising this method, which is one we believe is an important source of financing for a cash-strapped region. With funding secured and projects in the pipeline, we believe there will be further upside to our forecast, with potential for growth to enter double digits from our current 8.2% average real growth outlook for the 2013-2017 period.

Further Upside In The Medium Term
Zambia Construction Industry Value And Real Growth
This article is tagged to:
Sector: Infrastructure
Geography: Zambia, Zambia, Zambia, Zambia

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