10 Year Forecasts - Zambia Tenders First PPP, Doubts Remain - FEB 2017

BMI View: The recent award ing of Zambia ' s first PPP offers the potential for upside to the infrastructure construction industry outlook, notably as a viable funding alternative to make up for g overnment fiscal shortfalls. H owever, a lack of detail surrounding financing and construction has prevented us from factoring the project into our forecasts.

The recent awarding of the first public-private partnership (PPP) project in Zambia offers upside potential for construction industry growth, though we note doubts remain surrounding the feasibility of the project. On August 5 the Finance Minister of Zambia announced the signing of a PPP deal for the construction of an 85km road in Luapula Province with a projected cost of USD180mn. This will be the first project awarded in the country since the government approved a policy framework for the implementation of PPPs in the country in December 2008 - itself a major milestone for Zambia's infrastructure industry. This said, details about the project and how it will be executed remain scant, leading us to remain highly cautious around its feasibility and not factor it in to our forecasts. Likewise, with the Zambia Development Agency continuing to struggle with the conception and contracting of its own PPP projects, we remain sceptical of the impact the model will be able to play in the development of infrastructure in the country.

With the government facing major fiscal constraints - due primarily to the fall in copper prices - the successful use of PPPs has the potential to add much-needed funds to bolster the industry. Over the last five years (2011-2015), real growth in the Zambian construction industry averaged 11.9% annually. However, the collapse in copper prices has left government revenues, and thus its ability to fund infrastructure projects, in a lurch. As such we are forecasting a sizeable fall in the growth rate for this year and the coming years ( see chart below).

Construction Industry Growth Falling With Copper Prices
Zambia Construction Industry Value Growth % y-o-y (LHS), And Copper Price, Three Month Ave (USD/tonne)
Source: Zambia Statistics Office, Bloomberg, BMI

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