Planning & Financing Industrial Parks - Sustainable Industrial Areas International Conference - SIA Conference 2019
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Planning & Financing
Industrial Parks
International Conference
Sustainable Industrial Areas
Addis Ababa, Ethiopia | 8 - 10 April 2019
Industrial parks are now one of the most popular tools for governments to accelerate economic transformation • Globally, use of Special Economic Zones has boomed – from 176 in 1986 to around 4,300 in 2015 • There are now at least 60 major industrial parks being in concept, planning or development in East Africa • Increasingly ambitious in scope, scale and industrial sophistication 4/15/2019 SIA Conference 2019 2
The construction of so many large-scale parks carries great promise, but also some risks • Strain on public sector balance sheet • Failure to reach full occupancy of parks • Unsustainable commercial models • Operational and environmental issues around utilities • Social issues • Confusing policy and regulatory arrangements How do African Industrial Parks thrive in an era when they are no longer so ‘special’? 4/15/2019 SIA Conference 2019 3
Our report set out to provide practical guidance to
achieve three main policy objectives for governments
• Maximise the development
potential of industrial parks
• Make best use of public sector
finance – get the best deal for the
state
• Leverage the full potential of the
private sector to finance
development of parks
4/15/2019 SIA Conference 2019 4The report focusses on practical recommendations for
policy officials, drawn from what we heard
• Highly practical non-academic
Management &
Regulation
approach – listening
• Reflected wide variety of views Park
Procurement
but with private sector emphasis
• Asking ‘how’ to do it well – not
Sources of A Strategic
revisiting the ‘why’ Finance National
Programme
• 20 concrete recommendations
for future park development Park Design
Specifications
Structuring
Deals
4/15/2019 SIA Conference 2019 5A strategic national programme Developing a strategic national programme of industrial park development 4/15/2019 SIA Conference 2019 6
Park development should be grounded in an agreed, cross-governmental strategic national programme Governments should The programme should have or develop an catalyse wider reform agreed national efforts and situate programme for parks as one tool industrial parks among many Cross-government and Government should set private sector out its thesis about the consultation groups are respective roles of the needed to co-ordinate public and private implementation sectors 4/15/2019 SIA Conference 2019 7
There is a serious risk of creating an oversupply of
serviced industrial land on current plans
• Development plans should be
Risk of oversupply
grounded in credible forecasts of
demand for serviced industrial land Moderate
Country 1
• This is difficult, because
governments must consider a range Country 2 High
of political and regional issues
• Nevertheless our very high-level Country 3 High
analysis suggested a high risk of Very High
‘white elephant’ parks
Country 4
4/15/2019 SIA Conference 2019 8Minimum requirements at the pre-feasibility stage help
to filter out poor quality projects from the national plan
Technical
Studies xxx Market
Soundings
4/15/2019 SIA Conference 2019 9Structuring park projects Selecting the right industrial park development structures and optimising the public-private partnership 4/15/2019 SIA Conference 2019 10
There is no single ‘correct’ model for parks – economic rationale and transparency are what matter 4/15/2019 SIA Conference 2019 11
There are numerous advantages to phasing and sub-
dividing large-scale park developments
• A majority of industrial parks surveyed across Africa
used phasing over very extended development periods
• Rapid roll-out parks like Hawassa should be seen as the
exception, not the rule
• Phasing helps balance cash flows, focus on quality not
quantity, and be demand-led instead of supply-led
• Investor confidence critical – and fragile
• Parallel plot development useful to drive competition
4/15/2019 SIA Conference 2019 12Park design specifications Developing a park fit for occupation 4/15/2019 SIA Conference 2019 13
Finding an anchor investor is more important than
specialisation in attracting tenants to occupy the park
• Specialisation rarely necessary – in particular various
light manufacturing can be combined
• Anchors matter more and specialisation can be built
around them
• Exclusionary approach may yield better results
4/15/2019 SIA Conference 2019 14Developers should focus on a range of ways in which
they can enhance the operating environment for tenants
• Reducing factor costs
• Technical and soft skills training
• Maximising integration with the local economy
• Quality affordable housing
• Better co-ordination with off-park municipal authorities
particularly around utilities
• Location is key
4/15/2019 SIA Conference 2019 15Pre-built sheds should be as limited as possible,
designed in consultation, and contracted smartly
• Found four main categories of ‘shed strategy’
• Where pre-build required, design in consultation with
intended private sector occupants
4/15/2019 SIA Conference 2019 16High environmental and social standards are a market
differentiator for international investors and tenants
• High standards are increasingly critical to differentiate a
park in what is becoming a ‘crowded market’
• Report summarises a variety of frameworks including
the Eco-Industrial Parks framework and handbook
• Need to go beyond zero liquid discharge!
• Monitoring is critical
4/15/2019 SIA Conference 2019 17Governments should stipulate minimum requirements
for a Feasibility Study (and Business Case)
• Bringing it together – requires a ‘template’ approach to
carrying out feasibility stage planning and design
• Recommend governments stipulate minimum
requirements to ensure consistency
• Report details what we think should be included
• Recommend establishment of a dedicated PMO for
each park at pre-feasibility stage because of complexity
• Don’t underestimate cost of doing it well
4/15/2019 SIA Conference 2019 18Sources of finance Unlocking the right development finance at the right price 4/15/2019 SIA Conference 2019 19
Parks development is expensive and risky, and many
governments are at or near their debt capacity limits
30%
• Park development is 25%
expensive
20%
• Due to debt constraints,
financing parks is 15%
increasingly unattractive 10%
for governments
5%
• So governments turning
towards private investment 0%
2012 2013 2014 2015 2016
as the answer Angola
Rwanda
Ethiopia
Senegal
Ghana
Tanzania
Kenya
Uganda
Mozambique
Zambia
Nigeria
4/15/2019 SIA Conference 2019 20Private sector investment has advantages but investors
are sceptical and commercial viability is unproven
• Investors have been Uganda | Private | Commercial
Rwanda | Private | Commercial
‘burned’ by high profile Uganda | Government | Commercial
Ethiopia | Private | Commercial
park investments in the Kenya | Private | Infra Bonds
Rwanda | Government | Commercial
past Kenya | Private | Commercial
Kenya | Government | Infra Bonds
Rwanda | Private | Infra Bonds
• Even DFIs are very wary Kenya | Government | Commercial
Ethiopia | Government | Commercial
of investing into this asset Rwanda | Government | Infra Bonds
Regional | Private | Commercial Borrowing
class Regional | Private | DFI Chinese Debt Finance
Regional | Private | DFI Non-ConcessionalDFI…
Regional | Government | DFI Non-Concessional
• One of the reasons it is so Regional | Government | DFI Chinese Debt Finance
Regional | Private | SOE-backed Bond Issuance
hard is the differential in Regional | Government | DFI Concessional
0% 5% 10% 15% 20%
financing costs
4/15/2019 SIA Conference 2019 21This is why a range of financial models is required to
sustain private sector investment into industrial parks
• Absorption of high-impact, standalone
infrastructure costs through grant finance
• Blended finance structures that combine
concessional finance with commercial finance
• Corporate balance sheets of major
multinationals and Chinese SOEs
• Deepening local currency pools of capital e.g.
national development banks, stock exchanges
• Enterprise-led park development
4/15/2019 SIA Conference 2019 22What about Chinese finance?
• There is not ‘one story’ 200
about Chinese 180
160
financing of infra in
Number of transactions (out of 491)
140
Africa 120
• Deals clearly range 100
from the strategic to 80
the commercial 60
40
• Similar variation in 20
other terms and 0
0.00 0.25 - 0.991.00 - 1.992.00 - 2.993.00 - 3.994.00 - 4.995.00 - 5.996.00 - 6.997.00 - 7.998.00 - 8.99 10.00 14.00
approaches to default Interest rate interval
4/15/2019 SIA Conference 2019 23An effective way to reduce financing costs is to reduce non-financing costs and increase returns… • Benchmarking of costs against available data • EPC participation in the final SPV structure • Shared participation in land value appreciation • Mixed use development • Sustainable revenue models 4/15/2019 SIA Conference 2019 24
Procuring parks Deriving best value through the key procurement processes for the preparation and development of the park 4/15/2019 SIA Conference 2019 25
…the best way to do this is to invest time and resource
upfront to get the planning and procurement right
• Report lists the key stages of planning and procurement
and indicative cost ranges
• Competitive procurement of developers and EPC
contractors is critical – as is transparency
• Recommend the adoption of SDAs
• Continuous co-ordination and consultation
4/15/2019 SIA Conference 2019 26Managing and regulating parks Finding the optimal institutional arrangements for ongoing management and regulation of parks after construction 4/15/2019 SIA Conference 2019 27
We are seeing a trend away from state-led management
of industrial parks in Africa
• Seeing a trend away from state-led management of parks
• Overall this is to be welcomed – a market of professional
real estate developers likely to deliver better results
4/15/2019 SIA Conference 2019 28There is significant variation in approaches to
institutional arrangements across African economies
• Four countries, four Role Rwanda Uganda Kenya Ethiopia
models
• No single answer, but Industrial Park
Policy
MINICOM
Ministry of Trade,
Industry and Co-
operatives
Ministry of
Industry, Trade
and Co-operatives
Ethiopian
Investment Board
three principles
• Dedicated PPP units
Investment
RDB UIA KenInvest EIC
Promotion
UIA
MINICOM
Public Park (Industrial Parks) EPZA
District Councils IPDC
Development UFZA (Athi River only)
PEZ
(EPZs)
UIA
SEZAR
Regulatory (Private Parks) SEZ Authority
(within RDB ) EIC
Agency UFZA EPZ Authority
(Industrial Parks)
(EPZs)
4/15/2019 SIA Conference 2019 29What next? Making best use of the findings of the report 4/15/2019 SIA Conference 2019 30
There is now an opportunity to maximise learning
between governments, building on this report
• Sharing the report
• Sharing the accompanying financial models
• Participating in a peer-to-peer learning forum for park agencies
and developers
• Health check of national and park strategies
Email:
John Tress | john.w.tress@pwc.com
Gail Warrander | g-warrander@dfid.gov.uk
4/15/2019 SIA Conference 2019 31Thank you! 4/15/2019 SIA Conference 2019 32
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