Paul Karakezi

Executive Chairman | GIBB Africa Limited

AfricaLive: Please introduce your company to readers and tell us about the DNA of the organisation.

Paul Karakezi: Gibb Africa Limited began operations 60 to 70 years ago. It started as a British partnership back in the 1940s and over the years, the company has evolved. It went from a partnership to a limited liability company, decades later. In the 1990s, Kenyans started to show an interest in the company. In 2003, Kenyans acquired 49% of the company’s shares. Today Gibb Africa Limited is a 100% Kenyan owned company.

We operate in several countries in the continent which include Eswatini and Ghana. Primarily we are consulting engineers who also provide a biometric service. Our focus is mostly on infrastructure but we have also done agricultural projects. It so happens that on the continent the biggest employer is the public sector, particularly for large projects.

Private sector investment in infrastructure is relatively underdeveloped in Africa when it comes to roads, water supply, and rail network development. We see ourselves as partners of various governments when it comes to offering localised solutions to infrastructural challenges. By localised I mean offering tailor-made solutions of quality.

AfricaLive: In your development over the years, what projects would you point to as some of your most significant ones?

Paul Karakezi: There is quite a number especially in the agricultural arena. We have worked to build smallholder farming systems where we work with governments to uplift farmers. Here, we devise methods to pipe clean water to farmers while also advising them on soil quality.

Our outreach in agriculture has extended to Malawi, Tanzania and Kenya as well. In construction, we did major works on the airport in Addis Ababa and have also done projects alongside the electricity generating company KENGEN. These are not the biggest projects we’ve done; but in my opinion, they have been some of the most impactful.

AfricaLive: Have you done significant work in the water and sanitation sector?

Paul Karakezi: Yes, one of the biggest we did was channelling water from Lake Victoria into Northern Tanzania. This connected several towns in Northern Tanzania with piped water. We also worked with the largest water scheme in Kenya on sanitation which helps service greater Nairobi. Rwanda offers opportunities for such projects as well.

These projects have a huge impact considering the population growth on the continent. Working to ensure people have access to basics like water and sanitation has a bigger impact than a lot of other projects.

AfricaLive: What do you consider the investment priorities to be when it comes to infrastructure in East Africa?

Paul Karakezi: Transportation must be a priority in the East African region because it drives commerce. Let me address what I see as a problem then suggest what could be done going forward. In my view, three problems plague the East African and even African infrastructure as a whole.

The first one is the capacity of the public sector to develop bankable projects. The second one is the issue of corruption in the procurement process and the third is the financing of infrastructure. All these issues are interrelated.

African governments have realised that they cannot finance infrastructure projects based on tax revenues and loans. They now realise that they must look into working with the private sector. A recent report by the Africa Development Bank stated that African countries need to invest between $130 to $150 billion a year to close the infrastructure gap. Taxation and loans cannot fill this gap; the private sector must come into play.

The first challenge of capacity begins with weakness in feasibility studies and business plans. Projects are rushed through by politicians to help swing an election. Poorly planned projects do not attract sufficient funding, so we end up with many stalled projects. Continuity is also needed in projects to help sway serious buyers to invest.

In some countries, risk allocation becomes an issue because politicians do not understand the PPP model that well. All these issues have to do with capacity, which we lack in our public sectors. If addressed, floodgates of funding can come our way from the insurance firms for instance that have access to trillions of dollars.

Corruption in the procurement process is an issue that private money cannot abide. Unless that issue is dealt with, private funding resources will continue to elude us. A lot of effort is being made to combat corruption but in my opinion, it is not enough.

We have had great projects in the power sector with potential for great returns that have been delayed because of the corruption in the procurement process. There is a good project in Kenya that has been held back by the same issue.

The cost of projects is also a huge barrier. African governments find a lot of infrastructure projects financially out of reach. There is a huge demand for infrastructure on the continent and if these issues are sufficiently tackled, we can attract a lot of investment capital.

AfricaLive: Do you believe that the private sector has a role to play in solving these issues?

Paul Karakezi: I agree that we have a role to play, but I think that the public sector has an even bigger role. We can package a good project but then when it comes to selection, prioritisation and time allowed for projects; it’s all in the hands of the public sector.

A few years back, the Kenyan government embarked on building a 2000 kilometre road project in 5 years and this grew to become a goal of building 4500 kilometres of road.

The project was divided into 48 lots each to be handed to a contractor. When we looked at the project documents, the planning was poor. The timelines were also quite restrictive which put a lot of pressure on an already problematic process.

In the end, only 1 lot out of the 48 lots had achieved financial growth. The point here is that the public sector has to do more when it comes to preparing bankable projects that can attract private sector money.

AfricaLive: African infrastructure is less risky than commonly perceived. According to Moody’s, default rates at less than 6 per cent are half of those of Latin America.

This negative and inaccurate perception of the continent-often promoted by the international media- is known as Afro-pessimism. How can you play a role in fighting Afro-pessimism?

Paul Karakezi: The cost of financing for African projects is largely inflated by the negative perception. A few years ago Italy’s debt to GDP ratio was about 140% yet they were able to borrow money at interests of less than 1%. African countries don’t come anywhere near 140 per cent debt to equity GDP ratio and yet we pay upwards of 6% on our debt.

The international community must come together to address the risk premium for African countries. If this is not addressed, I don’t see us getting access to affordable debt anytime soon. In Kenya today, we are spending a third of our tax revenue to service debt and this is not sustainable.

 

AfricaLive: As part of our digital roundtable debate, please give your response to the following opinions relating to the development of African infrastructure:

On funding: Anshul Rai, Chief Executive, Nigeria Infrastructure Debt Fund: “Even in 2021, the financing model for Africa is stuck in the 1990s.

Government must insist on foreign investors accepting at least a part of the currency risk. We need funding models that match the realities of modern Africa.”

Paul Karakezi: I agree with the second part of the statement but not the first. Somebody must carry that infrastructure risk. Either the government carry the risk or the private sector does it and then charges the government. At the end of the day, there is no free lunch because someone must pay. The second part is in order because funding models must be in tune with the needs of modern Africa.

In other words, we need some realism in these financial models. Some countries in Africa handle their financial matters poorly while others have done very well over the years.

The debt levels in the continent were at all-time lows in 2010 before that started to change around 2012. The overall point is that debt premiums should be applied on a country basis instead of a universal approach across the board.

AfricaLive: On the role of African firms: From the CEO of an emerging Kenyan engineering firm: “With the stringent requirements for bidding for World Bank and IMF projects, local companies cannot gain the required track record to jump from the category of a subcontractor to a contractor, or even less to EPC contractor.

That introduces a significant restriction to the possibilities of African development.” How do you react to that statement?

Paul Karakezi: Mine is a mixed reaction. Some of the requirements are indeed out of reach for local contractors. On the other hand, a lot of our contractors have not performed well when they have had the chance to prove themselves. In defence of local contractors, I have to revisit the corruption issue.

Some of the local contractors that get work and disappoint because of incompetence, get the jobs through corruption. Apart from the corruption aspect, there is the funding aspect. Even in projects financed by international bodies, payment delays do occur and that can cripple operations.

The biggest problem for me though is the advent of Chinese contractors. These companies have taken over the construction sector in Africa because, in most tender projects, there is always 5 to 6 Chinese companies on the tender list.

Chinese companies are taking business away from local companies while also doing nothing to help local contractors boost their capacity. African governments must put forward policies that create an even playing field for local contractors to build capacity.

We have a public procurement provision in Kenya that requires all government-funded projects to give at least 30% of their value to local contractors.

 

AfricaLive: What are your thoughts about skill development and training in the sector and what do you want to see in the future?

Paul Karakezi: A couple of years ago in Kenya, programmes financed by multi-lateral agencies were doing a good job in building capacity. As soon as that multilateral support went away, the programmes died. Such programmes are, therefore, helpful but we must find ways to fund them sustainably.

When it comes to college training; Kenya, Uganda and Tanzania are doing a good job. What is missing is the opportunity for graduates to express themselves in the job market. We have an influx of Korean firms, Indian firms and so on who are getting jobs and taking them away from our people.

AfricaLive: What does sustainability mean to you?

Paul Karakezi: In construction, there are stakeholders such as; public sector people, private sector people and end consumers. Sustainability must be incorporated in the process to help secure the interests of end consumers. Years ago, a project was supposed to commence in Kinangop Kenya worth millions of dollars.

It never got started because locals protested and drove the developers away. Such things can happen when you don’t consult widely with local communities. We can talk all day about capacity building in both the private and public sectors; but if we miss the consultation piece, it won’t be sustainable.

AfricaLive: Do you believe there is adequate consultation with local communities before commencing projects?

Paul Karakezi: We don’t have enough consultations yet in my opinion. I think the realisation is now setting in and companies see it as a way to reduce risk. Companies are consulting more and looking to have a footprint in local communities.

AfricaLive: After a tough two years occasioned by the pandemic, how do you see things going in the sector?

Paul Karakezi: It’s quite unclear because we still do not know the full impact of the pandemic. Assuming that the data we are seeing is correct, we should be in the clear for now. We are not sure though if we have dodged a bullet or if one is on its way coming to hit us. If COVID begins to affect Africa the same way it has affected other parts of the world, then things could look bleak.

In my opinion, things will not be so good next year and the year after. However, it is reassuring that world economies are beginning to pick up. Another thing giving me hope is the AFCFTA agreement. If that is executed correctly, then things could improve significantly. Access to other African markets will help African contractors expand their horizons. 

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