Deloitte ranks Kenya behind Ethiopia in infrastructure spend

Ethiopia’s investment in roads, railway, industrial zones and power plants is the highest in Africa relative to GDP, well ahead of Kenya.

An analysis by financial consulting group Deloitte shows expenditure on infrastructure projects by Addis Ababa stands at 39 per cent of the total economic output, also known as gross domestic product (GDP).

This is above what is seen as the global ideal level of 30 per cent, Deloitte says.

Kenya’s public and private spending on infrastructure is 21.5 per cent of GDP – the same rate as the average for sub-Saharan Africa.

“Ethiopia stands out for its consistent gross fixed capital formation (GFCF) spend and has one of the highest GFCF ratios globally,” said Deloitte’s partner in charge of Infrastructure and capital projects J-P Labuschagne.

Ethiopia’s breakneck speed in modernising its infrastructure is expected to see the economy overtake Kenya’s in 2016.

The International Monetary Fund (IMF) last year estimated that Ethiopia’s GDP would grow to $69.21 billion in 2016 from $61.62 billion a year earlier, narrowly beating Kenya’s output of $69.17 billion from $63.39 billion in 2015.

“Ethiopia has recorded double-digit economic growth, averaging 10.8 per cent since 2005, which has mainly been underpinned by public-sector-led development,” the institution said in its estimates for last year.

Ethiopia has spent the equivalent of 32.8 per cent of its GDP on infrastructure, according to Deloitte, citing transport, energy and real estate as the top three sectors driving the expenditure spree.

The report shows that Africa’s largest economies, South Africa and Nigeria, are under-spending on infrastructure projects at 20 per cent and 15.1 per cent respectively and 13.7 per cent for Egypt.

READ: Kenya tops East Africa with most infrastructure projects last year

Global experts estimate that for every dollar spent on a capital project like energy and transport, the economy is rewarded with a return of between five and 25 per cent, crucial in powering growth.

Mr Labuschagne, however, warned that not all projects are growth-enablers, citing South Africa’s case of pouring huge resources in un-used sports stadiums when the country hosted the 2010 Soccer World Cup.

He advised governments to strike a balance between economic projects that guarantee returns on investment and social projects like water, schools and hospitals that improve welfare but fetch low returns.

Ethiopia’s rise as a regional economic powerhouse has been driven by mega public sector investment.

The country’s ongoing projects include the $5 billion (Sh515 billion) Grand Renaissance Dam with a generation capacity of 6,000 megawatts, which is expected to earn the country $1 billion annually from electricity sales.

The Ethiopian government has also established special economic zones as manufacturing hubs, pulling in Chinese firms.

The Horn of Africa nation last year commissioned a railway linking its capital Addis Ababa to the Red Sea port city of Djibouti, fast-tracking the movement of goods and people across its vast territory.

Besides, Ethiopia in 2015 launched a 32-kilometre light rail project in Addis Ababa, the first metro service in sub-Saharan Africa at a cost of $475 million (Sh48.9 billion).