Negotiating development corridor projects in Africa

An important opportunity is currently opening up for the future of Africa: development corridors or regional transport and transmission networks.

With so many corridor projects, there is now a database detailing them. Some that are attracting considerable attention include Lobito (Angola, Democratic Republic of the Congo, Zambia) and the Central Corridor Transit Transport Facilitation (Burundi, Democratic Republic of the Congo, Rwanda, Tanzania and Uganda).

The corridors are often mining-driven and, together with Africa’s rich supply of critical minerals needed for the global energy transition (such as lithium, cobalt, copper and graphite), constitute an immense regional development opportunity. Indeed, the African Union’s Vision 2063 raises a number of issues related to corridors, and the Brazilian G20 presidency has similarly highlighted “cross-border infrastructure” as a priority.

Corridor development is particularly important in Africa, where the physical geography can be challenging and scarcity of investment means each project must be as economical as possible. The opportunity to “load” corridors (with rails, roads and cables) can help achieve economies of scale.

What should governments consider when negotiating development corridors?

Governments have a multitude of issues to consider during their negotiations. Below are just a few of many.

Company history

Due diligence on a company’s similar projects, balance sheet and environmental, social and governance policies is essential. Many megaprojects (those costing $1 billion or more) have been “strategically misrepresented.” In short, some parties consciously soften the very real challenges (physical, financial and political) related to project execution, leading to dramatic cost overruns or stopping projects altogether. In fact, more than 90% of megaprojects worldwide are not completed within budget, on time and with the expected service. Some of the biggest offenders are in mining and rail: respectively 27% and 39% over budget on average. Financial strength is particularly important, as Tanzania learned late last year, when its main contractor for the Standard Gauge Railway ran into financial difficulties, eventually leading to a strike. Governments must also understand company commitments (and implementation) to the environment, local content opportunities and communities.

Understanding the company’s history is important for another reason: arbitrage risk. The International Center for Settlement of Investment Disputes shows that about 70% of its current cases are related to the development of corridors: oil, gas and mining, electricity and other energy, transport, construction and information and communications. With a relationship that will span at least a generation, governments must ensure that companies are constructive, willing to reach agreements and do not immediately initiate arbitration in the event of disagreement.

Feasibility studies: maintaining knowledge

Companies usually write the feasibility study. A rigorous examination of the feasibility study, supported by an alternative (government) point of view, can be extremely beneficial to the entire project. Some projects take decades to come to fruition (for example, these Terms of Reference for the Lobito Corridor in 2004, with studies dating back to 1992), usually after more than a few attempts. To retain knowledge, governments should negotiate who actually owns the feasibility study if the project does not move forward.

Third party access

Most access to the corridor will be for minerals, although agriculture, which is typically left out of industrialization planning, is crucial. Looking to the future, what would happen if a mine were found 10 to 20 miles away in the next decade? Does the contract provide for that possibility and provide third-party access or a mechanism to negotiate access? Finally, any railway project should have considerable access rights for citizens.

Regional centers: sell or lease land?

Some aspects should be considered about the sale or lease of land in regional centers. First, as inflationary pressures around mass development are common, governments could try to curb land speculation by density around transportation hubs with commercial and retail offerings. Second, leasing land at reasonable prices around the centers would ensure a steady flow of income away from mineral exports, which could fund local and regional public services.

Security and maintenance

As the world saw with the recent damage to undersea cables off the coast of West Africa, which knocked several countries out of service, disrupting the corridor is easy. A long, remote corridor is extremely exposed and expensive to maintain. As industrial zones, governments should try to avoid establishing gated communities along corridors to avoid accidents and deaths, as well as any other potential disruption. In this sense, it is vital to negotiate a large budget allocation for security and maintenance.

Why do some runners succeed and others fail?

Corridors provide governments with the opportunity to exert their authority, footprint and governance across newly developed areas. A megaproject culture, focused on long-term thinking, strategic planning, and building an experienced team from multiple ministries and external experts, is critical to success. Most importantly, economics must be the primary principle of corridor development.

In fact, by supporting multidisciplinary negotiations since 2017, the G7 CONNEX initiative has learned that it is almost impossible for governments to keep up with the private sector in terms of finances or expertise. Governments simply do not negotiate frequently enough or have the financial resources. However, support for negotiations is having an increasing impact in helping governments negotiate better deals.

In 30 years, which brokers will move from pencil and paper to planning and completion? Some ideas will be good and even interesting, but they will not prosper due to lack of concentration, funding and/or policy.

But any corridor that comes to fruition will make a huge difference for millions of people.