Most African railways have suffered serious decline over recent decades and clearly lag behind those of most other parts of the world. Rail transport has faced the same constraints and challenges as elsewhere, but poor economic, technological and institutional conditions have further aggravated the situation in Africa.
Concessions introduced in the 1990s, fostered by the World Bank and other institutional donors, have halted the decline that threatened to dismantle many rail lines. However, the Sub-Saharan railway concessions have not met the initial expectations, producing mixed results. In some cases, they were a blatant failure, while only a few, if any, could be classified as an outright success. The forecasts for these railway concessions have not been achieved and some of these arrangements have been cancelled.
Sub-Saharan railways and their concessions are still performing below the minimums required for sustainable commercial operation. Moreover, historical lack of investment in railway infrastructure, unstable political and legal frameworks, and poor market potential are keeping private investors away from sub-Saharan railways.
The main motivation for this study is that economic growth and regional Integration are crying out for a new approach for Sub-Saharan railways, as sustainable development cannot be achieved without a proper mass transportation system.
Objectives, goals and purposes
ALG was appointed by the African Development Bank (ADB) to provide advisory services for its investment and financing strategy for potential transactions in the railway sector in Africa. The assignment involved detailed analysis of several concessions across the continent, with particular focus on their operating and financing models.
This study had the ambition of being a turning point for Sub-Saharan railway concessions. The main goals of the assignment were to:
- Propose a suitable rail concession arrangement for Sub-Saharan African countries.
- Propose a viable and sustainable financing framework for rail infrastructure investment and maintenance.
- Propose a broad policy and institutional framework to support the proposed rail concession and financing arrangements.
Study methodology and activities
The methodological working plan for the study consisted of the following activities:
- Understanding of the main drivers for the railway industry.
- Analysis & benchmarking:
● Analysis of SSA concession models, including analysis of key elements: legal framework, definition of the concession structure, concession terms, SWOT analysis, contract, bidding procedures, etc.
● Performance of railway companies in SSA countries, company structures, commercial performance, productivity, and technical, operational and financial performance.
● Analysis of the existing financing sources for the railway concessions.
● International benchmarking of railway concession models and financing, focused on concession models, financial models and legal framework in order to analyse the best and worst practices in those countries. - Proposals for SSA railways concessions:
● Proposal of a concession model for SSA countries based on the conclusions of the previous activities, visits and workshops with stakeholders (governments, ADB, operators, concessionaires).
● Railway financing options that are sustainable for the proposed railway concessions model, including identification of suitable financial sources for arrangement of the concessions.
● Policy, legislative and institutional framework for implementation of the railway concession models. - Validation and communication: organisation of seminars about railway concessions in SSA countries.
Key findings and recommendations
Analysis of the selected African railways confirmed the need for a new approach. We performed in-depth assessment of the situation in eight African countries: Botswana, Cameroon, Kenya, Madagascar, Morocco, Senegal, Tanzania and Zambia. These countries have a wide variety of backgrounds and experiences in railways. Most of them have experience with concessions, with varying results, although some (Botswana and Morocco) have maintained a public-sector approach.
The main conclusions from these visits were:
- Concessions have been rather unstable in most countries, to the point that two of them were terminated after a very short time. Where concessions are still operational, they have undergone alterations with major changes to their financial bases.
- Most concessions underestimated the investment required, and the sums committed have had limited impact on improving railway performance. The financial packages associated with these concessions have proven themselves to be insufficient.
- Railway concessionaires, most of them freight driven, have been burdened with obligations that coexist uncomfortably with their core business, exposing them to major complexities, costs, risks and public scrutiny. Taking on a substantial share of legacy state railways and passenger service obligations has been identified as a cumbersome burden for these operators.
- Most concessions require operators to be engaged in infrastructure renewal or maintenance, to a greater or lesser degree. This means that most African concessions are hybrids that require operators to be involved in civil works to some degree.
- The coexistence between passenger services and mostly freight-driven operators has been uncomfortable, in some cases leading to litigation, major amendments to the concession and, eventually, discontinuation of the service.
- The competitive environment between railway and road transport has not been adequately addressed in most cases, whether at the planning stage, during implementation or in enforcement. The competitive/complementary aspects of road versus rail transport have not been adequately addressed in too many cases.
- Most countries have reached the conclusion that railway management and financing have to be reviewed but are still struggling to define the financial models, most notably how infrastructure maintenance should be managed and funded.
- Most of the countries visited have significant new railway projects for both the freight (mostly mining) and passenger segments. A variety of regional schemes have also been drawn up. There is wide acceptance that PPPs should be explored to tap the huge amounts of funding that would be required, but no new approaches have been identified so far.
- Some countries seem to have opted for public-sector railways with no intention to privatise them in the short-to-medium term, namely Morocco, Botswana and Zambia (following a disappointing concession experience in the case of Zambia). These are the countries in our sample with the greatest technical capabilities in the public sector and the most attractive business environments. This suggests that well-funded and well-managed public railways may be a suitable option in some cases.
Success and outcomes
New challenges and opportunities for railway development in Africa are looming due to: growing urbanisation and industrialisation; increasing production of large volumes of goods such as bulk minerals and commodities; the huge continental mass of Africa and the existence of many landlocked countries; growing sensitivity towards environmental and safety issues; and the need to reduce extremely high external costs derived from the use of private vehicles. If transportation forecasts for Africa are realised, extra investments will be needed to overcome future infrastructure gaps. Moreover, the institutional and regulatory framework needs a profound overhaul if private money is to be found.
The current condition and performance of most African railways is generally poor. However, rail transport has an important role to play in the growth and sustainable development of Africa over the next few decades. In comparison to other means of transport, railways are particularly necessary for urban and intercity freight and passenger transport.
The renaissance of the railways will need to be underpinned by recognition that greater funds are required to bring the infrastructure up to an acceptable standard, and that a higher degree of professionalism, regulation and expertise is required within the industry to ensure that previous mistakes with private-sector involvement are not repeated. The African Development Bank has a key role to play in the delivery of this renaissance, by providing strategic guidance and introducing new approaches through pilot experiences and funding.