Turnkey solutions: Mathieu Glais, Chair and co-founder of Prodevema SAS.
Does the "turnkey solution" model provide an answer to Africa's problems?
Turnkey projects have the advantage of giving the client a holistic solution that covers all of the works needed to get a project up and running. They are often provided by a main contractor or a group of contractors (the contracting party). The approach generally involves a lump-sum package, at a fixed price over a defined implementation period, and a firm commitment in terms of the timescale for delivery. There are therefore numerous advantages for the client. Firstly, there is usually a single point of contact, especially when the turnkey contract includes the research and project management, which takes care of coordinating all of the trades and manages all liaison between the various entities involved. After that, a turnkey approach usually guarantees that the project is completed within the shortest possible time, as long as the main contractor or the group representative is experienced in project management. The client has a contractor's guarantee for the project cost and the deadlines for its completion. In many cases, the contractor also provides the majority of the financing, which may consist of export credit agencies and commercial banks, thus combining export credit and commercial credit, and even concessional loans, as the most important thing is to provide a solution that is adapted to the client's borrowing capacity. The client will still have to ensure that it obtains at least a minimum of transparency in terms of the cost factors, while agreeing to give the main contractor or the group representative an acceptable margin, in payment for its project management expertise and also for the financial risk it takes by accepting liability for costs and deadlines.
Indeed, the challenges for the contractor lie in coordinating communications and managing the value chain so that the project can be completed within the stipulated costs and deadlines. Managing a turnkey project requires a specific skillset and well drafted contracts with sub-contractors or between members of the group. You have to evaluate the risks, identify the mechanisms for reducing them, and define the responsibilities of each partner. If it is well managed, a turnkey project enables contractors who are specialised in a specific field to combine their skills by creating synergies, and to deliver significant added value to the client. This approach also enables the creation of subsidiaries or skills centres in order to offer a shared, national solution and to stand out from the competition. Some public procurement regulations (for example, Article 81 of the Senegalese public procurement code and Article 57 of the Malian public procurement code) also allow contractors or groups of contractors to submit speculative tenders for a project, and a direct negotiation procedure for awarding the tender. The technical and financial bid must fulfil certain basic criteria, such as attractive financing, technology, incorporation of local added value, and technology transfer.
Who are the champions in this field? Haven't the Chinese and the Moroccans overtaken the French?
Asian countries are undoubtedly the most inclined to propose turnkey solutions like this. Chinese, Korean and Japanese groups take a very integrated approach, bringing various businesses together as sub-contractors around a main contractor, which provides the finance. The structure of the biggest Chinese and Korean companies, which are organised as conglomerates, facilitates this approach. In China's case, it is often also public or semi-public sector groups that have no difficulty in using public finance export funds, like China Development Bank or China Exim Bank. You have to acknowledge that China holds the strongest share of the market in infrastructure works in Africa, and its groups are developing in a number of other industries. By using the knowledge and skills they have acquired in the monumental development of China, they don't hesitate in launching themselves into subsidiaries integrated for export. For several years, in some sectors such as energy and infrastructure, we have been seeing the arrival of other countries like Turkey--with medium-sized family businesses that are very adaptable and flexible, India, and Brazil, with large construction firms like Odebrecht or Andrade Gutierrez. Finally, Morocco has recently appeared on the scene, particularly in construction and property development. Europeans are also present, but they are no longer in the niche markets, where the works to be done require more technologies or a specific set of expertise. This is one way of avoiding competition based on price alone. The French are still the top players in their favourite domains--works of art, transport, water treatment, etc.
How are "turnkey solutions" adapted to African realities?
You have to understand that the goal for African countries is not just to buy infrastructure built by foreign companies, but also to enhance its value and develop positive externalities for local industries and trades. The requirement to incorporate local added value is therefore both logical and obvious for some African countries that are starting to see their regional champions blossom in their respective fields. Some countries such as Senegal have some excellent national construction companies, like the CDE (business consortium), the CSE (Sahelian business company) and Getran, who have all proven their ability to deliver very important construction projects. And this is the case for an increasing number of countries. 50% of the resources dedicated to implementing Senegal's National Strategy for Economic and Social Development (PNDES) have been allocated to local businesses. It is therefore imperative that an overseas company wishing to be awarded a contract begins by identifying local resources in its bid and incorporating them as much as possible into the value chain, if they want to be competitive without compromising on quality.
I'm currently working on preparing a health sector project in West Africa, which is led by a consortium of Senegalese, Belgian and Austrian companies. The Senegalese company is the leader of the consortium, and has structured the entire project. The local share has reached over 4.0%. This means that the financing can be divided into two parts --the local part is financed by an African bank in FCFA, and there is external, foreign currency financing from a European bank, which is very attractive and covered by Belgian and Austrian credit insurance, for the international part. This type of project is in my opinion an ideal situation that combines various local and international skills with innovative financing that strictly limits the amount of external foreign currency debt to the minimum level needed in order to access the skills that we cannot find in the country. Finally, once the project is completed, it will need to be maintained, managed and used to its full potential while remaining operational for the longest possible time. So it will involve setting up locally for the entire duration. A lot of turnkey projects have underestimated the long-term sustainability aspect. Therefore, we need a long-term vision, which will inevitably require an increased local presence and the incorporation of the country's resources into the project's success.
Caption: The inauguration ceremony for the DakarDiamniadio highway, built through a PPP with Eiffage Senegal
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|Date:||Jun 1, 2019|
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