Another new airport for Africa with European involvement: Burkina Faso
CAPA has frequently reported on the difficulties many African governments face in trying to attract foreign investors and operators to their airports. The tide had started to turn with the deal to develop a new airport in Rwanda, which belatedly involved Qatar Airways.
Now of all places, Ouagadougou, the capital of the poor, landlocked country of Burkina Faso, will get a new airport. It will be partially financed and managed by two European organisations, the Meridiam fund and Marseille Provence Airport, which collectively have the experience to make it work and have committed to introduce European standard ESG principles to their management.
What exactly is in it for them isn't entirely clear. Tourists aren't going to be headed to Ouagadougou in droves any time soon.
But the country is rich in minerals and metals, especially gold, and with world economies teetering, access to gold again becomes highly desirable.
Summary
- European institutions combine to take concession on new Burkina Faso airport.
- Foreign investment in the African continent set to increase following Rwandan airport deal.
- African aviation set to grow quite quickly in latest IATA forecast, and already taking 9% of global airport infrastructure funding on new airports.
- New airport will be built with 'European' ESG principles at the forefront.
- The involvement of Meridiam and Marseille Airport could reawaken interest in Africa among other investors.
It was not that long ago that the 'west' eschewed any approach from African governments to assist in the financing and construction of existing or new airports, and the private sector was notably wary.
The main reasons were the lack of 'open skies', of low-cost airlines, of any sort of airlines on some routes (notably west-east), of the skills needed to develop aeronautical or non-aeronautical revenues, as well as a lack of governance and the potential for corruption (among many others).
In the CAPA 'Airport Privatisation 2020 report and prospects for 2021' published earlier this year, Ethiopia's Transport Minister Dagmawit Moges was quoted as describing the state of airport infrastructure in the majority of African countries as "outdated" and "unable to handle the increasing volume of passengers or cargo".
She noted, "investment and expertise" would be needed to modernise African infrastructure and services, stating, "These could come through public-private partnerships or through opening doors for private capital investment". A consequence of these measurements would include "increase[d] competitiveness", "additional routes, more frequent flights, better connections and lower fares".
It sounds like the chicken and the egg.
While the west dithered, the Chinese didn't, as they haven't with any variety of infrastructure project there; always keen to do deals which benefitted the African country's infrastructure while allowing the Chinese side access to much-needed minerals, which Africa has in abundance but often no real need for.
But with long term (2021-2039) projections emanating from IATA indicating that the African continent will experience the joint second largest growth in passenger journeys in that period (which includes COVID-19 and the 'recovery period'), together with the realisation that so much of the airport infrastructure is inadequate, European countries in particular are reappraising their position.
IATA: 2021-2039 passenger forecast
According to the CAPA Airport Construction Database there are currently 37 new airport projects under construction or planned in Africa.
That is more than in North America, Latin America and the Middle East, and only just behind Europe. The estimated value of these projects is US16.6 billion.
New Airports under Construction:
New airport projects by region, as of Oct-2021
New airport investment by region, as of Oct-2021
If there is one project that has made a significant difference to the appreciation of airport opportunities in Europe it is the USD400 million Kigali Bugesera International Airport in Rwanda.
Delayed by the pandemic, the first phase of construction, including the runway, was 40% complete as of May-2021 (the last official statement, and the second phase, including terminals and other facilities, has now started).
The project may be complete by the end of 2022 "if all goes according to plan". The USD400 million airport will feature a 30,000sqm passenger terminal with 22 check-in counters, 10 gates, six aerobridges and capacity for 1.7 million passengers per annum. The intention is to raise that throughput successively to 10mppa, with investment rising to USD1.3 billion.
Qatar Airways was the trigger for the Kigali project
The key to this project was the signing of an agreement with Qatar Airways in Feb-2020 by which the airline took a 60% stake in it.
Rwanda is in East Africa.
Over 3,000km to the west is Burkina Faso, where on 13-Oct-2021 the government, France's Aéroport Marseille Provence (AMP) and the Luxembourg-registered partnership fund Meridiam signed a 30-year concession for the design, construction, financing, operation and maintenance of the new Ouagadougou Donsin Airport. AMP will participate in the project through a technical assistance contract and a minor equity stake in the project company.
The confluence of a skilled French operator and a major European investment fund to build a new airport is exactly the vote of confidence the continent has been seeking, and the fact that Burkina Faso is the 208th country (of 225 countries worldwide as measured by GDP) makes this transaction groundbreaking.
But they are not alone.
Burkina Faso's Government has previously secured loans totalling USD61.8 million from the West African Development Bank and ECOWAS Bank for Investment and Development for construction of the new airport. West African Development Bank will provide USD51.5 million for road works, water systems, emergency services facilities, equipment purchases and construction of technical buildings related to the project. ECOWAS Bank for Investment and Development will contribute USD10.3 million for construction of administrative buildings.
Moreover, this is a long term project that has been delayed for years. Going back to 2014, the Saudi Development Fund (SDF), the World Bank, Agence Française de Développement (French Agency for Development) and the African Development Bank said that they collectively intended to provide EUR350 million (USD453 million) in 30-year low interest financing to support the development of the new airport, although it is not known if these transactions did take place.
Engineering and construction is expected to begin in late 2022 and take an estimated 30 months. The project represents a total investment of more than EUR220 million, which is about half that of the Rwandan airport in its initial phase.
The first phase plan includes a 3500m runway and a 17,000sqm terminal facility. The second phase would expand the runway to 4000m and double the capacity of the passenger terminal. It is not evident why a 4000m runway is required for the type of aircraft likely to use the airport, except that it would also cater to the largest aid flight aircraft, with full capacity, if needed.
Space for a second runway and its accompanying infrastructure has been reserved for if and when growth in air traffic warrants it.
The airport will be located 35km northeast of Ouagadougou and will have capacity to handle one million passengers per annum, again about half of what is initially envisaged in Rwanda.
The total economic impact of the airport project is estimated at EUR420 million. Construction is expected to create nearly 5000 direct and indirect jobs.
The project will make full use of Africa's most abundant feature - sunshine. A captive solar plant and storage system will provide 80% of the airport's electricity requirements;
A replacement for the existing Thomas Sankara Ouagadougou Airport
The new airport will replace the existing Thomas Sankara Ouagadougou Airport, close to the city centre. The airport was built in the 1960s and handles about 98% of all scheduled commercial air traffic in Burkina Faso, but is only the 860th largest globally out of 3718 airports in terms of seat capacity, 937th for frequencies, and 528th for cargo payload, stressing the importance of cargo in Africa especially at this time.
It has a 3030m x 45m runway. It does not figure in the top 50 airports in Africa by passenger traffic lists, before the coronavirus pandemic.
Traffic has increased steadily though, from around 240,000 in 2003 to 620,000 in 2019, with a projection of 850,000 by 2025, pre-pandemic.
The US military has an important installation at the airport; its most significant one of the dozens it has established in West Africa in the past 15 years.
The government plans to close the current airport upon construction of the Ouagadougou-Donsin Airport. The first phase of construction therefore will focus on the construction of infrastructure that is required simply to move the operations from Ouagadougou to Donsin.
The current route map shows that the airport's activities are focused in the West Africa region, with the exception of Nigeria, where there is no current service.
Ouagadougou Airport: current route map
There are two intercontinental outlets (and therefore also gateway hubs for access) - namely Paris Charles de Gaulle Airport and Istanbul Airport.
The additional runway length eventually planned for the Donsin airport would probably permit flights from the Middle East, Asia Pacific and the Americas if they could be justified, but it is very unlikely that Donsin would be able to acquire any sort of hub status, even though there is no natural hub for West Africa as there is in the east (Addis Ababa; Nairobi).
Presently, almost all flights are international; there is very little domestic demand, even to and from the second city, Bobo Dioulasso, 350km away. Full service carriers operate 98% of the capacity and the other 2% is on charters. LCCs have not yet found their way here, and what bulk market there would be for them is hard to imagine.
In contrast, there is a surprising amount of capacity on aligned airlines, with all three of the main alliances represented to a total of 42%.
The largest airline by seat capacity is not a local one (Air Burkina or the Togo-based multinational airline, ASKY Airlines), but Turkish Airlines.
Ouagadougou Airport: system seats for all business models, week commencing 11-Oct-2021
Again, the provision of a new airport might convince ASKY Airlines, which is a strategic partner of the powerful Ethiopian Airlines, to reconsider the value of an Ouagadougou base.
Utilisation of the airport is sporadic and haphazard, as is often the case in Africa.
The chart below is for Friday 15-Oct-2021, and shows fairly heavy usage during nighttime hours but little thereafter - during the midday period or what might be regarded as the evening rush hour in western societies.
Ouagadougou Airport: system seats per hour for 15-Oct-2021
With regard to the impact of the pandemic on the airport, it has not been as acute as in many other countries. Indeed, Africa has coped with it better than most regions, but much of that is probably down to a comparative lack of travel taking place, allied to the population being largely rural and not living on top of each other, which is the case in some countries.
As of the week commencing 11-Oct-2021, seat capacity came back to within 85% of what it was in 2019 at Ouagadougou Airport and the trending line is expected to meet that of 2019 on the cusp of 2021/22.
Ouagadougou Airport: weekly total system seat capacity, 2018-2022* (projected)
According to a statement from Meridiam, it is partnering with Aéroport Marseille-Provence (AMP) on the new airport project, which "will bring its expertise to the project through a technical assistance contract, and a minority equity stake in the project company" to a total investment of in excess of EUR220 million. Referring to it as "an emblematic flagship example of a large-scale public-private partnership", Meridiam says it intends to contribute to making the Donsin airport "a showcase for the country and a catalyst for economic development".
The landlocked country has an agrarian economy accounting for 32% of its GDP and 80% of the workforce, and it amounts to subsistence farming in most cases. The country is very poor. Cotton is the main cash crop. There is very little industry.
However, there is mining of various materials, including gold. The country became the fourth largest producer of gold in the first decade of this century and production has increased since. There is also a large potential in manganese, zinc, lead, copper, nickel and limestone.
If economies start to fail, which is looking ever more likely with events in the US and China, the value of gold increases accordingly.
What is missing is a tourist industry. There is none to speak of, unlike in Rwanda, and travel is actively discouraged by western governments in most parts of the country on account of crime and terrorism.
The new airport should bring substantial spinoff benefits
The new airport aims also at bringing substantial benefits and to improving the living standards of the local communities, as below.
Moving the airport to Donsin is expected "to reduce dramatically" the nuisance of air traffic for the inhabitants of the capital city and improve safety.
There will be 24km of new drinking water pipelines built to serve the new airport as well as the local populations: the Ouaga 2 University and the village of Nomgana/Loumbila.
A brand new 7-km electric loop will allow the new airport to be connected to the public grid, but also make it possible to connect economic and health infrastructure planned near the new airport.
More than 130 kilometres of fibre optic will be installed to connect the site to the global high-speed network and support the economic development of businesses located at the new airport platform.
The project aims at contributing to the United Nation Sustainable Goals, more particularly:
(SDG 13-Climate change):
The airport will be designed and operated to minimise emissions and reduce energy consumption. A captive solar plant equipped with a storage system will be installed to provide 80% of the airport's electricity requirements.
(SDG 16-Peace, justice and strong institution):
Alongside Meridiam and Aéroport Marseille-Provence (AMP), the project is supported by various multilateral development and finance institutions. Project partners are committed to upholding anti-corruption, bribery and anti-discrimination values and strengthening the contracting authority's institutional capacity.
It is intriguing that ESG measures such as these are rapidly finding a place in Third World airport development projects despite their cost in uncertain times, and it is reasonable to expect that they will become the norm in the future.
Registered in Luxembourg and with offices in Paris, New York and Toronto, Meridiam has a global investment platform dedicated to investment in PPP projects typically over a 25-year period, initially throughout Europe and North America.
Meridiam's funds are invested in both greenfield ('primary' or 'new' infrastructure) and brownfield ('secondary' or 'existing' infrastructure) projects in the following sectors:
- Transport, with a preference for projects promoting sustainable development involving multi-modal transport, hubs and interfaces;
- Social infrastructure;
- Environmental services and energy efficiency;
- Public buildings and services.
Meridiam's investments (apart from this one) are shown in the map below.
The fund is already present in Africa. In Jan-2017 Meridiam was awarded the concessions to upgrade and modernise Ivato and Fascene airports in Madagascar.
Active airports for Meridiam Infrastructure Fund
Meridiam's main investments are in the First World
But Meridiam's main investments are in the First World. In 2015 it won the contract, in a consortium, LaGuardia Gateway Partners with Vantage Airports Group and Skansa, to design/build/finance/operate/maintain the USD3.6 billion replacement of the Central Terminal at LaGuardia Airport in New York.
In Apr-2018 it became a co-shareholder with Groupe ADP, IDB Infrastructure Fund II and Edgo in the Amman Queen Alia International Airport concessionaire Airport International Group (AIG).
Then, in Jul-2020 Bulgaria's Ministry of Transport signed a belated concession contract with SOF Connect, a consortium comprising Meridiam and Munich Airport, for the management of Sofia Airport.
The consortium's bid included investment of EUR608 million over the term of the concession in the airport, as well as a third terminal. It was 'belated' because it was challenged by the other, losing bidders. The European Bank for Reconstruction and Development subsequently committed to considering a project finance loan of up to EUR85 million to support SOF Connect.
In 2016 Meridiam also bid on concessions for Lyon and Nice airports in France, with Ferrovial.
It is clear why the Burkina Faso government would be keen to have Meridiam on board. It has ample experience of risk in a variety of airport expansion projects where it has been keen to commit expansion funds as part of the concession deal while also working with international banks on loan arrangements.
PPP African solutions for the future?
The surprise package is Marseille Provence Airport, but it is often overlooked that it is an experienced investor, and in Africa, having been a shareholder in Libreville Airport (ADL), a subsidiary of the consortium Egis/Marseille Provence Airport, which managed the infrastructure at the Gabon airport for thirty years until Jul-2018.
Then in Jul-2019 Eiffage (French civil engineering construction company) announced that a joint venture with Marseille Provence Airport had been selected by the Syndicat Mixte des aéroports de Lille-Lesquin et de Merville (SMALIM) for the concession of Lille Lesquin Airport in Northern France.
The concessionaire is responsible for all investment, maintenance and operation of the airport for a period of 20 years from 01-Jan-2020. The JV plans to renovate and extend the passenger terminal as well as improving the quality of service through an expanded digital tools deployment programme.
Marseille is also well known as one of the leading exponents of a 'low-cost terminal' in France, should one ever be needed in Ouagadougou.
Between them these two organisations have the credibility to see this project through, and that might just be the catalyst for other African governments to seek a PPP solution to future airport demands.