road of malawi with people and cars

Toll Gate Roads

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Toll Gate Roads

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Infrastructure
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Infrastructure
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
5% - 10% (in IRR)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Long Term (10+ years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Industry, Innovation and Infrastructure (SDG 9) Sustainable Cities and Communities (SDG 11)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8) Reduced Inequalities (SDG 10)

Business Model Description

Construct, develop and finance priority road projects through Public Private Partnerships (PPP) Build Operate Transfer (BOT) or Build, Operate, Own, Transfer (BOOT) or Build, Transfer, Operate (BTO) or Design, Build and Finance of the Operation (DBFO) models with the Road Fund Administration (RFA) of Malawi, targeting particularly roads in trade and tourism corridors. The private developer would be responsible for design, financing, refurbishment, renovation, expansion, operation, and maintenance of road for the concession period. With a toll gate model, the concessionaire might require a minimum usage guarantee from the RFA. Alternatively, a direct payment model can be applied through Shadow Tolls and Availability Payments.

Expected Impact

Increase economic development particularly in rural areas where improved roads will increase trade opportunities and accessibility for industry to move goods and people to more areas and across borders expediently.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Country & Regions

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Country
Region
  • Malawi: Southern
  • Malawi: Central
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Sector Classification

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Sector

Infrastructure

Development need
Malawi faces an infrastructure investment gap in the energy and water and sanitation sectors of approximately USD 332 million per year due to limited fiscal space combined with weak public investment management and inefficient State Owned Enterprises (SOEs) contributing to slow economic growth, poor health outcomes and aggravating poverty levels, according to the World Bank (1).

Policy priority
MW2063 states under Pillar 2 of Industrialisation that they aim to develop and maintain low cost and competitive transport systems across all modes. This entails investing in transport infrastructure, including railway so as to strategically connect Malawi to ports of entry (3).

Gender inequalities and marginalization issues
According to the 2021 World Economic Forum Gender Gap Report, in the Economic Participation and Opportunity Index, which aggregates gender gaps across several core indicators, Malawi ranks 111 out of 151 countries (World Economic Forum, 2021). The composite indicator includes labour force participation, wage inequality, estimated earned income (4).

Investment opportunities introduction
Large infrastructure investment requirements (about 8% of GDP for a few State Owned Enterprises (SOEs)) compared to the past low level of public investments, given the growing population which is putting pressure on service delivery, necessitate urgent actions by the Government of Malawi to rethink the current modality of financing infrastructure. The country has successfully attracted approximately USD 1.2 billion of investments through PPP arrangements in the past two decades, of which USD1.1 billion was invested in the railway subsector (Nacala Railway Corridor) (2).

Key bottlenecks introduction
The ability of Malawi to mobilize finance that can be repaid from tariffs will be limited by the high level of poverty, currently forcing the Government of Malawi to deal with tariff increases carefully (2).

Sub Sector

Infrastructure

Development need
The investment needs related to Malawi Housing Corporation (MHC) and Road Fund Administration (RFA) amount to an additional annual requirement of USD 326 million (4% of 2019 GDP) (2).

Policy priority
Under enabler 6 of MW2063, Malawi aims to have globally competitive economic infrastructure that will promote domestic economic activity and spur foreign direct investments for wealth creation with a focus on a few impactful flagship projects for a multi-modal transport system consisting of road, rail, air and inland water transport. According to MW2063's MIP 1, between 2022 and 2025, Malawi aims to increase the lengths (kms) of paved roads to above 50 percent, especially targeting rural roads and tourism and mining potential areas (3).

Investment opportunities introduction
The Roads Administration Fund has recently embarked on feasibility studies for the construction of 20 toll roads through PPP arrangements (5).

Key bottlenecks introduction
The overall market for infrastructure PPPs in Malawi is nascent. There remains an overall lack of experience and precedent in the PPP process (5).

Industry

Engineering and Construction Services

Pipeline Opportunity

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Investment Opportunity Area

Toll Gate Roads

Business Model

Construct, develop and finance priority road projects through Public Private Partnerships (PPP) Build Operate Transfer (BOT) or Build, Operate, Own, Transfer (BOOT) or Build, Transfer, Operate (BTO) or Design, Build and Finance of the Operation (DBFO) models with the Road Fund Administration (RFA) of Malawi, targeting particularly roads in trade and tourism corridors. The private developer would be responsible for design, financing, refurbishment, renovation, expansion, operation, and maintenance of road for the concession period. With a toll gate model, the concessionaire might require a minimum usage guarantee from the RFA. Alternatively, a direct payment model can be applied through Shadow Tolls and Availability Payments.

Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

> USD 1 billion

CAGR
Describes the historical or expected annual growth of revenues in the IOA market.

< 5%

Critical IOA Unit
Describes a complementary market sizing measure exemplifying the opportunities with the IOA.

Malawi's road industry requires approximately 200 km of new or upgraded sealed roads annually

The national road network is composed of 15,451 km of which about 26% are paved. The rest of the road network (74%) is of earth/gravel surface (8). The Roads Administration Fund has recently embarked on feasibility studies for the construction of 20 toll roads through PPP arrangements (5). The country's road industry requires approximately 200 km of new or upgraded sealed roads annually (28).

According to MW2063's MIP 1, Malawi aims to increase the lengths (kms) of paved roads to above 50%, especially targeting rural roads and tourism and mining potential areas (3). The Malawi National Transport Plan aims to upgrade 1,418 km of rural roads (9). The cost of implementing Malawi's National Transport Master Plan for integrative road network development is USD 2.3 billion from 2017 to 2037 (9).

Private transport demand is forecast to grow by 3.5% per annum, and public transport demand by 3.2% per annum over the next 20 years. Freight demand is forecast to grow at a steady rate of 4.8% per annum (9).

Existing tollgates have developed frequent use discount models for motorists who use specific tolls regularly. For instance, those who live within 10 km radius of the existing Kalinyeke and Chingeni tollgate are furnished with a discount of 20%. Frequent travellers get 75% discount from the 11th round trip per month. This means that total discount for an individual living within a 10 km radius and who likely may frequently travel is 95% (29).

Indicative Return

IRR
Describes an expected annual rate of growth of the IOA investment.

5% - 10%

Appraisals for projects such as the Lilongwe Easter and Western Bypass, the Blantyre inner road relief, the Mponeal to Dedza road, and the Blantyre elevated expressway average an IRR of approximately 12.83% (9).

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Long Term (10+ years)

Considering the Built-Operate Transfer Models of PPPs, road projects with toll operations likely occur over 20 -30 years, allowing private operators to recoup investment and operational cost through tollgates over a set period of time before handing over the assets to the state (7).

The N4 toll route between South Africa and Mozambique is estimated to cost R3 billion (approx. USD 150 million). After the construction phase of 3.5 years, funded through debt and equity raised by the concession company, as well as a certain amount of project revenue, the cost of upgrading, maintenance and operation of the road will be raised from project revenues (30).

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Market - Highly Regulated

The main risk for private entities working with the Government of Malawi is their ability to meet payment obligations in a timely fashion. Road sector outstanding payments as at 30 June 2014 amounted to MWK 25.99 billion (USD 37 million) (9).

Business - Supply Chain Constraints

The country's protracted macro-fiscal crisis will continue to negatively impact the economy. Foreign exchange shortages continue to constrain the importation of essential commodities and production inputs, making infrastructure development relatively expensive in Malawi (32).

Capital - Requires Subsidy

Continued negative economic impact will affect traffic volumes on the Malawian road network, which will be too low to be considered ‘bankable’ projects that can generate sufficient independent revenue streams for potential private sector participation with an operator concession (28).

Impact Case

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Sustainable Development Need

Transport costs and prices have high impact on the Malawian economy. Transport costs are seen to constrain Malawi's economy in two ways: i) they increase the price of imported products such as fuel, fertiliser and raw materials; and ii) they reduce the competitiveness of Malawi's exports. Accordingly, they have a significant impact on Malawi's economic development and on the cost of living (9).

Gender & Marginalisation

Poor infrastructure has the power to exacerbate the gender gap in many ways. For instance, compared to men, women tend to rely more on public transport, travel shorter distances, and travel more during off-peak hours. Unsafe and low security transports also put women at a disadvantage as they are more affected by violence and this vulnerability affects their well-being and their labour force participation (21).

Gender‐related infrastructural constraints are a significant aspect of disadvantages women traders face within the informal and formal labour markets due to restricted access to markets, preventing a safe and time‐efficient mobility for women. The lack of transport infrastructure - particularly, road and transport services networks for accessing education and job markets - is a critical factor in women's decision not to take up formal, well‐paid labour opportunities with contractual wages and decent working conditions (22).

Expected Development Outcome

Toll gate roads are expected to directly reduce transportation costs of major commodities, such as sugar and tobacco, increasing price competitiveness of Malawi exports (9).

Improved road infrastructure is also expected to reduce importation costs of staple goods easing economic pressure on the most vulnerable. Increase in tourism numbers due to access improvement to main attractions will also increase employment opportunities and needed foreign exchange (9).

Gender & Marginalisation

Increased road infrastructure development will improve road safety for the most vulnerable commuters, such as women.

Primary SDGs addressed

Industry, Innovation and Infrastructure (SDG 9)
9 - Industry, Innovation and Infrastructure

9.1.1 Proportion of the rural population who live within 2 km of an all-season road

9.1.2 Passenger and freight volumes, by mode of transport

Current Value

23% (23, 4).

Road freight in 2015 equalled 2,574,000 tonnes (9).

Target Value

N/A

N/A

Sustainable Cities and Communities (SDG 11)
11 - Sustainable Cities and Communities

11.2.1 Proportion of population that has convenient access to public transport, by sex, age and persons with disabilities

Current Value

23% (4).

Target Value

100% (4).

Secondary SDGs addressed

Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth
Reduced Inequalities (SDG 10)
10 - Reduced Inequalities

Directly impacted stakeholders

People

Inter-city commuters benefit through improved mobility as roads would now be at a standard that could facilitate safe expedient transport. Traders and business benefit through intensification and extensification of forestry-based businesses, the growth of business in rural areas, and employment creation (31). Local and international tourists benefit through easier access to Lake Malawi and other tourism hotspots.

Gender inequality and/or marginalization

Women currently employed in the infrastructure development and construction industry.

Planet

By reducing congestion on the roadways, toll roads can help to reduce the amount of pollution that is emitted by vehicles (11).

Corporates

Transport companies benefit positively due in part to the fact that fees on toll roads increase funding for road infrastructure projects, which leads to better roads and reduced operating costs. Major mining ventures benefit through reliable road networks to access markets, also reducing operating costs.

Public sector

The Road Fund Administration of Malawi benefits through increased sources of funding for road infrastructure development.

Indirectly impacted stakeholders

People

The general population, rural communities around tourist destinations. Major capital projects such as road construction will contribute towards poverty reduction both during construction and operational phase.

Gender inequality and/or marginalization

Women traders in communities surround road developments leading to tourism sites will benefit from increased access to markets and potential and customers for goods.

Corporates

Major farmers and agricultural producers benefit through reduced cost of operations due to increased road infrastructure allowing for competitively priced produce, and retailers benefit through reliable transport networks that improve the logistical planning.

Public sector

The Government of Malawi can avoid the need to use taxpayer money to fund needed road infrastructure projects. The Government can allocate more resources to other important areas such as education, healthcare, and public safety. Malawi Investment Trade Centre could attract more Foreign Direct Investment into the country if transport networks are sufficient.

Outcome Risks

Toll roads traverse large tracks of land and development of new toll roads in Malawi could decrease arable and grazing land, disrupt farming activities in the surrounding areas due to construction, and indirectly induce migration due to this disruption (12).

Over-speeding on improved roads may result in an increase in road accidents (25). Africa has the world’s most dangerous road network with a fatality rate of 28 deaths per 100,000 population per year, compared with 4.3 per 100,000 in Britain (33).

Impact Risks

Studies of the spread of HIV/AIDS reveal evidence that the transport sector is a major vector of the disease. New transport routes encourage migration between areas of low and high HIV prevalence, for example from urban areas to rural areas, and between countries and regions. Further, truck drivers are vulnerable to contracting the disease, and to passing it to others, due their high- risk behaviour at truck stops and in border towns (33). This could negatively affect the intended social-economic impact of major road developments that cut through rural communities in Malawi.

User fees can have a disproportionate impact on low-income drivers, who may rely on toll roads to commute to work or access essential services. This can lead to a burden on already financially strained households (12).

Impact Classification

B—Benefit Stakeholders

What

The development and expansion of quality road infrastructure will increase economic development particularly in rural areas where improved roads will increase trade opportunities and accessibility for industry to move goods and people to more areas.

Who

The general citizenry and industry benefits from an increase in economic output due to the improvement of economic infrastructure.

Risk

Business model is proven but requires considerations around the negative social and health impacts of additional traffic and commuting through rural communities and the affordability of user fees among low income commuters.

Contribution

Malawi would need to invest significantly in rail infrastructure for freight and passenger transport to achieve the required access for industry to ports and passengers to destinations to achieve a similar outcome.

How Much

According to the National Transport Master Plan, if integrated transport plans are implemented and envisioned infrastructure is realised, savings on transportation would equate to 1.7% of GDP (9).

Impact Thesis

Increase economic development particularly in rural areas where improved roads will increase trade opportunities and accessibility for industry to move goods and people to more areas and across borders expediently.

Enabling Environment

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Policy Environment

Under Enabler 6 of Economic Infrastructure of the MW2063, Malawi aims to "have a world-class, well maintained and expanding road network connecting the urban and rural areas to local and international markets" (2).

National Export Strategy II 2021 -2026 aims to increase investment into enabling infrastructure, both hard infrastructure, such as roads, energy and water, as well as soft infrastructure, such as ICT (25).

As part of the National Tourism Policy, the Government, through the Ministry responsible for Tourism, is currently implementing a project aimed at upgrading access roads to tourism attraction sites. This is to address accessibility challenges that are there especially during the rainy season to reach these sites (24).

Financial Environment

Financial incentives: Roads Fund Administration (RFA) partnered with New Build Society (NBS), a local bank, and successfully issued two bonds through a private placement market and raised MWK 10 billion (USD 5,938,393) (in two tranches) for the rehabilitation of roads in Lilongwe. The government provided a guarantee to bond holders that the RFA Act, which provides predictability of policy and board/management actions, will not be changed before the bonds matures (2).

Other incentives: Demand assessment of State Owned Enterprises (SOEs) shows that their balance sheets could allow Road Fund Administration (RFA) and EGENCO to borrow to the tune of MWK 21.9 billion (USD 30 million) annually over 10 years. RFA is already beginning to prepare for another bond issue (this time a public issue)—its plan is to issue up to MWK 50 billion (USD 68 million) over the next five years. The RFA also plans to list on the stock exchange the existing bonds, which were privately placed with commercial banks (2).

Fiscal incentives: Malawi offers import duty and VAT exemptions on new trucks and trucks used for a period not exceeding 15 years of 15 tonnage or more capacity but attracts 5% import excise. The same trucks used for a period exceeding 15 years attracts 20% import excise (27).

Regulatory Environment

The Roads Authority is the primary custodian of national roads in Malawi, and all road construction standards are stipulated by the Roads Authority (34).

Public Roads Act of 1962 was enacted to consolidate and amend the law relating to Public Roads. In this Act, the highway authority is assigned responsibilities for the construction, care and maintenance of any road or class of road in accordance with the Act (26).

The Lands Acquisition Act of 1970 was enacted to provide for the acquisition of land. Section 3 of the Act read with the Amendment Act empowers the Minister responsible for lands whenever he is of the opinion that it is desirable or expedient in the interests of Malawi, to acquire land for public utility, either compulsorily or by agreement, and pay compensation as may be agreed or determined under the Act (26).

The Physical Planning Act is a principal act for regulating land use planning and physical developments in Malawi (26).

Marketplace Participants

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Private Sector

Mota Engil, MA Kharafi and Sons, Fargo Ltd. Old Mutual Malawi, NBS Bank.

Government

Ministry of Transport and Public Works, Road Fund Administration (RFA), Malawi Energy Regulatory Authority (MERA) (fuel levy), Malawi Roads Authority.

Multilaterals

World Bank Group, International Finance Corporation (IFC), African Development Bank (AfDB).

Target Locations

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country static map
semi-urban

Malawi: Southern

Growth in agriculture exports can be cultivated by sustainable and reliable transport logistics, accessible road networks. Planned road upgrades in Sothern Malawi outlined in Malawi's Transport Master Plan include the Mangochi-Makanjira road and the Mangochi-Chiponde road (9). Easier transportation to the port of Beira will make commodity prices even more competitive (2).
urban

Malawi: Central

Major mining projects to be developed in the Mtwara Development Zone include coal, iron ore, titanium and vanadium mining, hydro-electric generation, and development of gas reserves. Deposits of gold, graphite, limestone, marble and uranium have been reported. Prospecting for these depends on a transport system that can support delivery of the required equipment in remote areas, as well as extraction of the prospected resources (9).

References

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