Most developed economies have well developed road and highway networks. From time to time new highways are built to relieve congested cities, but by and large most developed countries are not embarking on major road-building projects. Reducing government expenditures in developed countries is also prohibiting any major new projects. The opposite is happening in many developing countries, with foreign contractors doing most of the work. One project in Kenya will deliver 50 km of four lane highway from Nairobi to Thika at a cost of 27 billion Kenyan Schillings (approx £25 million). Completion is planned for late 2011 and is proceeding without delay. Another project in neighbouring Ethiopia will build a 95 km stretch of road from Yabelo to Mega at a cost of approx £35 million.

This stretch is one of the main arteries connecting the two countries and is scheduled to commence in 2011.

Both projects are being constructed by Chinese contractors. While China has invested a lot of money in natural resources on the African continent, and in some cases provided roads too, the funding for infrastructure projects will typically involve aid or loans from organizations like the World Bank. This means competitive tendering and cost controls are an integral part of the bidding and construction process.

Interested contractors will be required to submit tenders and cost reports to government departments or agencies, which in turn are likely to be closely monitored by funding providers.

Questions 

1 Assuming a non-African construction company is submitting its first ever price to bid for a road construction project in Africa, what special considerations might it need to consider in forming the price?

2 Assuming less profitable road maintenance projects are available in its home country, how would the firm evaluate on the basis of costs/revenues alone, whether or not to pursue a project like those described above?