Africa turns to private investors to fund critical infrastructure

Growing numbers of African Governments are seeking to woo private investors to fund national projects with the promise of above-average returns. How likely are they to succeed?

With record low-interest rates across the OECD, there is apparently no shortage of money seeking better than average return for low-risk infrastructure projects. Despite the challenges facing many commodity dependent economies among emerging markets, East Africa is faring well with Tanzania growing at around 7 percent per annum, Rwanda is forecast to grow at 6 per cent, and the Kenyan economy is growing at over 5 percent. The market- fundamentals of these economies remain attractive to investors particularly considering the high rate of inward foreign investment. Africa which has the highest rate of urbanization in the world is in dire need of this capital to begin to tackle its backlog of infrastructure needs and drive much-needed development for its young and growing population. Yet private sector investment in government-backed projects remains modest. This is despite high-profile efforts by personages as influential such national leaders such as Barrick Obama, Benjamin Netanyahu, Narendra Modi, Shinzo Abe, Xi Jinping and business leaders such as Jeff Immelt or Mark Zuckerberg, to name a few. If the fundamentals are right, why has this market not taken off and remains limited to a handful of traditional multilateral and bilateral lending agencies?

Speaking at the Toronto Global Forum (#TGF) 12-14 September 2016, Uwe Kruger the CEO of Europe’s largest civil engineering firm Atkins shed some light on this- sadly there is still a scarcity of bankable projects. “Investors expect certainty regarding upfront costs, input costs, and revenue projections. All too often costs and revenues are seen to be far too idealistic, and there is uncertainty that complex projects can be delivered on time.” Bringing projects to a point where funds can be committed takes time and talent. Yet there are clearly an enormous number of projects that need to be done. “The biggest issue is getting more expertise on the ground,” said Uwe Kruger. “Private investors do not have the time or the know-how to close the gaps.”

There are without a doubt, tremendous opportunities from the continent’s burgeoning middle class and a wealth in natural resources and new groundbreaking technologies- as Tunde Kehinde a speaker at this morning’s TGF session on “Harnessing the potential of emerging middle-class markets”. As the former CEO of online retailer Jumia known as Nigeria’s own Amazon, he witnessed the growth of his company from zero to several million dollars’ of revenue on a monthly basis in just a few years. “Those who choose to invest early and find the right local partners, stand to win a continent of 1 billion young, tech-savvy and enthusiastic consumers, a sentiment shared by Zuckerberg while in Legos recently: “this is where a lot of the future will be built”.

And it seems that China and the World Bank have come up with an approach to deal with this challenge. They have formed an infrastructure firm with an initial $500 million fund targeting Africa. China Overseas Infrastructure Development and Investment Corporation Limited (COIDIC) will invest in projects from the initial concept to feasibility stage, with the intention of financing the projects as well as taking part in their in their commercial operations. The shareholding includes, amongst others: China Development Bank (CDB), China-Africa Development Fund (CADFund) and China Gezhouba Group Overseas Investments. They are keen to showcase to investors and lenders that they can exit profitably and are targeting pension funds, insurance companies and institutional investors worldwide seeking to de-risk long-term infrastructure assets which yield more than government bonds.

This may be the first initiatives designed to bridge the bankable projects gap in Africa, but given the scale of the need, much more are needed. The number of projects on the books of African governments is impressive. At the Global African Investment Summit held in Kigali, Uganda, Rwanda, and Tanzania presented projects worth $7.3 billion, $1.5 billion and $1.08 billion respectively. Tanzania is looking for investors to expand three airports in Arusha, Lindi and Manyara Lake, and the construction of the first airport for its 43-year-old capital located Dodoma to relieve pressure from the nearby Julius Nyerere Airport which serves Dar es Salaam, Tanzania’s commercial capital city. Recent oil and gas discoveries in Uganda and Tanzania have placed the two countries on investor’s radar, and as such Tanzania seeks to position itself as the main logistics hub for oil, gas and petrochemical industries. 2.3 billion barrels of oil have been discovered in Uganda and Kenya are expected to begin oil production next year, while in Tanzania more than 55 trillion cubic feet of natural gas has been discovered, one of the largest reserves in the world and plans to start exploiting LNG in 2019. Uganda is also seeking over $300 million to develop an ICT park on a 17-hectare piece of land. It is hoped the park will provide 16,000 jobs when completed, while Rwanda is seeking private-public partnerships in the development of a number of tourism projects seeking to target the conference market with a $300 million convention center on the books.


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