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PRIVATE EQUITY: A panacea for financing African Infrastructure?

PRIVATE EQUITY: A panacea for financing African Infrastructure?

PRIVATE EQUITY: A panacea for financing African Infrastructure?

What contribution can Private Equity make to the financing of infrastructure in Africa?

The issue was brought into sharp focus at the recent SuperReturn Africa Conference in Cape Town, South Africa,  which brought together a number of experts to consider the current challenges and potential solutions.

The scale of the task is immense, with World Bank research from 2017 highlighting that Africa’s urban population - which now estimated at 472 million people - may double over the next 25 years, and that $93bn may be needed to close the infrastructure investment gap. Securing the right infrastructure investment will clearly be vital in translating rapid urbanisation into sustainable economic development on the African continent.

What kind of infrastructure investment is needed in the first place? Energy projects are currently consuming around 60% of African infrastructure investment, and there continues to be significant demand for public and private investment to address the water supply, sanitation and ICT amongst others. It has been estimated by Deloitte that Government and traditional donor financing could at best meet 50% of the requirements of infrastructure financing, and so innovative solutions combining international and domestic and public/private sources will need to be devised and implemented. Private Equity financing is already becoming part of the solution, with the African Private Equity and Venture Capital Association noting that 86 Private Equity infrastructure deals were concluded in Africa between 2011 and 2016, with a total value of $10.6bn, and it is interesting to note that 45% of PE infrastructure investment was in utilities, while only 10% was in energy.

INFRASTRUCTURE FINANCING

Where is infrastructure financing in Africa currently coming from? In terms of major emerging economies, China is already well ahead of the curve when it comes to funding large African infrastructure projects. In 2017, Chinese president Xi Jinping offered a $60bn loan and aid package to Africa, in the context of the $900bn new Silk Road project that China aims to embark on, which is intended to create numerous new trade routes, as well as build up old trade routes throughout the Middle East and Asia. India is also a player to watch, even if its FDI flows to Africa are concentrated in Mauritius, which accounts for about 19% of Indian FDI flows to the world, and most recently India has offered a financing facility for the Metro Express project in Mauritius. Overall, interest and demand from China and India could be an opportunity rather than a threat to the deal flow pipeline.

“China is already well ahead of the curve when it comes to funding
large African infrastructure projects"

In this context, to what extent can Private Equity be seen as a panacea for African infrastructure funding, or even provide a partial solution? Private Equity players are very much aware of infrastructure opportunities on the African continent, and GPs are already investing from both PE infrastructure-specific and generalist funds. A survey conducted in 2017 by the African Private Equity and Venture Capital Association revealed that African LPs actually identified infrastructure as the most attractive sector for PE investment over the next three years, while non-African LPs saw consumer goods as the most attractive, which sugges