M a r k e t N e w s

Investors have growing role in developing East Africa's Energy Infrastructure

Posted on : Wednesday, 20th August 2014

 Development finance institutions (DFIs) remain the big beasts in developing infrastructure and other major projects in much of Africa. The ‘blending’ of public and private finance has become a preoccupation for traditional donors looking to leverage their grants and loans to produce bigger funding flows to kick-start the continent’s infrastructure revolution, to catch up with sub-Saharan Africa (SSA)’s macroeconomic growth. More diversified forms of financing are being sought to underwrite power, water and other big-ticket schemes. This will inevitably need new players and asset classes, including African and international pension funds, billionaire investors, family private offices, the public listing of power developers and electricity investment companies.

 
The appetite to buy into the ‘emerging African investment story’ was illustrated by the attendance of over 100 private equity (PE) and other professionals at the Africa Investment Outlook (AIO) meeting in London on 27 March. However, the meeting – organised by African Energy publisher Cross-border Information (CbI), in partnership with Nairobi-based Africa Assets and global law firm King & Wood Malleson-SJ Berwin – concluded that PE needs a louder voice to be better understood in Africa. PE-supported projects are likely to benefit communities as well as shareholders, but too often the perception persists that the aim of PE investors is to make a fast buck and depart.
 
A raised profile for private investment is expected as deal flows speed up. Big deals have been done, for example by UK-based Actis, which is buying utility distribution companies in Morocco and AES Sonel in Cameroon. But direct DFI support remains critical to many major ‘private’ deals. An important example is the Lake Turkana wind power project in Kenya, which has reached financial close and is widely seen as a model for SSA’s renewables schemes, with several major donors supporting private investors in building Africa’s largest wind farm (AE 274/9).
 
Africa Assets’ analysis shows that PE funds invested more than three times as much in SSA in 2013 as they did in 2012 – with the upward trend expected to continue. Its East Africa Private Equity Confidence Survey, compiled with Deloitte, shows that 84 deals were completed in SSA in 2013.
 
AIO’s two panels and expert audience agreed that allocation of risk among stakeholders remained a problematic issue, but one that could be overcome as the market matures and essential documentation is standardised. An example is power purchase agreements, whose standardisation had allowed South Africa to complete many deals within a relatively short timeframe under its Renewable Energy Independent Power Producers Procurement programme.
 
The big, more open economies of Kenya, Nigeria, Morocco and South Africa continue to dominate PE investments, but a range of markets are opening up, particularly in East Africa. North of the Sahara a number of players have established themselves in Morocco, benefitting – as in South Africa – from a major renewable energy programme. Investment portfolios are diversifying as extractive industries begin to lose their stranglehold on foreign private investment. 
Much interest has been generated by the potential for ICT investments and the emergence of a ‘silicon savannah’, and there is an upturn in global interest in agribusiness investment. African Union Commission chair Nkosazana Dlamini-Zuma’s closing remarks at the Fourth Africa-EU Summit in Brussels on 3 April included a call for Africa and Europe to combine forces: “We have the land, they have the experience – we can put them together.”
 
However, the AIO meeting noted that, in some jurisdictions, corruption and other ‘operational risks’ still pose significant reputational risks, and many projects still take too long to get off the ground. But perseverance pays, as demonstrated by the Lake Turkana project, which remained on track despite the World Bank’s decision not to approve its partial risk guarantee. New markets and investment possibilities are emerging, but Africa remains far behind the curve for a majority of investors.

Source : www.africa-energy.com
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