Africa50 fund gathers momentum as new catalyst for continent’s growth

By John Chiahemen |

It must be music to the ears of anyone interested in the rapid growth and industrialisation of Africa’s economies.In just three years since its take-off with a mandate to mobilise public and private sector finance to build Africa’s all-important infrastructure, the Africa50 fund has gathered momentum, with a growing portfolio of projects and capital base.

At its third General Shareholders meeting in Nairobi on July 19, Kenya announced a doubling of its shareholding to $100 million, boosting Africa50’s committed capital to close to $1 billion. Its medium-term target is $3 billion, tapping into the global pool of savings and private equity. With Africa’s infrastructure funding needs put at $170 billion a year, Africa50 has its work cut out trying to close a gap of $108 billion.

“If African private capital is not willing to invest in Africa, how can we expect anyone else to,” Kenya’s President Uhuru Kenyatta said in a keynote.Kenya is one of the 25 African sovereign shareholders of Africa50 along with the African Development Bank (AfDB) and central banks. More governments from the remaining half or so of African Union (AU) member nations are expected to sign up.

Private sector culture
So what will Africa50 do differently from funding organisations like the AfDB and other multilateral agencies that have been actively involved in efforts to transform Africa’s economies since the end of colonial rule?

First, Africa50 is conceived as a small, focused organisation with a private sector approach. This is evident from the world class executive leadership assembled at the fund’s Casablanca headquarters. CEO Alain Ebobissé, a Cameroonian, came on board with a solid background in financing in France and as Global Head for the World Bank Group’s Global Infrastructure Project Development Fund, supervising teams of infrastructure specialists. He led several infrastructure projects in Africa, Asia, Europe, and Latin America.

COO Carole Wainaina, a Kenyan citizen, previously served as United Nations Assistant Secretary-General for Human Resources, in which role she led transformational initiatives for the Secretary General. Previously she held senior positions for more than two decades at multinational corporations in Turkey, the United States, Britain, the Netherlands, and Kenya, on top of 13 years at Coca-Cola in senior roles, including as Chief of Staff of the Chairman and CEO.

Africa50’s board is chaired by Dr Akinwumi Adesina, President of the AfDB Group where he took over in September 2015. He has brought to both roles the charisma, passion and initiative that distinguished him in his previous position as Nigeria’s Minister of Agriculture and Rural Development. His initiatives in Nigeria are at the root of growing food sufficiency in the country of nearly 200 million and underpin the efforts of his equally dynamic successor, Chief Audu Ogbe, to turn Nigeria into a food exporter. CEO Ebobissé cited this high-calibre executive team and pool of experienced project developers, and a small and nimble organisation as a major differentiator of Africa50 from other initiatives.

The other is Africa50’s ability to deploy capital in both early and later stages of projects, Ebobissé said. “We are able to function as a one-stop shop throughout the life cycle of the project.”Among other requirements to qualify for investment by Africa50, projects must be predominantly private sector or a Public Private Partnership, with total value of no less than $100 million, benefit the local economy and offer appropriate return to investors.By contributing to project development, Africa50 increases the number of bankable projects in the pipeline, in which it would typically take a minority stake of $2-$100 million in early stage financing.

Relief for struggling promoters
Any African project promoter, whether at municipal, regional or national level, would appreciate the burden of project preparation and development.
Consider a country like Nigeria with its boundless supplies of natural gas which it exports as LNG. Building a 250MW gas-powered plant anywhere outside of the oil-producing region entails battling complex logistics for gas deliveries as part of project development. There is no effective national gas pipeline network , with the two serious virtual-pipeline initiatives hardly progressed beyond the drawing board.

Consider also the creaking national electricity network. Controversy has dogged efforts to fix Nigeria’s chronic power problems for years, with politicians still trading accusations of corruption over $16 billion of federal funds ploughed into power projects between in 2000-2007.Whereas Nigeria needs vast amounts of generated power to take its national grid capacity well above 5,000 MW where it has hovered for years, the distribution network cannot easily handle a large volume of newly generated power. Industry experts now tend to recommend a Distributed Power Generation system of individual plants of between 10-100MW. Clustered in close proximity, they can be supplied with gas from planned regional LNG liquefaction plants and be easily injected into the power grid infrastructure.

Closing the funding gap
Private sector financing of infrastructure in Africa is stunted at an average $6billion a year and even this dipped to $2.6 billion in 2016. This is a drop in the massive global pool of savings and private equity of about $120 trillion, according to AfDB data.The Nairobi shareholders meeting took place around the time Chinese President Xi Jinping was travelling to Africa on a tour underlining China’s emergence as the leading source of infrastructure funding on the continent.

In 2015 Xi signalled a shift in China’s investment approach in Africa that now favours increased partnerships with the African private sector, moving from its traditional focus on sovereign local partners. China has committed up to $60 billion in African projects since then, placing greater emphasis on governance than hitherto.China’s partnerships with African governments in particular have created friction with populations in parts of the continent mainly over labour issues.

In one example, Chinese money, mainly from the country’s development banks, has gone into Kenya’s Standard Gauge Railway line that has revolutionised travel between Nairobi and the port city of Mombasa. More is going into urban housing developments.

“Chinese contractors are able to deliver in a short period fairly good quality of work,” said George Odo, Principal Partner and Managing Director at Africinvest, speaking on the sidelines of the Nairobi meeting. “But they tend to bring their labour, even labour you can get locally and this begins to create tensions. That’s something they’ll have to manage because it’s simply untenable.”

It’s hardly a surprise that Africa50’s focus is on infrastructure, or that its first three investments — In Egypt, Nigeria and Senegal, with combined  project value of $775 million — are all in electricity generation. In Egypt, Africa50 is jointly developing six utility solar power projects totalling  400 MW with Scatec Solar and Norfund. Operations start early next year. Africa50 is invested with the same promoters in 100 MW direct current Nova Scotia power plant in Jigawa State, due to come into operation later this year.

Infrastructure is the inevitable hurdle that investors have to face in Africa, whether building a food processing plant, a pharmaceutical production franchise, setting up water works or an automobile assembly facility.Lack of electricity is by far the most obvious obstacle to powering growth in Africa and lifting hundreds of millions of its inhabitants out of poverty. Well over 640 million Africans have no access to electricity, making Africa the continent with the lowest rate of access to electricity at 40 percent. Kenya is leading the way in lighting up Africa, having leapt to an access rate of 60 percent from 20 percent five years ago, according to official data. Outside of South Africa, electricity consumption in Sub-Saharan Africa stands at 180 kWh, compared to 13,000 kWh in the United States and 6,500 kWh for the EU.

This affects everything from the ability to properly store life-saving vaccines and drugs in vast regions of Africa to bringing modern learning techniques and tools to schools and colleges, to preserving food.Adesina said the way forward is for Africa to “invest smartly in infrastructure”, calling on governments to address impediments to the free flow of trade, people and capital including better highways and easier entry visa procedures.“You can’t expect people to invest in countries that they can’t get to,” he told journalists at a news conference.Africa50 takes its name from the 50th anniversary of the African Union when the continental body decided to set up the special infrastructure fund.

 

• Mr. Chiahemen is an FDI Networking and Communication specialist based in Johannesburg.

 

 

 

(First published in THE GUARDIAN, Nigeria)