A 2018 report by the Infrastructure Consortium for Africa (ICA) found that between 2013 and 2017, the average annual funding for infrastructure development in Africa was $77 billion. Comparatively, this is double the annual average in the first six years of this century. Since 2018, investment in the continent has continued to grow among governments and international organisations, alongside foreign and local institutional investors. Although nearly half of the recent activity has been in West and East Africa, the bulk of infrastructure spending came between 2013 and 2017. In addition, these funds came principally from African governments, accounting for 42 per cent of total funding as of 2017. This was followed by international governments, with China leading the radar. Since 2018, however, there seems to be a growing interest in Africa’s infrastructure stemming from private institutional investors.
On January 12, 2024, BlackRock announced a $12.5 billion deal for the acquisition of Global Infrastructure Partners. Three days later, Bloomberg reported that an Africa-focused infrastructure fund – Emerging African Infrastructure Fund, had raised $294 million in debt to invest in the continent. The Emerging African Infrastructure Fund reached that level via a funding round that closed in December, passing the halfway mark of its $500 million target by 2025. On the 16th of January 2024 also, General Atlantic, a leading global growth investor, and Actis entered into a definitive agreement under which General Atlantic will acquire Actis. This is a push to create a diversified global investment platform with approximately $96 billion in combined assets under management (“AUM”). GIP holds an estimated $100 billion in combined AUM while Emerging African Infrastructure Fund is estimated at over $90 billion. This means more than $190 billion in infrastructure-related transactions was announced within one week with an African story. In this article, we examine the context for the factors underpinning the interest of global investors in Africa’s infrastructure.
Technological Leapfrogging
The first factor is the opportunity for technological leapfrogging that Africa has. Africa has the potential to skip traditional infrastructure models and adopt cutting-edge technologies like smart grids, mobile money, and digital. In fact, this is not just a potential. The investments being channelled into sustainable infrastructure in the content are evidence of the growing demand for digital infrastructure. Africa has the potential to take advantage of the recent advances in technology to create sustainable investments in infrastructure more than the rest of the world. With its growing population, Investors are seeing the potential in technology-driven brick-and-mortar real estate projects. According to a survey by Turner and Townsend, future real estate investment is the most promising in technology. In our opinion, Africa’s technological leapfrogging willbe driven by a combination of investment in renewable energy, mobile technology, education, infrastructure development, and a supportive regulatory environment. This is boosting private investor’s confidence in deploying capital to build out Africa’s infrastructure.
Increasing regional integration
Efforts like the African Continental Free Trade Area (AfCFTA) are expected to boost intra-regional trade, requiring improved infrastructure for transportation and logistics. The African Continental Free Trade Area (AfCFTA) is a significant initiative aimed at connecting 1.3 billion people across 55 African countries with a combined gross domestic product (GDP) of $3.4 trillion. The agreement, when effectively implemented, has the potential to lift 30 million people out of extreme poverty and 68 million people out of moderate poverty. More than this, it has the potential to create unprecedented economic connections across 54 African countries. What this means is that barriers to commerce within the continent will no longer exist and prosperity, businesses and opportunities can move across the continent seamlessly. This presents significant opportunities for investors involved in infrastructure projects facilitating smoother trade within the continent.
Untapped Market Potential
The potential for economic prosperity in Africa remains untapped. Africa’s large and growing population (expected to reach 2.5 billion by 2050) comes with a massive need for better infrastructure in transportation, energy, water, and sanitation. According to a research article by the United Nations, more than 75% of Africa’s population are under the age of 25 years. This young, vibrant and rapidly growing population creates a lucrative market for investors to tap into, filling the gap and generating significant returns.
Attractive Returns
In a 2016 article – Solving Africa’s Infrastructure Paradox, McKinsey estimated Africa’s investment in infrastructure as a percentage of GDP to be 3.5% per year since 2000. Compared to China (7.7%) and India (5.2%), Africa’s spending on infrastructure is significantly low. Closing the infrastructure gap in the continent, according to the consulting firm, will require doubling annual investment for more than a decade. Compared to saturated markets in developed countries, Africa offers potentially higher returns on infrastructure investments. This is due to factors like lower labour costs, readily available land, and government incentives like tax breaks and guarantees. For investors seeking higher yields in a low-interest-rate environment, Africa presents a compelling alternative.
Diversification and Government Support
For investors looking to diversify their portfolio, investing in African infrastructure provides an exciting opportunity. Africa Development Bank, AfDB in itsresearchpaper titled – Unleashing the Potential of institutional investors in Africa, alluded to the growing appetite among the institutional investors to invest in infrastructure assets as they are looking to diversify their portfolios. Investment opportunities within African infrastructure sector can meet these expectations in terms of deal size and financial returns. Many African governments are actively seeking private investment in infrastructure, offering attractive incentives to make projects more viable and reduce risk for investors. Public-private partnerships are increasingly common, creating a collaborative environment for growth.
Rapid Urbanization and ESG Alignment
Investing in sustainable and inclusive infrastructure projects in Africa can align with Environmental, Social, and Governance (ESG) principles, attracting investors increasingly focused on social impact and responsible investing. This creates a win-win for investors and local communities. Additionally, the rapid growth of African cities is creating a demand for modern infrastructure in areas like real estate, waste management, and renewable energy. This opens up new opportunities for investors to cater to the evolving needs of urban populations.
Africa’s infrastructure space has become very attractive to investors largely due to the continent’s substantial infrastructure gap. The demand and supply deficit in infrastructure presents a significant investment opportunity. In the past decade, Africa has focused on improving the regulatory environment, tapping into local funding pools, and leveraging institutional reforms to boost private investment further enhances its appeal to investors
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We love to hear your thoughts. Send us an email to[email protected]and we will be in touch. A 2018 report by the Infrastructure Consortium for Africa (ICA) found that between 2013 and 2017, the average annual funding for infrastructure development in Africa was $77 billion. Comparatively, this is double the annual average in the first six years of this century. Since 2018, investment in the continent has continued to grow among governments and international organisations, alongside foreign and local institutional investors. Although nearly half of the recent activity has been in West and East Africa, the bulk of infrastructure spending came between 2013 and 2017. In addition, these funds came principally from African governments, accounting for 42 per cent of total funding as of 2017. This was followed by international governments, with China leading the radar. Since 2018, however, there seems to be a growing interest in Africa’s infrastructure stemming from private institutional investors.
On January 12, 2024, BlackRock announced a $12.5 billion deal for the acquisition of Global Infrastructure Partners. Three days later, Bloomberg reported that an Africa-focused infrastructure fund – Emerging African Infrastructure Fund, had raised $294 million in debt to invest in the continent. The Emerging African Infrastructure Fund reached that level via a funding round that closed in December, passing the halfway mark of its $500 million target by 2025. On the 16th of January 2024 also, General Atlantic, a leading global growth investor, and Actis entered into a definitive agreement under which General Atlantic will acquire Actis. This is a push to create a diversified global investment platform with approximately $96 billion in combined assets under management (“AUM”). GIP holds an estimated $100 billion in combined AUM while Emerging African Infrastructure Fund is estimated at over $90 billion. This means more than $190 billion in infrastructure-related transactions was announced within one week with an African story. In this article, we examine the context for the factors underpinning the interest of global investors in Africa’s infrastructure.
Technological Leapfrogging
The first factor is the opportunity for technological leapfrogging that Africa has. Africa has the potential to skip traditional infrastructure models and adopt cutting-edge technologies like smart grids, mobile money, and digital. In fact, this is not just a potential. The investments being channelled into sustainable infrastructure in the content are evidence of the growing demand for digital infrastructure. Africa has the potential to take advantage of the recent advances in technology to create sustainable investments in infrastructure more than the rest of the world. With its growing population, Investors are seeing the potential in technology-driven brick-and-mortar real estate projects. According to a survey by Turner and Townsend, future real estate investment is the most promising in technology. In our opinion, Africa’s technological leapfrogging willbe driven by a combination of investment in renewable energy, mobile technology, education, infrastructure development, and a supportive regulatory environment. This is boosting private investor’s confidence in deploying capital to build out Africa’s infrastructure.
Increasing regional integration
Efforts like the African Continental Free Trade Area (AfCFTA) are expected to boost intra-regional trade, requiring improved infrastructure for transportation and logistics. The African Continental Free Trade Area (AfCFTA) is a significant initiative aimed at connecting 1.3 billion people across 55 African countries with a combined gross domestic product (GDP) of $3.4 trillion. The agreement, when effectively implemented, has the potential to lift 30 million people out of extreme poverty and 68 million people out of moderate poverty. More than this, it has the potential to create unprecedented economic connections across 54 African countries. What this means is that barriers to commerce within the continent will no longer exist and prosperity, businesses and opportunities can move across the continent seamlessly. This presents significant opportunities for investors involved in infrastructure projects facilitating smoother trade within the continent.
Untapped Market Potential
The potential for economic prosperity in Africa remains untapped. Africa’s large and growing population (expected to reach 2.5 billion by 2050) comes with a massive need for better infrastructure in transportation, energy, water, and sanitation. According to a research article by the United Nations, more than 75% of Africa’s population are under the age of 25 years. This young, vibrant and rapidly growing population creates a lucrative market for investors to tap into, filling the gap and generating significant returns.
Attractive Returns
In a 2016 article – Solving Africa’s Infrastructure Paradox, McKinsey estimated Africa’s investment in infrastructure as a percentage of GDP to be 3.5% per year since 2000. Compared to China (7.7%) and India (5.2%), Africa’s spending on infrastructure is significantly low. Closing the infrastructure gap in the continent, according to the consulting firm, will require doubling annual investment for more than a decade. Compared to saturated markets in developed countries, Africa offers potentially higher returns on infrastructure investments. This is due to factors like lower labour costs, readily available land, and government incentives like tax breaks and guarantees. For investors seeking higher yields in a low-interest-rate environment, Africa presents a compelling alternative.
Diversification and Government Support
For investors looking to diversify their portfolio, investing in African infrastructure provides an exciting opportunity. Africa Development Bank, AfDB in itsresearchpaper titled – Unleashing the Potential of institutional investors in Africa, alluded to the growing appetite among the institutional investors to invest in infrastructure assets as they are looking to diversify their portfolios. Investment opportunities within African infrastructure sector can meet these expectations in terms of deal size and financial returns. Many African governments are actively seeking private investment in infrastructure, offering attractive incentives to make projects more viable and reduce risk for investors. Public-private partnerships are increasingly common, creating a collaborative environment for growth.
Rapid Urbanization and ESG Alignment
Investing in sustainable and inclusive infrastructure projects in Africa can align with Environmental, Social, and Governance (ESG) principles, attracting investors increasingly focused on social impact and responsible investing. This creates a win-win for investors and local communities. Additionally, the rapid growth of African cities is creating a demand for modern infrastructure in areas like real estate, waste management, and renewable energy. This opens up new opportunities for investors to cater to the evolving needs of urban populations.
Africa’s infrastructure space has become very attractive to investors largely due to the continent’s substantial infrastructure gap. The demand and supply deficit in infrastructure presents a significant investment opportunity. In the past decade, Africa has focused on improving the regulatory environment, tapping into local funding pools, and leveraging institutional reforms to boost private investment further enhances its appeal to investors
We love to hear your thoughts. Send us an email to[email protected]and we will be in touch.
