7 African destinations for private capital investment in infrastructure

The economy of African countries will continue to pull private capital and investments for many more years. This is rationally premised on the state of infrastructure of many economies on the continent. The state of modern infrastructure in these places is less than the global index for strong and emerging. The appalling state of this vital ingredient of development and growth is responsible for the high cost of energy, internet, and transportation in Africa.

However, many leaders have ambitious plans for new infrastructure development and the upgrade of old ones, but are constrained by available limited public funds. The over $90 billion annual infrastructure spending gap on the continent thus gives room more than ever before for private investments in infrastructure on the African continent. Some are aggressively pursuing opportunities to put their capital to use in addressing the gaps. We expect that in the coming years more private equity players will move funds into these nations.

For Nigeria, the potentials are huge. The country holds the largest gas supply in Africa, followed by Algeria (a top-10 global gas producer), yet fails to use the gas for producing power. The Nigerian government is making efforts to change the energy outlook. For example, in 2015, the Nigerian Electricity Regulatory Commission raised electricity tariffs for commercial, industrial and residential energy users. After long haggling from potential investors, Nigerians are also demanding more affordable energy. Also, there is room for public and private partnership in roads development, rail transportation, healthcare, Telecommunication and IT, Agriculture, and housing. Nigeria is a preferred destination for private capital.

Senegal is considered one of the most stable democracies in West Africa, yet it has generally lagged behind its peers for more than 10 years. But the economy grew about 6.5 % in 2016, which is the largest percentage in more than 10 years, and is expected grow approximately 7 % in 2017 and 2018. Senegal is ideally located at the intersection of global shipping and regional trucking routes. The country is already working on the port of Dakar in Bargny to effectively replace the current aging and congested port. The new port is a major upgrade for a country kicking into full growth mode.

While the new port is the illustrative grandeur of the Senegalese story, power expansion could be the engine to the growth narrative. Today the cost of power is high with more than 50 % of the energy coming from biomass. The recent oil and gas finds, particularly Kosmos Energy’s “super-major” offshore gas discovery, present a great opportunity for gas-to-power plants. Having investors buy into this power expansion is vital for the country. The potential returns in the long-term are a good starting point.

Democratic Republic of the Congo (DRC)
More than 45 %t of firms in the DRC use generators to support their businesses with the frequent outages both from lack of power or weakened transmission networks. The power blackouts and shortages are the norm in a country with a growing base of mining companies. Transmission and African destinations for private capital investment in infrastructure grid upgrades are necessary infrastructure requirements. Estimates put the country’s cost-effective hydropower potential at 100,000 MW with installed capacity still below 50,000 MW. The reality is that there is massive opportunity for infrastructure space in the DRC.

The issue of energy capacity is partially a bottleneck for growth in the country. Current GDP growth projections are 4.5-to-5.5 % for both 2017 and 2018. But the numbers suggest that the country’s industrialization process, if it is to reach its true potential, will require more new power builds as well as an upgrade (and expansion) to the transport networks.

This country has a power problem, hallmarked by regular load shedding in the main urban area, such as the capital Yaoundé. Cameroonian President Paul Biya has pledged “to bridge the energy gap and end load shedding” with first-generation energy projects, such as soon-to-be operational Memve’ele and Mekin power plants, and longer term projects such as the Bini à Warak, Menchum, Song Dong and Nachtigal power plants. The president also introduced the National Electricity Transmission Corporation to address on-going grid management issues.

Cote d’Ivoire
Strengthening the infrastructure in the country will key the next phase in the Ivorian growth story. The government plans to spend $60 billion on infrastructure through 2020, with the private sector providing 68 % of that funding. The spending plan includes more than 80 public-private partnerships targeting infrastructure in vital sectors such as transportation, telecom and energy.

The government pledges come with a track record. The country grew more than 10 % in 2015 and surpassed 2,000 MW in power capacity in early 2016, underscored by the efforts of the Ivorian electricity generation company CIPREL (also an investment subsidiary of private equity firm Emerging Capital Partners). The country already exports to Benin, Burkina Faso, Ghana, Mali, and Togo. Expansion in the power sector is expected to continue, particularly from independent power producers (IPPs). Another bonus investment will be around transport and warehousing with the economy expected to grow between 8 % and 9 % in both 2017 and 2018.

Uganda and Tanzania
These East African countries present opportunities on the power side, particularly with gas-to-power plants in the long term. Both countries also present political challenges with Uganda deciding to divert its oil pipeline through Tanzania rather than Kenya. This diversion raises the cost of the pipeline for a country already facing budget constraints. The budget cuts being implemented directly and indirectly impacts investment in infrastructure.

There is cause for optimism. Both nations are interested in energy and industrialization as well as the sponsorship of engineering, procurement and construction, and public-private partnerships in local projects.

Both governments require private investment to address power and both have access to power inputs such as fuel oil and gas. Both countries also require investments in pipelines, roads and airports as the economy outpaces physical infrastructure necessary to support its growth.

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Lanre Alabi
Lanre Alabi
Lanre Alabi is the Publisher/Editor-in-Chief of Infrastructure Development Magazine

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