African infra calling for more early-stage equity

A workshop at the second annual PEI Africa Forum exploring the infrastructure investment opportunity in Africa concluded that more early-stage equity capital is needed to get projects off the ground and ensure they are structured well.

The audience at a packed break-out session of the PEI Africa Forum in London heard Andrew Alli, chief executive of the Africa Finance Corporation, a development finance institution, argue that – while there was no shortage of project finance debt for well developed projects – there was a gap for earlier-stage risk capital which might be filled by the private equity model. 

He said this capital need is considerable, since typically around ten percent of the total cost of an African infrastructure project is spent on ‘pre-project’ assessments. However, Roland Janssens, director of Frontier Markets Fund Managers, a division of Standard Bank managing infrastructure-focused project finance development funds, said that disagreements between equity providers and developers over their respective stake sizes have sometimes killed projects at the negotiating stage.   

In terms of the broader opportunity, Andre Steyn, managing director of PineBridge Investments’ African private equity business, cited various sources which put Africa’s overall infrastructure capital requirement at around $90 billion per annum. The biggest demand for capital is in areas such as power, water and transport. However supply-side constraints, including regulatory issues, mean projects often struggle to be bankable.

The panel agreed that African projects are characterised by a tendency to over-run in terms of time and budget. The Bujagali hydropower project in Uganda, a 250-megawatt dam on the Nile River, was cited as a high-profile example. However, Alli pointed out that African projects are also typified by conservative demand estimates and says there have been few African infrastructure projects that have ultimately performed badly.

All three panellists agreed that there was scope for more regional integration in certain sectors in Africa, including roads and ports. Associated with this would be the potential for cost savings resulting from economies of scale. However, Alli said political support was not sufficient to drive integration and may actually prove a hindrance.    

He added that, in order to maximise the chances of regional integration, the financial rewards for private participants needed to be clearer and projects needed by bypass the need for radical policy reforms.