Dry powder and ‘perpetual’ funds can drive investors to emerging markets

Global Infrastructure Hub’s Chris Heathcote tells us emerging-market risk is ‘overblown’, as report finds $2trn investment need for 10 African countries.

A group of 10 African countries has a collective $2 trillion infrastructure investment gap to fill by 2040, according to a report released today by the G20-backed Global Infrastructure Hub.

Investments in core infrastructure sectors will require a 39 percent increase on current levels over the next 22 years in Egypt, Ethiopia, Morocco, Senegal, Benin, Ivory Coast, Ghana, Guinea, Rwanda and Tunisia.

The countries form the Compact with Africa group, an initiative backed by the German G20 presidency to promote private investment in Africa, including in infrastructure. The latest report, an update to a worldwide study by the GIH last year, focuses on investment in roads, railways, airports, ports, electricity, water and telecoms.

Private investors can be key to filling this gap, according to GIH’s chief executive Chris Heathcote, and could serve as a healthy alternative to current investment strategies.

“The constant message we’re getting from investors in infrastructure is they’re increasingly nervous about dry powder, inability to find opportunities, the preponderance of perpetual funds,” Heathcote told Infrastructure Investor. “The developed markets are tying up assets which no longer come to market every 10 years and now stay within those investment funds for life, so they’re finding a shorter and shorter supply of developed market infrastructure.”

Several Africa-focused infrastructure funds have been launched in the past 12 months, including the AP Moller Capital-managed vehicle targeting $1 billion and backed by Danish pension funds, as well as a $1 billion fund launched by Indian private equity group IL&FS Investment Managers and the Islamic Development Bank Group.

“We’re getting a gentle-to-strong breeze of investors with a lot of cash on their hands looking to invest in infrastructure because they like the asset class and recognise that emerging-market risk is probably overblown if you can get to understand it,” Heathcote added.

He pointed to Rwanda as “a pretty unlikely country” to have made significant progress in attracting investments, lowering its corruption levels and improving regulation. Rwanda scored highly in the report for its progress in improving the country’s roads.

“It’s a small country, so it’s not of great excitement but what it does suggest is that countries can improve,” said Heathcote.