Betting on Africa

That Africa offers significant opportunities for infrastructure investors should come as little surprise, given its enormous infrastructure deficit. The question has always been whether investors are actually willing to heed the continent’s call.

In late January, Morgan Stanley Infrastructure signalled it was willing to take the plunge when it announced a 50/50 joint venture with Egyptian firm Orascom Construction. Their objective is to capitalise on infrastructure opportunities across Africa and the Middle East, taking advantage of Orascom’s presence in the region and Morgan Stanley’s deep pockets and operational expertise with infrastructure assets.

Details on the new vehicle are scarce at the moment, with both partners unwilling to disclose its size or intended target rate of return – although Orascom chief executive Nassef Sawiris hinted to Reuters it should start with commitments of several hundred million dollars.

The length of the partnership seems geared towards the long term, with a spokesman from Orascom telling InfrastructureInvestor that the joint venture should be operational for the next 15 to 20 years. During that period, it plans to invest in power generation, port construction, roads, rail, waste water and other sectors across the continent.

In the near future, Egypt’s $20 billion infrastructure stimulus plan should keep the partnership’s hands full. The Orascom spokesman estimated that up to 50 percent of the new vehicle’s capital could be deployed in Egyptian projects. And since the government is planning to spend those $20 billion – with a little help from the private sector – by June 2011, its first investments could come very soon.

But with Sub-Saharan Africa “completely underinvested” and even the rich Gulf states waking up to the potential of private sector investment in infrastructure, the possibilities seem almost endless. “I think our part of the world will lead the way in infrastructure over the next 10 years,” the spokesman said. Looking at Africa’s needs, it’s hard not to share at least a bit of that enthusiasm.