Paul Frankish, Investment Director, AIIM

With its wealth of natural and human resources, Africa has tremendous economic prospects – but investment in infrastructure is key to the continent achieving its potential. At present, amid rapid urbanisation and rising energy consumption and trade, we are seeing a growing gap between the demand for and supply of good-quality essential infrastructure. 

 

From an infrastructure perspective, Africa is the world’s most underserved market, with average annual infrastructure spend as a percentage of the required spend the lowest of any region globally – at only 25 per cent. Africa’s markets however remain varied in terms of their investability and their exposure to current global macro-economic pressures. The breadth of the markets allow experienced investors to invest behind select secular themes targeted at specific sectors where the long-term structural infrastructure deficits provide protection from cyclical pressures and support high growth and attractive returns on a risk-adjusted basis.

With slowdowns in many of their traditional markets, international investors are increasingly looking to the growth potential of the continent’s proliferating infrastructure projects to support the long-term return requirements of their portfolios. Local institutional investors are similarly increasing their attention on infrastructure investment opportunities as their investment portfolios mature with long term investors seeking sustainable, inflation-linked investments. When considered together with the ability of infrastructure investments to deliver specific impact targets and increasingly sophisticated impact measurement and management tools, the infrastructure sector in Africa is attracting significant attention and capital from across the investor groups.

Sectors for potential investment

Within this critical infrastructure sector, three of the most attractive sustainable investment opportunities are digital infrastructure, energy transition and mobility & logistics. Each of these sectors are supported by material excess demand, and long-term growth forecasts that have limited correlation to macro-economic conditions which have seen many African markets come under pressure.

Across the continent, data consumption and smartphone penetration are surging, while 3G, 4G and 5G networks are rapidly expanding to support the connectivity demands. The internet economy could contribute over USD700 billion to Africa’s GDP by 2050, while increasing connectivity to 75 per cent of the population could generate over 44 million new jobs.

However, for the digital revolution to maintain its momentum, there needs to be substantial investment in associated infrastructure, namely fibre-optic broadband, telecommunication towers and data centres. Demand for data centres alone is expected to exceed supply by 300 per cent in the coming years. High-capacity, power-efficient facilities will become increasingly important. The AIIM-acquired N+One data centre platform in Morocco is the country’s leader in this sector, serving international and local enterprise demand with material growth expected through new facilities in the region.

Accelerating urbanisation – twice the rate of India and China – coupled with global demand for Africa’s battery mineral reserves and agricultural commodities requires a substantial investment in overhauling the continent’s mobility and logistics sectors. A focus on integrated corridors to facilitate pit-to-port solutions across these battery metal and agriculture value chains is fundamental to our investment in The Logistics Group and its strong performance underpinned by global demand in sector.

The Need for Improved Power Connectivity

The engine for all this anticipated economic development is, of course, electricity supply, which must be increased considerably. To date, centralised generation and grids have fallen short of power provision goals, prompting heavy reliance on expensive and polluting diesel generators. This has provided a material investment opportunity to provide clean power directly to commercial and industrial customers increasing the reliability of power supply and decreasing carbon emissions and costs of supply. A good example of what can be achieved is the AIIM-backed Starsight distributed solar platform. Set up in West Africa, it is expanding across the continent, delivering average revenue growth rates in excess of 100 per cent since our investment in 2017.

Africa is a complex and heterogenous investment market. Infrastructure remains a critical sector in these markets with significant investment opportunities when executed in a disciplined strategy informed by deep local experience. The participation of global investors in the sector provides opportunities to access attractive risk adjusted returns and deliver meaningful impact to a region expected to contribute to global growth over the coming decade.