Private Equity players invest in Africa infrastructure boom
Once best known for corporate investing, private equity firms are now ploughing
money into African infrastructure.
Erika van der Merwe, CEO of the South African Venture Capital and Private
Equity Association (SAVCA) said: “Infrastructure gives private equity investors
access to the strong African growth story, an exceptional theme in a structurally
low-growth world.”
Buying exposure to infrastructural assets through private equity provides
investors exposure to an asset class that is not easily found elsewhere.
“There are very few listed alternatives,” added van der Merwe. “There is limited
capacity in the listed market and even in the bond market for gaining such
exposure to infrastructure.”
Big US private equity players like Blackstone, Apollo, KKR and Carlyle have
recently invested in Africa with Blackstone taking a stake in a major dam
construction project in Uganda. The bulk of foreign direct investment to be
devoted to Africa over the next ten years is expected to be in infrastructure and
related assets and industries.
The most significant constraints to African growth are the lack of energy and
transport & logistics infrastructure.
Emile du Toit, SAVCA Chairman said: “None of the growth that is projected for
the region will materialise without a major rollout of infrastructure, which private
equity is now helping to fund.
“The multiplier effects created by infrastructural investments are powerful tools
for uplifting people and growing economies – and make infrastructure-focused
private equity funds an ideal vehicle for fulfilling an impact investing mandate.”
Van der Merwe added that all development finance institutions and many
pension funds now are focused on responsible investing and are looking to
modify their allocations to ensure that these mandates, which extend to
environmental, social and governance criteria, are fulfilled.
Because of the medium- to long-term nature of their investments, infrastructure
funds – and private equity funds more generally – are ideally positioned to
implement these mandates on behalf of the providers of capital.
“The added attraction is that, compared with listed equity, private equity
infrastructure funds offer lower-risk and more consistent returns.
“This is due to the underlying revenues usually being contractual and backed by
the local governments and related utility companies. And they often carry
political risk guarantees on their revenue.”
A growing number of SAVCA’s members are launching funds with a focused
infrastructure mandate, a trend which Van der Merwe expects to continue.
ENDS