Insights from those with experience suggest that technology might make projects more successful. David Pilling, writing in the Financial Times last month, notes that investment into African infrastructure projects was steadily rising prior to COVID-19.
According to research published by the Infrastructure Consortium for Africa, average annual funding between 2013 and 2017 stood at US$77 billion – double the annual average between 2000-06. Yet these impressive figures still fall short of closing a funding gap of some US$70 billion, which many countries may find difficult to fill given surging debt levels and COVID-pressed public finances. But could an uptick in investor appetite provide the answer? As the African Infrastructure Investment Managers (AIIM) note, the misperception of risks can create attractive returns for the more discerning investor.
Should investors be willing to deploy capital in search of higher yields, Africa may present a more compelling investment case than many “safer” markets back home. A report by McKinsey & Company from 2020 referred to an African “infrastructure paradox”, where although funding a large pipeline and a need for spending exist in equal measure, not enough money is being spent to close the gap. The consultancy says that most infrastructure projects fail to reach financial close, with fewer than 10% of projects achieving this milestone and 80% failing at the feasibility and business-plan stage. It concludes that although there is significant scope for governments to collaborate with local development-finance institutions and international financial institutions, there remain significant challenges for the long-term economic potential of the continent.
But there are many who appear to take a different view. US-owned Africell, the telecommunications company which has 12 million mobile subscribers across Africa, has just secured a US$105 million loan facility from a group of financiers to build a new mobile network in Angola. The investment is likely to catalyse Angola’s fintech sector. Similarly, the G7 and American administration announced a new global infrastructure initiative this month, The Blue Dot Network, which aims to encourage development by certifying public-private investments into global infrastructure. It is hoped that the initiative will incentivise emerging countries to enact regulatory reforms to attract global private capital.
Another supporter is Mirco Martins, an Angolan entrepreneur and founder of Mavah SGPS, who is also involved in a number of privately held companies and entrepreneurial ventures across the continent. Martins believes that the right interventions could unlock up to US$550 billion to be invested in African infrastructure. Martins, who started his career as an engineer at BP, has worked across the continent for several decades. His projects today focus mainly on infrastructure, agro-processing, energy and health. He argues that rapid infrastructure development will drive and sustain economic transformation in Africa, leading to lower transport and communication costs, enabling countries with suitable agro-ecological conditions to produce high-value products. This will be achieved in tandem with closing the internet connectivity and access gap with advanced economies, allowing more African countries to enter service export markets.
Martins, who has been working on an infrastructure project in Uganda for the last four years, has first-hand experience of large-scale infrastructure in Africa. As a result, he cautions against the conventional wisdom that feasibility studies for projects in Africa would be cumbersome to complete. “I’ve been working on an infrastructure project in Uganda for the past three and a half, almost four years, and it’s unbelievable what you can do. We managed to do all the feasibility studies over 92 kilometres of road by using or deploying drones. A study that could take you six months you reduce to three months, just by using technology. This means you’re reducing costs in communication, in transport, etc.”
Given that McKinsey highlights weak feasibility studies and business plans as root causes of the African infrastructure paradox, Martins’ insights might just persuade sceptical investors to change their minds. As one African finance ministry notes in the McKinsey report, “private sector players generally do not invest sufficient time and effort in developing a strong feasibility study” and that capacity inadequacies and limited dedicated funding often stop the projects at this crucial phase. If technological innovations were rolled out more broadly, could many of the 80% of projects that fall at the feasibility stage flourish further down the line? With institutions such as Qatar’s investment fund recently announcing a US$2 billion infrastructure pot for sub-Saharan Africa, there are many who appear to believe that the opportunities outweigh the risks when it comes to African infrastructure. Investor confidence certainly holds the key to closing Africa’s funding gap, but it is the success stories from the continent itself that will be integral to generating that confidence in the first place.