Archive for the 'Infrastructure' Category
August 12th, 2010 by Tom Minney
The African Development Bank (www.afdb.org) is aiming to commit up to $10 billion a year to infrastructure in Africa, according to a story on Reuters. Alex Rugamba, the bank’s Director for Regional Integration and Trade, told the newsagency on 26 July that the bank hopes to nearly double infrastructure funding over the coming 5 years.
“There’s a big interest in projects that can transform economies… for instance there’s big talk about railways. We want to revamp our railways. So if the trends continue as they are now, I would say within five years’ time we’ll be committing up to $10 billion per year on infrastructure.”
Rugamba said the AfDB was particularly interested in cross-border infrastructure ventures to drive economic growth by promoting trade within and between African countries. Other possible investments include regional power grids, cross-border highways and submarine telecommunications cables. For instance in January, the bank lent Ethiopia $125.6 million to finance the construction of the Mombasa-Nairobi-Addis Ababa Road corridor project phase II.
He reportedly added that countries, including Egypt, Morocco, South Africa and Tunisia, were absorbing large amounts: “South Africa last year took a loan of over $2 billion, which is almost about half our annual infrastructure budget and Egypt now takes in $400 million worth of credit for its energy sector per year.” Africa has always been able to absorb large amounts of infrastructure finance, but the AfDB had too little capital to meet demand.
May 31st, 2010 by Tom Minney
Interest in African sovereign debt has been climbing again in recent months. Angola has stil not issued a $1 billion – $2 billion benchmark bond due in May. However, Kenya, Nigeria and Mauritius and many other countries have flourishing debt markets and international interest is good in high-yielding hard-currency bonds such as those issued by the Republic of Congo and Cote d’Ivoire.
In April top bond broker Exotix (www.exotix.co.uk) gave a “buy” recommendation on the REPCON 2.5% bond, redeemable in 2029. Then it was trading at 57.0 and offered a yield of 10.8% and was the highest-performing African sovereign bond.
Trading in $2.4 billion of Cote d’Ivoire debt in US dollars trading under New York law (2.5%, redeemable in 2032) began in mid-April, after the country exchanged it for Brady bonds it had defaulted on nearly a decade ago. Exotix only rates it a “hold” at 64.2 in mid-April, when it yielded 9.6%. The bond was expected to make up 0.75% of the $400bn Emerging Market Bond Index (EMBI), according to a recent article in The Banker, and many were expected to buy it for this reason. Exotix commentary on the bond included detailed assessment of politics and economic developments including current account surpluses and International Monetary Fund assessments.
Governments in some countries are seeking to create longer-term yield curves for domestic investors, in order to provide a framework for longer-term finance and investment. For instance Barclays Kenya is offering 20-year mortgages, compared to a few years ago when the limit was 5 years. Bonds are also being moved into electronic trading and being handled by central depositories.
According to a report on 19 May on Bloomberg, Angola was awarded credit ratings of B+ by Standard &Poors and Fitch, 4 levels below investment grade, and Moody’s assigned an equivalent ranking of B1, putting Angola on par with Nigeria, Lebanon, Belarus and Ghana. The country plans to issue $1billion – $2 billion in bonds this year.
Other high-yield bonds, including in local currencies, can be found in Tanzania, Zambia, Ghana and Kenya. Economic commentators are encouraged, as debt can be a more cost effective way to fuel long-term economic growth than equity.
Better economic management and good investor interest in government debt has paved the way for more corporate bonds, including for power and telecommunications infrastructure. This site has already reported how Kengen and Nampower have issued bonds to fund urgently needed power expansion. Telecommunications giant Safaricom has also been successful.
The successes are tribute to the increasing quality of economic and fiscal management by African governments.
May 4th, 2010 by Tom Minney
Infrastructure is key to Africa’s growth, but financing is coming in far too slowly. Katherine Sierra, the World Bank’s vice president for sustainable development, told the fourth annual U.S.-Africa Infrastructure Conference on 28 April that studies show that $93 billion of investment is needed each year in Africa’s infrastructure, but only $45 billion is arriving. She said African leaders were putting priority into infrastructure and it is an urgent challenge to close the financing gap through additional funding and increased efficiencies.
World leaders in 2005 (G8 summit at Gleneagles, Scotland) highlighted Africa’s infrastructure as a key factor in determining the pace of sustained economic growth and development on the continent. In response, the World Bank and other groups put together the Africa Infrastructure Diagnostic to determine the status of African infrastructure. Data was collected for 24 countries, and the study is expanding to include 40 more countries.
According to a report of the meeting, she said: “We all know that Africa’s infrastructure is sparse. We should also recognize that it is extremely expensive compared to other regions of the world.” She said costs of infrastructure services in sub-Saharan Africa are at least double those in South Asia, and in some areas are five times higher. She attributed this disparity to a lack of large-scale economies, the high costs of electric power, and a lack of competition.
“Thin markets in Africa are often characterized by monopolies or cartels leading to high profit margins for a limited number of service providers, inefficiencies and therefore high prices. So we need to tackle more economies of scale issues and introduce more competition,” she said. For much infrastructure, including water and hydropower, there should be emphasis on regional solutions since Africa’s geography complicates management. Twenty countries have less than 5 million people, another 20-plus countries have a gross domestic product of less than $5 billion. Sixty international river basins are shared between several countries
There is a power crisis, she said: “We have 30 countries facing chronic blackouts. As a result, businesses are giving up in some cases on public- and private-sector solutions, and resorting to expensive individual options… The entire capacity for electric power in sub-Saharan Africa with its 48 countries and population of 800 million is not more than Spain, with a population of 40 million.” Guinea-Bissau, for example, has the ability to generate only a small amount of electric power – the same amount of power it takes to electrify the World Bank complex in Washington, she said.
Only 20% of Africa’s population has access to electricity or modern forms of energy, compared to 50% in South Asia and 80% in Latin America, she said. Even by 2050, universal access to electricity in sub-Saharan Africa will not happen – a situation that she called “totally unacceptable.”
Air transport has expanded in eastern and southern Africa but remains “cumbersome and declining” in west and central Africa. Safety also remains an issue, she added. The volume of cargo in ports has more than tripled in the past decade. That is an “early marker” for growth across the continent, she said. But she warned that containerization is still low and inland transportation linkages are weak. “We need to focus on regional hubs and the efficient trans-shipment around the coast and inland linkages,” she said.
Sierra said the railways are less significant over the past 30 years, partly because of poor maintenance and other adverse economic and infrastructure factors. Every $1 of delayed road maintenance ends up costing $4 to restore the existing road. Africa needs more agricultural productivity, but many countries have failed to harness water for development and water storage facilities and dams are inadequate to mitigate floods and droughts. “Today, only 5 percent of Africa’s land is irrigated,” she said.
Africa has made great progr6ess is telecommunications. In 1999, only 5% of the population lived within range of a mobile phone signal but now it is 60%, which could expand to 90% through deregulation and greater competition.
The Corporate Council on Africa conference on “Building Dynamic Growth in Africa” focused on key sectors of African infrastructure that present investment opportunities and asked how to mitigate the effects of climate change.
April 28th, 2010 by Tom Minney
Africa got a record $88 billion of foreign direct investment (FDI) in 2008, but it was a tiny share of total global (FDI) which was down to $1.7 trillion, according to the World Investment Report 2009, published by United Nations Conference on Trade and Development (www.unctad.org). According to a report in Tanzania’s The Citizen newspaper, poor infrastructure harms Africa’s competitiveness as an investment destination.
It says the World Association of Investment Promotion Agencies (www.waipa.org) is calling on Africa to find a lasting solution to the problem. The report cites Waipa Vice-President Emmanuel ole Naiko as telling a First Africa Regional Investment Conference in Cameroon that poorly interconnected air routes within the continent and barriers to cross-border trade were discouraging investors. Mr ole Naiko is also Tanzania Investment Centre executive director.
He reportedly said roads, railways and ports target Europe and USA and are poorly connected: “Developing countries must break down the barriers at their own borders.”
He urged African economic groupings to stimulate business. “We must remove the notion that exporting is only when you sell commodities to the US and Europe and not when you sell them to African countries,” he said.
The report forecasts that last year’s global financial crisis will cut global FDI to $1.2 trillion this year but it will start picking up next year. “Inflows as a share of Africa’s gross fixed capital formation grew to 29% in 2008, from 27% in 2007. In contrast, divestments by some African firms abroad reduced FDI outflows from the region. A number of policy measures adopted by several African countries continued to make the business environment more conducive to FDI – both inward and outward. However, the sharp decline in commodity prices and the slowdown in global economic growth in the second half of 2008 may signal a possible reversal of the trend towards rising FDI in 2009, breaking the region’s six years of consecutive growth in inflows as TNCs cancel or postpone new projects.”
February 15th, 2010 by Tom Minney
Telecoms have attracted some of Africa’s biggest and most lucrative equity deals and the 14 Feb sale of $10.7 billion of telecom assets further indicates the rising power from the East, this time India.
On Sunday the Kuwait News Agency (www.kuna.net.kw) reported that the board of directors of Kuwait’s Zain Group (formerly MTC or Mobile Telecommunications Co. – www.zain.com) unanimously approved the sale of the group’s assets in Africa (except operations in Sudan and Morocco) to India’s Bharti Airtel.
The Kuwait Stock Exchange (www.kuwaitse.com) earlier on Sunday announced the suspension of Zain stocks until the group decides on sale of its affiliate in Africa. Shares in Zain were apparently up 23% since 4 February and rose nearly 4% on 11 February.
According to Reuters newsagency, Bharti had resumed its hunt for emerging market acquisitions after its planned $24 bln merger with South Africa’s MTN failed in September. There have been discussions of Zain group selling its assets in Africa since October.
Reuters says Zain is the third-largest telecoms operator in the Arab world. A consortium of Asian investors has been trying to buy a stake from Kuwaiti family conglomerate Kharafi Group for 2 dinars per share, or about $13.7 bln, reportedly for a 46% stake.
February 2nd, 2010 by Tom Minney
The Commonwealth Business Council has a top lineup for its Africa Investment Forum, due to be held from 8-10 February in Accra, Ghana in conjunction with Ghana Investment Promotion Center (GIPC). Investors and government leaders from over 30 countries will profile investment opportunities in sectors including energy, agriculture infrastructure and manufacturing to an international audience of 500 businesspeople. It will be opened by President of Ghana, John Atta Mills, and the theme is “Accelerating Intra-African Trade and Investment”.
Many African investment promotion agencies from West, East, Central and Southern Africa, will showcase projects to international investment banks and financial institutions. Discussion themes include:
• Addressing the Infrastructure Gap
• Oil and Gas Development: Planning for an Effective Energy Mix • Telecoms and Services: New Business Opportunities/ BPO
• Investing in Agriculture and Improving Food Security
• Micro Finance and New Financial Instruments
• Enabling Growth: Improving the Investment Climate
• Promoting Trade: New Strategies for Africa
Speakers include two presidents (John Atta Mills, Ghana and Hifikepunye Pohamba of Namibia), Dr Ngozi Okonjo-Iweala (World Bank Managing Director), Cyril Ramaphosa (Shanduka Group) and Dr Ibrahim Assane Mayaki (CEO of the AU’s NEPAD Programme). For more information see the CBC website http://www.cbcglobal.org.
January 8th, 2010 by Tom Minney
An exchange that will be able to trade a basket of commodity and currencies derivatives for trading on its platform and could later add trading in debt and equity products is to start trading in Mauritius in March, according to an interview on Reuters.
The Global Board Of Trade Ltd. exchange (www.gbot.mu) was due to open this month, but is still waiting to build critical mass of brokers, aiming for 25-30.
In an interview, Joseph Bosco, the COO of GBOT, told Reuters that the regulators in Mauritius are processing four broker licences and anticipate another 12 in the pipeline. Trading is electronic and members can be anywhere in the globe, according to the website.
The main promoter is Financial Technologies (www.ftindia.com) company from India, listed on the National and Bombay Stock Exchanges.
Bosco says the market will help African firms and companies investing across Africa to hedge their risks in a continent which has experienced volatility. He says it will be a “multi-asset exchange that will be a gateway for Africa to the rest of the world”> According to the GBOT website, it is “strategically located at the crossroads of Africa and Asia” and “offers an ideal platform for global investors to access many of the world’s fastest growing economies… GBOT endeavours to introduce modern market mechanisms into Africa’s financial market ecosystem and to serve as a platform of choice for the global investing community.”
GBOT is licensed by the Financial Services Commission (FSC), the Regulator for non-bank financial services sector in Mauritius, for derivatives trading in commodities and currencies.
Bosco reportedly told Reuters that they intended to start with six dollar-based currency pairs – including Mauritius rupee, euro, yen and sterling – and are now adding the Kenyan and Ugandan shillings. The report says the exchange will trade in 14 commodities, including precious metals, base metals and agricultural commodities.
It expects to trade futures contracts in zinc, copper, aluminium, nickel, gold, silver, platinum, coffee, sugar and maize as well as crude oil and carbon credits. It looks to add options contracts in future.
Kenya was an example of price volatility in its currency and stock prices, including after disputed elections in 2007. Bosco said: “We are giving them risk containment mechanisms; we are helping them to hedge themselves against uncertainty or unforeseen circumstances”.
October 18th, 2009 by Tom Minney
Leading emerging markets investor Actis (www.act.is) tells African Capital Markets News that Africa will have a large role in US$750m Actis Infrastructure 2 fund, which closed on 6 October. The pan-emerging markets fund focuses on power generation and transport. “We are assessing investment opportunities across the continent and we will be looking to invest a significant proportion of our fund in Africa”, says Actis in an email to this blog.
Paul Fletcher, Senior Partner at Actis says: “The need to build infrastructure in emerging markets is one of the great investment themes of our time – power, roads, ports, airports and bridges – these are the means through which these countries will continue to grow and prosper.”
Actis, which took over many operations of the former CDC (Commonwealth Development Corporation), has invested in Africa for more than 60 years. Their African presence includes 40 people based in offices in Lagos, Johannesburg, Nairobi and Cairo, with many investment professionals in London. The fund says having people in country is the best way to build strong relationships to support business and investee companies. Local knowledge and relationships are invaluable for sourcing investment opportunities, developing local partnerships, and managing political and regulatory risk.
Partners Michael Till and Torbjorn Caesar lead the 14-strong infrastructure team, which has a combined 140 years of infrastructure experience and even longer in emerging markets. Their expertise includes infrastructure investing, operations, project finance and project development, having completed investments in over 20 countries in the fund’s target regions.
Actis already has infrastructure investments in Kenya, Tanzania, Uganda and Cote d’Ivoire. Approved and screened deals in the pipeline combine development and expansion across Africa and also India, Latin America and China.
The Actis Infrastructure 1 fund, established in 2003, included investments in 34 power investments across Africa, Latin America and emerging Asia. These were exited in 2007 through strategic asset sales to third parties. The fund generated a cash multiple of 2.0x and realised $1.7 bln and an IRR of 23.3%. Before 2002 Actis also had considerable transport experience.
The fund manager’s investment strategy also includes private equity and real estate. Actis closed its $2.9 bln private equity pan-emerging markets fund, Actis Emerging Markets 3, in November 2008.
October 16th, 2009 by Tom Minney
The International Finance Corporation (www.ifc.org), a member of the World Bank Group, is investing $100 million into bringing the benefits of better telecommunications to many Nigerians via Helios Towers Nigeria Ltd. (www.heliostowers.com). HTN builds and maintains a network of telecommunications towers and leases space to providers of wireless telecommunications services.
According to an announcement on 13 October, the IFC is leading a $250 mln capital injection that will help Helios Towers increase its network to 2,000 sites nationwide. On 21 August, the IFC disbursed $50 mln in mezzanine financing and on 30 September 30 signed an agreement to lend another $50 mln in senior debt. IFC is arranging a further $150 million in senior debt from other commercial and development finance institutions. The towers and better coverage will help wireless operators roll out services more economically and extend affordable mobile services to the edges of towns and countryside.
The principals of Helios Investment Partners (www.heliosinvestment.com) founded HTN in 2005 to capitalize on very strong growth in mobile telephony in Nigeria by deploying the successful tower leasing business model pioneered by US-based companies such as Crown Castle International and American Tower. The business is characterized by high operating leverage, recurring revenues underpinned by long-term contracts, and high returns on invested capital.
Helios says in sub-Saharan Africa, the model exhibits the high growth characteristics of wireless communications and the defensive characteristics of a real estate business. According to the website, Helios and affiliated entities invested approximately $12 million and hold a majority interest in the company on a fully-diluted basis. Nigeria’s telecommunications sector has developed significantly, but 43% teledensity shows there is still room for growth. As HTN develops its network, operators outsource non-core activities and infrastructure and focus on developing products and services.
Kayode Akinola, HTN Director and Investment Principal at Helios Investment Partners says: “IFC’s long-term investment enabled us to leverage additional funding from capital markets, which is often not readily accessible for frontier markets,” said. “Nigeria remains one of the most high-growth telecom markets worldwide and wireless infrastructure sharing will continue to play a critical role in supporting operators in efficiently providing services to customers.” Helios aggregates more than $575 mln in capital commitments and also manages the $110 mln Modern Africa Fund.
Mohsen Khalil, IFC Director for Global Information and Communication Technologies, says: “Affordable mobile telecommunications enable access to knowledge and services, innovation across sectors, and more efficient delivery of government and business services, all of which will contribute to economic growth and opportunity creation.”
IFC supports sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. New investments totaled $14.5 bln in fiscal 2009, helping address the financial crisis.
September 24th, 2009 by Tom Minney
Emerging Capital Partners (ECP) announced on 22 September it has committed $25 million to Wananchi Group Holdings (www.wananchi.com/), a leading East African media and telecommunications company specializing in pay television and high-speed Internet services in Kenya and Tanzania. ECP is an international private equity firm focused on investing across Africa and this is its 10th investment in African telecoms. It still has stakes in Zain Gabon, MTN Cote d’Ivoire and Cellcom (GSM operator in Liberia and Guinea).
The equity investment will help upgrade and expand Wananchi’s existing network infrastructure to provide East Africa’s first triple-play service, consisting of digital pay television, high-speed Internet and Voice-Over-IP services.
ECP’s CEO Tom Gibian says, according to the website (www.ecpinvestments.com) “ECP has been active in the African telecom sector for nearly a decade. Following on the tremendous growth in African mobile penetration over the last 10 years, we view broadband and related services as the next “game changer” in African telecom. Wananchi’s product offering, network infrastructure and strong management are ideally suited to address the significant unmet demand for media and broadband services in East Africa.” So called “triple play” has been a major driver for growth of telecom companies in developed and emerging markets for the past decade.
Wananchi presently serves the retail and corporate markets in Kenya and Tanzania through its consumer and corporate divisions. The consumer division operates under the Zuku brand and provides cable television and broadband Internet services to residential customers in Kenya using a combination of hybrid-fiber-coaxial and WiMax technologies. The corporate division operates under the SimbaNET brand and is a leading provider of Internet and virtual private network services to corporations, local governments and non-governmental organizations in Kenya and Tanzania using a combination of metro-fiber, WiMax and VSAT technologies.
Cost and infrastructure used to limit East Africa’s pay television and Internet services and penetration rates of cable television and broadband Internet throughout Kenya and Tanzania are less than 1% each. South Africa’s penetration rates for pay television and broadband Internet are approximately 15% and 4% and Mexico’s 24% and 20%. East Africa’s demand is growing, spurred by strong GDP growth, the emerging middle class, and new undersea fibre cables that make services more accessible and affordable.
Regional venture capital fund manager East Africa Capital Partners (www.eacp.co.ke) formed Wananchi Group in 2007 through acquiring several smaller companies. EACP chairman, Mark Schneider, is a leading cable entrepreneur and co-founder of United Global Communications which was acquired by Liberty Media in 2004 and grew to become one of the largest cable companies in the world with operations in over 20 countries in Europe, Latin America and Asia.
Bryce Fort, ECP managing director, says the firm “is looking forward to working with EACP and Wananchi, two of East Africa’s world-class institutions.”