African infrastructure has familiar feel for Asian investors

Asian infrastructure investors tend to focus on projects in India and China, but those who journey farther afield to Africa will find many opportunities and ways to mitigate inherent risks, according to a recent panel discussion.

Africa is an emerging continent with rapid urbanisation, a fast-growing middle class and young population, which are all underlined by a need for infrastructure. Its template equally describes Southeast Asia, but has the benefit of being a frontier market with Asian investment activity limited to Japanese and mainland China investors, delegates at AsianInvestor's and FinanceAsia’s inaugural Africa Investment Summit heard last week.

“The opportunities are immense,” says Jarred Glansbeek, chief executive of RisCura, a Cape Town-based investment consultant. Toll roads have a 15-20% internal rate of return, with rail projects yielding 14-18%, power 20-25% and communications 15-20%, he notes.

“[There’s] lots of possibility and I suspect if the deals are done correctly you could probably squeeze even more out,” says Glansbeek, before adding: “There’s a lot of risk that goes with it.”

For many institutional investors, “it’s the optics that matter, it’s not the reality", notes Hal Bosher, senior underwriter and Northern Asia representative for the World Bank Group’s Multilateral Investment Guarantee Agency. MIGA provides political risk insurance on emerging market investments.  

Debates surrounding Africa’s political risks are a “moot point” as perspectives tend to be ingrained, says Bosher. “It’s like trying to convince someone that the weather is good in London ... people are not going to believe you. That sort of goes the same way for Africa. If you’ve been in Mozambique or [other] countries which have had a very strong development and shown significant returns, it’s almost impossible to convince somebody that the risks aren’t there in Africa.”

Bosher notes that Japanese investors are among MIGA’s significant clients. “In terms of managing risk they’re very liquid, [with] very large balance sheets. They simply need structures to help them get comfortable” with investing in Africa.

MIGA has insured part of the Jubilee oil fields, off the coast of Ghana, for Asian sponsors, Bosher adds. “That’s probably a good example of our risk appetite. So if someone mentioned that Ivory Coast was somewhat unstable you can say: ‘Now it’s coming out of its issues.’”

In terms of investor risk appetite, “for better or for worse the Chinese government is funding a lot of the infrastructure in Africa”, says Bosher, without touching upon the controversies that have arisen from Chinese projects in Africa’s mining and resources sector.

Glansbeek hints that the Chinese government has increasingly become more creative in its investment activities.

“Let’s just say that ... you want to build a coal line and there’s a gift of a road or a railroad to the coal mine,” says Glansbeek.  “[Now] you’ve got a more complex deal because the gift is not a gift. The gift is worked into the project. There’s a compound return.”

While he did not elaborate, it is possible that Glansbeek was referring to China’s rail investments in Africa, such as in Zimbabwe and Namibia.

Botswana has asked for China's help in building a proposed railway that would link the landlocked country with nearby Namibia. The project would link to cargo terminals facilities on the Namibian coast, where shipments of Botswana’s coal could be exported to China, according to African media reports.

For Asian investors seeking less complicated – and perhaps more familiar – assets, Thomas Reilly, chief executive of South Africa-based Sanlam Properties, points out that the country is short of shopping malls.

“Dar Es Salam, for example, a city of 3.5 million people, [has] one shopping centre,” says Reilly. “Zambia [has] about 2.5 million people [and] two shopping centres. The middle class is expanding at a rapid rate but the infrastructure and facilities for people to spend their money are not there.”

Sanlam has investments in the commercial, retail and industrial property sectors, having moved away from greenfield developments to completed real estate assets, including shopping malls.

“The reason for that is to try to present an offering which has a lower risk profile, says Reilly, “which we find generic pension funds and family offices will find much more palatable, in terms of investing”.

Africa’s unfolding development roadmap is one that Asian investors will recognise, says Arnold Meyer, chief executive of Rendeavor. The company, which develops residential and commercial properties in Africa, is part of Russia’s Renaissance Group.

“[Infrastructure] is the underlying theme of what is going to be the big influence or contributing factor to urbanisation,” says Meyer. “It’s a movie we’ve all seen before and we’re watching it again. The only thing that is different is that the location is not Asia and the actors are in Africa.”