Africa50 Featured in Africa Energy Newsletter (October 2017)
Africa50 picks up the pace
After a slow start, Africa50 is building up a project pipeline with a focus on the power sector. New chief executive Alain Ebobissé is keen to bridge the gap between shareholder governments and the private sector to sign more projects, writes Thalia Griffiths
The Africa50 fund is showing new vitality after getting off to a slow start. New chief executive Alain Ebobissé has built up his team and moved the fund out of the African Development Bank (AfDB) headquarters in an effort to assert its autonomy.The fund aims to line up more projects in the coming weeks and months.
To considerable fanfare, the AfDB established Africa50 in 2012 to catalyse private investment in African infrastructure, with $812m of committed capital from 23 founding shareholder countries plus the AfDB, Banque Centrale des Etats de l’Afrique de l’Ouest, and Bank Al-Maghrib, the Moroccan central bank. Guinea and Democratic Republic of Congo joined at a shareholders’ meeting in Accra in September. Uganda and Mauritius are discussing joining. Ebobissé told a forum organised by Invest Africa in London on 19 October that he hoped the number of member countries would get close to 30 in the next six months.
Well known to the industry following a range of posts at the International Finance Corporation (IFC), which he joined in 1998, Ebobissé is also seeking more institutional investors to boost the fund. Its member countries are concentrated in West Africa, but Ebobissé said he was hoping to extend membership to more southern and East African countries.Africa50 can invest in projects in non-member countries provided the returns are higher and member countries do not find themselves subsidising non-members.
“There was an acknowledgment that governments cannot fund the entire infrastructure gap,” Ebobissé said.“The private sector has a big role to play, and in Africa we’re just not getting enough private investment in infrastructure.”
Africa50 was a development finance institution (DFI),“but my job as the CEO is to make sure that in practice we are run almost like a private sector fund which is supported by government shareholders”.
A key role for the fund is developing bankable projects, “investing early-stage risk capital and also allocating human resources to build up a pipeline of bankable projects”, Ebobissé said. The fund also invests in later-stage projects that are in development but have hit a funding gap. It seeks to mobilise funds held in long-term savings inside and outside Africa. Funds come “certainly from our government shareholders but also from commercial entities potentially.What we’d like to do is to offer some of those commercial entities the protection that Africa50 can bring by being fairly close to our government shareholders and mitigating some of the risk, and channelling some of those funds that are looking for investment institutions and bringing them into Africa.” Africa50 was still looking at how to do this:“We’ll probably run it through a third-party fund and it’ll be separately managed.”
Ebobissé joined 12 months ago and found the fund had “almost no staff but a lot of money”. His priorities were to build a team, and move the operations out of the AfDB headquarters to a new base in the Moroccan commercial capital’s Casablanca Finance City zone, giving it greater autonomy, while also developing a pipeline of projects. He described the process as “like flying a plane while building it at the same time”.
AccordingtoAfrica50’sprojections,by2025,$150bn/yrwillbe required to meet Africa’s infrastructure needs, of which 37% will be for power projects, 31% for transport, 14% for water and 18% for telecoms. Africa50 forecasts that $110bn-$120bn will be spent by that time, leaving an investment gap of $30bn-$40bn. This compares to some $75bn-$80bn spent in 2015.
“The power sector on the continent is the most commercial and also the sector that requires proportionately the most investment,” Ebobissé said. The fund was interested in generation, transmission and distribution; he did not rule out backing coal projects but said they would not be a focus. For the transport sector, the focus would be on the most commercial projects, such as airports, ports and logistics. Ebobissé is keen to do projects for midstream and downstream gas, much of which is currently exported from Africa to world markets. “We want to make sure we build enough pipelines and processing facilities to bring gas to businesses and populations in Africa.”
Africa50 is keen to develop transmission projects as public- private partnerships and showcase them in the hope of overcoming resistance to private investment in ‘natural monopolies’ from some governments. Ebobissé also saw potential for private investment in distribution. But he was realistic about where the fund could be effective, saying Africa50 would not be attempting to tackle the Nigerian power sector’s many problems.
Africa50’s first investment, for a 24.5% stake in the 100MW Nova Scotia solar scheme in Nigeria, was committed in December 2016 (AE 338/11). In May, the fund agreed an investment in Scatec Solar’s 400MW Benban project in Egypt.
In September,Africa50 agreed to take 30% in a 120MW heavy fuel oil project in Senegal, alongside a developer that it will help to choose (AE 355/9). “The government of Senegal asked Africa50 to join in and work with the local utility to select a strategic partner, meaning a majority shareholder that will do the project.Africa50 will do so in exchange for the right to invest up to 30% in the project.We love this kind of project because these are proprietary deals. In these deals we get in before everybody else and then we help select the sponsor that will come in and work with us.”
Africa50 has cultivated a close relationship with government shareholders while also operating commercially,“so if we are close enough to government shareholders, we may be able to unlock some of the issues that affect many infrastructure projects”, Ebobissé said. “We are not seeking to control companies in which we are investing. We are minority shareholders, we are about catalysing, we are about enabling things to happen as opposed to running things... we expect the strategic partner to take that role, we will be a good addition to the shareholding to help achieve a common goal.”
Africa50 will not offer debt financing.“We see ourselves having complementary roles with other DFIs, primarily the African Development Bank, because the African Development Bank will be the first source of debt financing for Africa50’s projects,”Ebobissé said
Africa50 could potentially co-invest in infrastructure projects with the IFC. Ebobissé said Africa50 worked closely with the AfDB, with the vice-president of power, energy, climate and green growth,Amadou Hott, referring projects to the fund.
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