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Wednesday, June 23, 2021

Investment in Africa’s value chains, catalyst for post-pandemic recovery - ITREALMS

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As Africa looks to rebuild in the aftermath of COVID-19, corridor financing and investing in productive infrastructure will be key to economic recovery and sustained growth across the continent. 
The pandemic brought to light Africa’s vulnerable infrastructure network. However, this same weakness now has the potential to be a driving force in the continent’s economic recovery. Large infrastructure programmes have the potential to unlock Africa’s long-term potential, while also offering immediate employment opportunities for those struggling as a result of the pandemic.
Africa’s core infrastructure networks – water, transport and power – are still very much in development. According to the World Bank, more than half the people living in sub-Saharan Africa, do not have access to electricity. As a result, there is widespread consensus that the region’s economic development, both in terms of its short-term recovery from COVID-19 and its longer-term prospects, should be led by infrastructure development and maintenance. However, creating investor confidence will be crucial to attracting the investment required to finance these projects.

While there isn’t a lack of private capital to fund projects across the continent, there is a shortage of bankable investment projects. And despite African governments taking infrastructure investment seriously as a primary driver of post-pandemic economic growth, investors remain cynical about their ability to deliver. Ineffective project planning, regulatory uncertainty and a lack of depth in local capital in foreign exchange markets is holding projects back and preventing value chains from forming. So, what can be done to restore confidence and get Africa’s infrastructure projects moving?

I believe a large part of the answer to this is in shifting the emphasis from discrete infrastructure projects to the entire value chain associated with it, which will unlock greater multiplier effects. An example is transport corridors – without reliable routes to market, Africa will not be able to attract the investment required for long-term, sustainable economic growth. Improving the efficiency of transport corridors greases the wheels of trade and promotes economic activity across various sectors within the economy.

A great example of what can be achieved with corridor financing is the Maputo corridor which spans both Mozambique and South Africa. Here investments in port infrastructure led to investment in the N4 highway, which in turn linked up crucial mining towns to the value chain, further driving growth. With the African Continental Free Trade Area making it easier each year to trade across borders, each dollar spent along a transport value chain has the potential to create multiple dollars of economic benefit.

Distributed energy also has an important role to play in addressing energy supply challenges in sub-Saharan Africa, whether at utility scale or in respect of rooftop solar home systems. Starsight Energy, a West African Commercial and Industrial energy provider, has deployed approximately 41 MW of generation assets, 33 MWh of storage, and 16,320 HP in cooling capacity across 547 sites in all Nigerian states and Ghana. It continues to leverage on its strategic relationship with key Original Equipment Manufacturers to deploy state of the art smart technology in order to optimise energy consumption, enabling customers to significantly reduce energy costs, boost profitability and reduce their carbon footprints.

Another example is M-KOPA which focuses on the retail market. The company pioneered and kick-started the wider pay-as-you-go (PAYG) solar market and has been operating for over 10 years with a presence across East and West Africa. It has built a highly advanced connected asset financing platform, which has provided nearly $400 million in financing that has enabled 1 million customers to access solar lighting, energy-efficient televisions and fridges, smartphones, cash loans, and more. Benefits realised include replacement of kerosene as source of fuel, thereby avoiding nearly 2 million tonnes of CO2 from entering the climate; healthier living conditions; economic empowerment from savings realised and employment creation; access to information via smartphones and televisions; and business owners being able to operate longer hours and children studying under better lighting for longer hours.

These entities are leading the way in providing energy to Africans. This type of development is key to Africa achieving its goals.

Much has been made of the levelling effect of the pandemic, with businesses, governments and consumers alike communicating and working digitally from their own homes. With the right investment this can provide African businesses with the opportunity to compete on a global scale. That is why digital infrastructure will continue to be a driving force in Africa’s Fourth Industrial Revolution, as it will also work to empower Africa’s unbanked population.

Africa offers a broad range of infrastructure investment opportunities as build programmes remain a core focus of African governments, particularly as they look to catalyse growth post the pandemic. Whilst much work is still required to ensure the enabling environments across most markets deliver a greater number of bankable projects, right now there are a broad range of investment opportunities offering investors attractive risk return profiles.

At Standard Bank Group, we have significant experience in the sector and have been involved in financing and advising on a wide range of infrastructure projects across the continent. We know there are several high potential corridors of growth that investors should consider, particularly in East Africa, including Ethiopia, which is already seeing positive growth despite Covid-19. Investors should also continue to look at South Africa as a key market and a treat it as the gateway into Africa. Lastly, West African Markets such as Ghana wand Nigeria, will offer significant investment potential over the medium term.

*Contributed by Stephen Barnes, Global Head: Power and Infrastructure, Client Coverage at Standard Bank Group

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