Investing in African Infrastructure
The Financial Times proposes to publish this FT Report on 01 June 2021
We plan to include the following features (please note that this list is provisional):
Introduction
The formal start this year of the Africa Continental Free Trade Area, which joins 54 countries in a single trading block, highlights the urgent need to upgrade the continent’s infrastructure. Connectivity among countries will be key, but so will reliable sources of power generation if hopes for a revival of the continent’s manufacturing base are to be realised.
A recent McKinsey report conservatively estimates that Africa needs to double its annual spend on road, rail, ports and power plants to $150bn. But the continent - which before the pandemic boasted six of the world’s fastest-growing economies - has not stood still. There has been a huge amount of construction matched by strong institutional appetite for bankable projects, even if too many projects fail at the planning stage. Some infrastructure is built and financed by Chinese as well as Turkish, Brazilian and other investors, while Mozambique is attracting tens of billions of dollars of FDI into its offshore gas fields.
But African governments and businesses, too, are funding their own needs. Ethiopia is close to completing the 6.5 gigawatt Grand Ethiopian Renaissance Dam, a project that will make Ethiopia energy-independent and have huge diplomatic and economic repercussions. In Nigeria, Aliko Dangote is building a $12bn refinery which, though delayed, could eventually transform the country’s petrochemical base. Morocco has ambitious plans for its Tanger-Med Industrial zone and port located just 90 miles from the European mainland. And the continent is wiring up, building the telecoms, internet and financial connectivity capability that is spawning a new ecosystem of online entrepreneurs.
Financing infrastructure
The role of Development Finance Institutions, development banks, private equity and impact investors in funding the infrastructure Africa needs is changing. Institutions such as the Africa Finance Corporation and Afreximbank are pushing new ways to de-risk loans and attract private capital. The appetite for sustainable investment is changing the nature of the projects that get financed with a greater emphasis on renewable energy and investments with an ESG component. The recapitalised and renamed US International Development Finance Corporation, with an express remit to kickstart private-sector investment on the continent, is another potential force for change. This piece will look at finance of infrastructure projects in west Africa.
China in Africa
Perhaps the biggest catalyst for the development of infrastructure over the past 15 years has been China. Its investments in road, rail, ports, airports and power plants have been both transformative and controversial. The FT will examine the impact of Chinese-built infrastructure on development - and, in some cases at least, on growing debt piles.
Focus on Djibouti
The country is forecast to grow at a 10 percent clip this year, in large part thanks to almost non-stop development of its ports and railways. A sort of “Panama of Africa'' strategically located in the Gulf of Aden, the country is already home to a string of naval bases from the US, China, France and others. All the activity is turning the historical Port of Djibouti into an international business district and a conduit for growing imports and exports to and from landlocked Ethiopia, the regional powerhouse.
Wiring Africa Up
Africa’s internet capacity is rapidly expanding and new data centres are constantly opening up. Google is laying a subsea internet cable from Lisbon to Cape Town and Facebook wants to circumnavigate the continent within a few years. By then, the number of mobile subscribers should have risen by 200m to 615m, providing another jolt to the forces that are pushing businesses online and knitting the continent together in new ways. This piece will examine the investments and the changes to the business environment that are likely to result.
Case Study: Ethiopian Airlines
Ethiopian Airlines is emerging as the most resilient carrier in Africa and one of the most successful globally. While most airlines in Africa, including the troubled South African Airways, have been grounded because of the Covid-19 pandemic, or are sinking in debt and struggling to remain airborne, like Kenya Airways, Ethiopian Airlines has pursued an aggressive strategy to keep flying by converting its planes to carry cargo to deliver goods, including medical equipment and Covid-19 vaccines. With a brand-new passenger and cargo terminal in Addis Ababa, the airline has positioned itself as Africa’s top passenger carrier linking Asia, Europe and the Americas via the Addis hub to virtually every country in Africa.
Power and Electrification
About half of Africans still lack access to electricity, while many businesses cannot rely on electricity providers to provide them steady and reasonably priced energy. Even South Africa, the continent’s most sophisticated economy, has had to contend with rolling blackouts, inconveniencing customers and raising the cost of doing business. Still, things are happening around the continent; the Grand Ethiopoian Renaissance Dam will transform the energy picture in east Africa and huge solar and wind farms are going up from Morocco to Cape Verde. Across Africa, electrification rates are slowly inching up. This article will examine how changes to technology, finance and regulations are slowly making a dent in Africa’s chronic energy shortage and ask what more needs to be done to close the gap.
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