African infrastructure boost

Published: February 28, 2011

UK’s equity investment to support power and transport projects.

The British government has invested US$30mn to support Africa’s infrastructure development. 

The equity committed by CDC, the UK’s international development institution, will be invested through the African Infrastructure Investment Fund 2 (AIIF2). The fund has already received contributions from Old Mutual and Macquarie as well as development finance institutions, such as the IFC, DBSA and Proparco.

AIIF2, which aims to raise US$600mn, is to invest between US$30m and US$100m for majority or significant minority stakes in new and existing transport and power infrastructure projects, such as toll roads, ports and rail, wind farms and other renewable as well as traditional forms of energy.

Rod Evison, CDC’s managing director for Africa, said this investment addresses the shortage of equity that is holding back the development of sub-Saharan Africa’s infrastructure. “Reliable power supply and road networks are essential for economic growth and sustainability and for improving the quality of peoples’ lives in some of the world’s poorest countries.”

This latest transaction brings CDC’s funding for such projects in Africa to some £250mn, with previous investments backing an electricity distribution company to bring energy to hundreds of thousands of consumers in Uganda, a communications cable network in Kenya and a utility to supply water to households in Cote d’Ivoire.

CDC estimates that sub-Saharan Africa needs US$31bn a year in private sector support to develop its infrastructure, especially in the transport and power sub-sectors, due to limited government funding. A recent report published by the Organisation for Economic Co-operation and Development estimates that US$300bn of power investment will be required in the next 20 years with the Africa Infrastructure Country Diagnostics claiming that more than 30 African countries experience regular power shortages and interruptions.

Under-investment in Africa’s infrastructure impedes its economic growth and reduces its competitiveness with other developing regions. According to the Africa Infrastructure Country Diagnostic, the current state of infrastructure in sub-Saharan Africa cuts national economic growth by 2% a year and hits business productivity by 40%.

CDC decided to invest in AIIF2 due to the experience of Africa Infrastructure Investment Managers (AIIM), the fund’s manager, in supporting infrastructure development on the continent with some US$800mn under management. CDC will work with AIIM to manage governance of the businesses that it invests in and to encourage the fund manager’s expansion into African countries outside of its South African stronghold.