Private equity investors are ideal partners to help fund the infrastructure gap in Africa, according to the Southern African Venture Capital and Private Equity Association (SAVCA).

Inadequate infrastructure is the biggest single constraint to Africa’s development, with estimates by the World Bank suggesting that the continent needs to spend $90bn per year to bridge this deficit.
 
“Private equity funds from various regions – including Southern Africa – are funding infrastructure projects across sub-Saharan Africa, in the energy, transport and ICT sub-categories,” said Erika van der Merwe, SAVCA’s CEO.
 
The Southern African private equity industry is investing actively in infrastructure.

The 2014 SAVCA-KPMG Private Equity Industry Performance Survey indicates that of the R162.2bn ($14.29bn) in assets under management (committed capital plus investments) by its members in 2013, around R38bn ($3.35bn) – or 23% – are from funds with a dedicated infrastructure mandate.

This proportion is up from 18% in 2012.

Around one fifth of the industry’s unrealised investment portfolio in 2013 was in infrastructure.
 
Global private equity firms are showing a growing interest in African infrastructure, with initial investments in recent years by iconic brands such as Blackstone, Apollo, KKR and Carlyle auguring well for further allocations and investments by funds with international horizons.
 
According to Van der Merwe, investment into infrastructure by private equity funds is set to continue.

“Investment into African infrastructure offers compelling exposure to African growth, while simultaneously helping to drive that growth. Unlike performances in other regions, infrastructure assets in Africa still offer private equity-style returns, and moreover enable private equity to invest in scale on a continent where there are limited investment opportunities of sufficient size,” she said.
 
The bulk of current investment activity is within the power sector and especially in renewable energy.

“There is a notable uptick in activity in the renewable space throughout Africa. The shortage of energy infrastructure and the move by policymakers and regulators towards alternative energy sources, have created interesting prospects for private equity. These tend to be smaller projects, compared with large, traditional power projects that are complex to fund and manage,” said van der Merwe.
 
The positive knock-on effects of infrastructural investment are significant, including the fostering of cross-border investments and facilitating regional integration.

Additionally, these open up new opportunities for add-on or related investments.

For example, a toll road project creates the scope for property development, and a host of other down-stream investment activities.
 
“Private equity investment in Africa can serve as a catalyst for development on the continent, in a way that fosters the achievement of targeted and specified developmental goals: Growth prospects are enhanced if infrastructure is made more efficient and can better support the flow of economic activity,” said van der Merwe.

“Moreover, because this asset class entails equity ownership, the fund manager has influence and can define and shape the philosophy and principles by which the funded organisations and projects operate. Through its growing participation in African infrastructure, private equity will continue to demonstrate its capacity for functioning as a force for good,” she added.