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Energy dominates infrastructure investments in Africa

Africa Global Funds
Aug. 3, 2016, midnight
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Word count: 585

The majority of African deals since 2013 have been for energy infrastructure (60%)  as the emphasis on electricity generation and transmission in Africa intensifies, according to Preqin’s report.

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The majority of African deals since 2013 have been for energy infrastructure (60%)  as the emphasis on electricity generation and transmission in Africa intensifies, according to Preqin’s report.

Tom Carr, Head of Real Assets Products, Preqin, said: “The global transition from reliance on traditional to alternative energy sources represents an important political and economic issue, and so the extent of investment in this sector within Africa holds particular relevance.”

In contrast, utilities accounted for 21% of infrastructure transactions in Africa since 2013, while transport and telecoms attracted 11% and 5% of the total number of deals.

According to the findings, 103 transactions have been completed for assets in Africa since 2013, worth an estimated $50bn.

The majority (92%) of the energy deals were transacted for renewable assets, such as the $2.8bn Batoka Gorge Hydroelectric Project in Zambia, the largest infrastructure deal completed since 2013, as domestic and international fund managers attempt to harness the geographical potential for renewables in Africa.

This year, 14 transactions have been completed so far, with an estimated aggregate deal value of $8.6bn.

This includes the successful €1bn bid by Enel Green Power, Nareva Holding and Siemens Wind Power to construct and operate 850 MW of wind farms across five sites in Morocco.

Preqin’s report on the infrastructure deals market in Africa finds that since 2013, a quarter of all infrastructure deals in Africa have been completed for less than $100m as the market continues its development.

The largest proportion (42%) of deals were made for $100-499m-sized assets, with just 11% of transactions worth over $1bn.

African infrastructure deals have been concentrated predominantly in Southern (30%) and Western Africa (27%).

Fewer deals are transacted in Eastern (20%) and Northern Africa (16%), while macroeconomic and political issues in Central Africa (7%) may be a contributing factor to the minimal appetite for infrastructure investment.

Due to shortfalls in existing infrastructure in many African countries, a much larger proportion of these deals are in new projects compared with more developed regions: 70% of African infrastructure deals completed since 2013 have been for greenfield projects, 24% for secondary stage and 6% for brownfield projects.

In contrast, globally, 40% of all deals were completed for greenfield assets, while secondary stage projects represent 48% of all transactions.

The report further reveals that 24 funds with a primary geographic focus on Africa have closed since 2007 raising a combined $4.6bn in investor capital.

Two-thirds of these funds are managed by Africa-based firms, including 42% that are headquartered in South Africa.

However, despite representing only a third of the overall number of funds closed, non-Africa-based managers account for approximately half of aggregate capital raised during this period.

Recent Africa-focused fund closures include Meridiam Infrastructure Africa Fund, which has raised €300m to invest in public-private partnership opportunities across economic and social infrastructure, and Berkeley Energy’s African Renewable Energy Fund, which will invest $200m in grid-connected development stage renewable energy projects across Sub-Saharan Africa.

Carr said that insufficient infrastructure is widely recognized as one of the key challenges facing Africa and one of the major obstacles to the continent’s economic and social development.

“Addressing the funding gap for infrastructure in Africa has become a priority of governments and international organizations in recent years with power generation identified as a particular area in need of both public and private financing,” he said.

“With the continent possessing the necessary geographical resources and space to accommodate development in renewable energy infrastructure, the industry should attract further capital from international and domestic firms,” he added.

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