Africa’s infrastructure faces a near $50 billion annual investment deficit.
Bridging that gap requires private investment through public-private partnerships. The data are not new. Sub-Saharan Africa issued more than $7 billion sovereign bonds in 2014 to cover the bill of new infrastructure projects. In 2015, bond issuance stayed generally flat, excluding South Africa, as currency depreciations and economic slowdowns took hold — largely due to a downturn in commodity prices. The issuances could rebound in 2016 by possibly 40 percent, likely indicating the readiness of public partners to partner financially on new projects.
The political will is there. With the return of cash, it’s time to look at the countries offering the best opportunities.
The return of the African Development Bank (AfDB) to Cote d’Ivoire was the preamble to the West African nation’s march to forefront of public-private partnership discussion. OK … the settling of political debate is probably the foreword in this discussion. President Alassane Ouattara, a former International Monetary Fund deputy head and leader of the Rassemblement des Républicains party, took office in 2011 after months of sporadic violence following the December 2010 elections. Ouattara retained power in the October 2015 election and has hit the ground running with an ambitious infrastructure plan to meet the country’s internal 2020 deadline for reaching emerging economy status.
Ouattara’s infrastructure build involves north of US$20 billion investment, of which approximately 60 percent will come from the private sector. Some estimates push project values up to about $45 billion. The plan includes more than 90 public-private partnerships that aim to tackle the infrastructure gap in manufacturing, transportation, telecom, and energy.
Examples are the planned port upgrades, including breaking ground on the second container terminal for the Port of Abidjan in November 2015, and the slowly evolving plans to extend the highway linking Abidjan and Yamoussoukro to Bouaké in the north and then to neighboring Burkina Faso. Such transport builds transform the country’s ability to import and export goods for itself and its neighbors. A near 8.5 percent real GDP growth rate is also a nice add-on for interested foreign investors.
The economic slowdown — or halt, depending on who you ask — in 2014 slightly worried investors and then 2015 created some strong fears even among Ghana’s most loyal investors. Ghana surely would not make this list if 2016 was not the beginning of a turnaround. Real GDP growth will approach 6 percent in 2016, with the government indicating a doubling down on the strong transport and energy growth that persisted despite 2013-2015 economic woes. The recently published public-private partnership pipeline by the Ghanaian government speaks to this reality. Priority projects are focused on ports, rail and roads including Accra-Tema motorway, the Boankra Inland Port and Eastern railway line. Other projects include the LNG import terminal and the Sankofa integrated oil and gas project.
The recently created Ghana Infrastructure Investment Fund is also a sign of the country’s commitment to public-private partnerships, specifically in the infrastructure space. Support for this vehicle — and public-private partnerships in general — will depend on the country’s political leaders to work across parties, regardless of who wins Ghana’s presidential election later this year.
Nothing suggests that there will be a breakdown in the cordiality. But, even more importantly, any stabilization in the currency and any commodity rebound could be good for Ghana’s exports and desire to reach the finish line on public-private partnership projects.
Senegal is a beacon of stability in sub-Saharan Africa, underscored by President Macky Sall’s victory in the runoff against former President Abdoulaye Wade who placed ahead of him in the first round of voting. Sall has also reduced presidential terms from seven to five years, which means the next presidential election will come in 2017. While not hindered by politics, the country is held back by its limited financial resources. Ongoing fiscal reforms are an attempt to create the necessary financial strength and system to further invest in infrastructure. The Plan Sénégal Emergent envisions reforms and policies that will boost foreign and private investment while also restricting public spending.
Altogether, the thinking inside the government is ambitious but arguably justified. Structural reforms and political backing currently help to overcome the deficit in institutional and knowledge capacity. Senegalese leadership is already demonstrating an interest and ability to build consensus and engages private interest through clearly defined benefits and obligations, supported by the active presence of finance development institutions, including the AfDB, the IMF and the Agence Francaise de Developpement. The IMF’s presence in policy formation is also an added assurance to investors. The possible 6 percent-plus and near 6.5 percent real GDP growth for 2016 and 2017 respectively are also sweeteners to investing in Senegal’s public-private partnership space.
Kenyan President Uhuru Kenyatta is hitting full stride, now more than a year removed from the dropped International Criminal Court charges and more than two years removed from the Westgate Mall attacks in September 2013. Election preparations will get underway in 12 months with the next election scheduled for August 2017. But before then, President Kenyatta is focusing on re-enforcing Kenya’s economy and its infrastructural foundation. He has Kenyan Minister of Finance Henry Rotich on the road pitching public-private partnerships to any investor interested in tapping into the country.
The country’s real GDP is expected to grow by 5.6 percent in 2016 and 6.3 percent in 2017. Kenya’s development plan Vision 2030 has over 100 transformational and cross-sector projects credited to it, with major development partners including the African Development Bank, the World Bank and the IMF. China is providing a majority of the financing for the Standard Gauge Railway. More partners are needed to cover the $40 billion funding gap, as recently emphasized by Kenyan officials in Marseille in January.
On the forefront of the investment opportunities are power (less than 50 percent of Kenyans have access to electricity) and transport (Nairobi airport and transport links between Mombasa and Nairobi). Investors can expect an open-door mentality as cities get more crowded, roads get more congested, and voters start considering their options going into 2017. Another upside is that Kenya is a strong example of a cross-border opportunity, underlined by the Rift Valley railway, where the country is actively participating with its neighbors to create partnerships across the East Africa region.
South Africa is the confounding country on this list. Its public-private partnership environment is the most established technically and professionally, with a good track record of successful projects such as the Gautrain rail project. The current public-private partnership legal infrastructure dates back to 1997. The use of special-purpose vehicles and private party alignments with public and other private players are not new to the lingo.
Yet the country’s political and economic volatility color the situation, with the plummeting currency and labor unrest tearing at the fabric of the country’s emerging status. Incidents of xenophobic attacks and strikes – both of them public and private in nature — raise concerns, such as some people refusing to pay tolls on highways.
All this said, South Africa is fundamentally very strong at its systematic and legal core and can easily rebound when the larger political and economic forces realign. A system usually wins out when it has clear-cut procurement and bid processes including disclosure and audit mechanisms, a bidder scoring process and a strong regulatory environment. The 1 percent real GDP will pass and good times should return.
Kurt Davis Jr. is an investment banker with private equity experience in emerging economies focusing on the natural resources and energy sectors. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.
