May 1, 2014 4:35 pm

Africa set to gain $3bn infrastructure fund

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Lagos, Nigeria

An economy to fuel: heavy traffic, common on roads such as the Lagos-Abeokuta expressway, helps make oil demand in Africa among the fastest growing in the world

Africa’s largest development lender plans to launch a $3bn infrastructure fund this month, aiming to raise money from regional and non-African pension funds, insurance groups, sovereign wealth funds and institutional investors.

The fund, to be known as Africa50, will help the continent in “delivering vital infrastructure through a new global partnership platform”, according to the proposal by the African Development Bank.

Africa needs about $95bn a year to close an infrastructure gap in electricity, roads, railway and port. Current investment is running at about $45bn – leaving a large shortfall.

The AfDB, which will invest $500m, aims to approve the fund this month during its annual meeting in Rwanda. It hopes to raise at least $3bn in funds, “to be scaled up to at least $10bn”, according to the proposal seen by the Financial Times.

Regional sovereign wealth funds, insurance groups and commercial banks could put invest in Africa50. The AfDB will also tap non-African investors.

Sovereign wealth funds and global institutional investors are starting to pour money into the continent, attracted by a virtuous circle of strong economic growth and improved governance that many have called “Africa Rising”.

Last month, the Carlyle Group said it had closed its maiden private equity fund targeting sub-Saharan Africa at almost $700m – 40 per cent above target – underscoring the growing appeal of investing on the continent.

Temasek, the state-backed investment agency of Singapore, closed its first deal in Nigeria, Africa’s biggest economy, last month, investing $150m in an oil and gas group. It previously spent $1.3bn to buy stakes in gasfields in Tanzania.

Based on conservative assumptions, the return on equity is expected to be 8 per cent nominal over a 15-year period. Africa is emerging as an economic success story

- African Development Bank proposal

South Africa’s Public Investment Corp, the $150bn pension fund manager for public employees, is also looking for opportunities in Africa.

But some large investors complain that often they are unable to invest in the continent due to a lack of bankable projects. Traditionally, large institutional investors only look at investment proposals worth $100m or more. In an apparent response to this issue, the Africa50 fund proposal says it will “stimulate a flow of projects from an early stage of development through financial close to operations”.

The AfDB hopes to entice regional and global investors with the promise of high yields and strong economic growth.

“Based on conservative assumptions, the return on equity is expected to be 8 per cent nominal over a 15-year period,” the proposal states. “Africa is emerging as an economic success story.”

The bank said it had already received expressions of interest for $155m, and it was in talks with four partners for additional commitments of $470m. “These expressions of interest are an encouraging sign at this stage, given that the formal Africa50 investor roadshow has not yet started,” the proposal adds.

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