Pembani Remgro Infrastructure Managers (Pembani Remgro) is an infrastructure private equity investment firm, based in Johannesburg, with an established track record of infrastructure finance and transaction execution on the African continent. The company currently manages the Pembani Remgro Infrastructure Fund I (PRIF I). With commitments of USD 302m, PRIF I focused on making late-stage greenfield and brownfield infrastructure and infrastructure-related investments throughout Africa. PRIM is currently raising its successor fund offering to PRIF I.
Demographic change in Africa will take place on a scale exceeding that elsewhere in the world, driving strong rates of economic growth. High birth rates suggest the region’s population will overtake those of China and India by the middle of the century. This development will necessitate a meaningful uptake of infrastructure investment. In addition to the energy and transport infrastructure investment required, a focus of this increased infrastructure spending will be in information and communications technology (ICT).
David Calaca, an Investment Director at Pembani Remgro, says, “One thing we’re seeing in Africa which is quite interesting is rapidly increasing demand for information and communications technology. Many African countries are looking to improve their service offerings and compete in the global economy. Over the last couple of years, there have been substantial amounts invested in ICT infrastructure, from data centres and sub-sea cables to fibre-optic networks and mobile phone towers.”
Calaca says that places like Kenya are seen as emerging Fintech and software development hubs. He highlights, as an example, the innovation of M-Pesa, the mobile phone-based money transfer service launched in 2007 by Vodafone Group and Safaricom in Kenya. Mobile banking products such as this have had a profound impact on the livelihoods of those who have been neglected by traditional banking systems.
Investment in ICT is both ahead of, and in response to, demand. Africa currently accounts for less than 1% of total available global data centre capacity despite being home to 17% of the world’s population. “Nigeria, for example, is very much an online society with over 100 million internet users, but capacity in terms of data centres is comparatively tiny”, says Calaca. “Much of this investment is catch-up. But demand is certainly there, and big tech companies have recognized this potential and are moving in.”
Calaca also sees a strong ESG and impact investing theme emerging in the region. “A lot of investors see Africa as a place where they can really make a noticeable difference, particularly from an impact perspective”, he says. “The focus on ESG and impact investing is amplifying the focus on lowering carbon intensity and is catalysing investment in renewable energy. In addition, we’re seeing a lot of pressure being placed on funders at the moment to decline funding for carbon-intensive projects, particularly coal. The challenge we’re finding is meeting the increasingly high ESG and impact expectations of investors and at the same time making sure we don’t compromise returns.”
Calaca also highlights the opportunity for the use of gas as a transition fuel away from coal, particularly in South Africa, in light of the substantial gas reserves in neighbouring Mozambique. He notes, however, that certain investors are beginning to regard gas-fired generation as being too carbon-intensive. “This is unfortunate because numerous African countries are at the stage in their development where they need baseload power to grow their economies. Intermittent solar and wind energy often does not provide the dependability of supply that many African nations need.”
Infrastructure needs across Africa are great, yet government balance sheets are incredibly strained, and the ability to fund many of the necessary large-scale infrastructure projects has diminished. This was the case even before COVID-19, which placed additional pressure on government finances. Calaca notes that governments across the region have realised the need to find other ways of funding infrastructure and are beginning to invite more private-sector participation. “On the whole, African governments have become a lot more pragmatic. There’s much more recognition of infrastructure to further the development of their economies, and as a result they are seeking to attract foreign investment, from both public and private sources, and in certain instances are introducing much-needed reforms.”
“One is seeing a strong decentralisation theme, where private investors are assisting by providing essential infrastructure to individuals and businesses. Notable examples include residential off-grid solar offerings and commercial and industrial solar projects. The transition to lower carbon intensity, combined with increased focus on impact and ESG, fits well with the decentralisation approach”.