Africa

2021 Rank

Country

39

Morocco

43

South Africa

49

Algeria

Closing the infrastructure gap is a key priority for Africa. It faces significant challenges to accelerate and scale up quality infrastructure. This is reflected in the 2021 Infrastructure Index, where African countries place towards the bottom of the 50 countries.

Africa has a vast infrastructure gap. For example, over two-thirds of the global population without power are in Sub-Saharan Africa, and electricity consumption per person in Ethiopia, Kenya, and Nigeria is less than one-tenth that of the BRIC countries. Yet positive population and economic growth prospects, improvements in political stability and regulatory reforms, make Africa increasingly attractive for private investment.

The region’s attractiveness is bolstered by the African Continental Free Trade Area Agreement (AfCFTA) which came into effect in January 2021. The creation of a unified market, which encompasses over 1.2 billion people and has a combined GDP of approximately USD 3trn, is expected to foster new cross-border linkages and boost the continent’s economies. The pan-African deal will spur opportunities for renewable energy, communications, and transportation investments in the region.

Increasing presence of China

Official development assistance in the form of grants and concessional loans from Development Finance Institutions (for example World Bank, European Investment Bank, African Development Bank, New Development Bank) remain an important driver of infrastructure and capital projects on the continent. However, with shorter response times in the deployment of funds and competitive upstream project development processes, the importance of Chinese lenders for African infrastructure has continued to grow. Chinese investors also see strategic benefits from investing in Africa, like securing access to commodities and natural resources.  

Most African nations have now signed up to the Belt and Road Initiative (BRI), and in December 2020, China and the African Union agreed to cooperate in promoting BRI – the first such agreement China has made with a regional international organisation. China has long-standing links with many nations in Africa and as well as financing projects and providing 5G technology, it has developed strong trade relationships across the continent, becoming Africa’s biggest trading partner over a decade ago. BRI is one very important way that Africa’s infrastructure projects can be implemented, but there remains the need for private international investors to support the level of investment required to close the infrastructure gap.

Opportunities in communications, energy, and transport

Digitalisation creates leapfrogging opportunities for the African continent. By harnessing technological innovation and digital technologies, policymakers and investors in Africa can address a few challenges facing the region. Places like Kenya are already seen as emerging FinTech and software development hubs, and Africa continues to be the global leader in mobile money services, for example. However, with nearly 300 million people living more than 50 kilometres away from a fibre or cable broadband, significant infrastructure investments are still needed to allow African countries to leverage the digital space.  

Thanks to digitalisation, the data centre market will grow strongly. Global tech companies are rethinking their datacentre localisation strategies because of increasing volumes of data and local cybersecurity requirements. Other areas for communications investment include subsea cable landings and mobile masts.

Given the global prioritisation of ESG investments, there has been an increase in investment in decentralised energy systems and commercial/industrial solar and energy storage solutions. However, investments in fossil fuel, such as gas, are still likely to be needed to provide the baseload electricity required to drive the economies.

Transport is also key in supporting Africa’s economic development. Improved road and rail networks support the commodities extraction sector, a vital source of income for many African economies. Investments in border checkpoints are also critical to unlock trade between countries and to accelerate the creation of a unified market as part of the AfCFTA. Notable transport projects in the region include a PPP tender project for the construction of a USD 2.5bn bridge in Nigeria, which would connect the mainland and island areas of Lagos. At 38km long, it would be the longest bridge in Africa. And the Zimborders Consortium, made up of a group of investors from Zimbabwe and South Africa, has recently secured financing for the upgrade and modernisation of Zimbabwe’s Beitbridge border post, the landlocked country’s business port of entry and one of the region’s key transit points.

East Africa on the rise

An area to watch is East Africa. Some countries in the region are making steady progress towards the UN Sustainable Development Goals. The broad and interdependent goals address challenges such as poverty, inequality, climate change and environmental degradation. They are seen as a blueprint to achieve a better and more sustainable future for all.

Moreover, there has been strong Chinese interest in this region, particularly in the establishment of special economic zones strategic ports. An example includes the financing and construction of the Djibouti International Free Trade Zone in 2018. Several investments in the construction of railway lines have also been made as part of the greater East Africa Railway Masterplan. These projects link hinterlands to coastal ports and are essential to ease logistical bottlenecks as well as to accelerate global market penetration of manufactured goods from places such as Addis Ababa or Nairobi.

Institutional changes and legislative reforms in Kenya have created an environment conducive to foreign investment, making the country a rising star in the region. Recent grid development projects have put the country at the forefront of the renewable energy transformation. And notably, the Kenyan government is building entirely new cities from the ground up, including the smart city Konza, and urban hubs Tatu City and Northlands City.

Further, the outlook for investments in social infrastructure is bright, with several healthcare and housing projects in the pipeline. Examples include a USD 39m project for the construction of 10,000 affordable energy and water efficient homes, as well as continuing investments from the private equity fund ‘Investment Funds for Health in Africa’ and the International Finance Cooperation to acquire and integrate targeted healthcare service businesses in Kenya and other East-African countries. By 2025, the fund aims to serve 1.8 million patients a year in five hospitals and 52 clinics.

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Authors

Hugo Coetzee
Hugo Coetzee
Partner
London

“Governments are stretched, and we need to find new and innovative ways to unlock private sector capital and direct it towards the construction of these infrastructure projects.”

“There have been substantial amounts invested in ICT infrastructure, from data centres and sub-sea cables to fibre-optic networks and mobile phone towers.”