Infrastructure projects in Africa, particularly in sectors such as renewable energy, have long relied on financing from outside the continent. Development finance institutions, mostly from European countries, remain key players in providing the capital for Africa’s wind farms and solar parks.
However, Anas Charafi, a senior investment director at infrastructure investment platform Africa50, says that the continent can accelerate the rollout of renewables by harnessing its own financial resources.
“We definitely need to bring in new sources of capital,” he says. “One area that is very important is mobilising local funding, particularly from institutional investors. There is a quite a significant pool of capital within Africa that could go to funding infrastructure projects.”
Africa50 is owned by 31 African countries along with the African Development Bank, the Central Bank of West African States and Morocco’s Bank Al-Maghrib. The platform reached a key milestone in its efforts to mobilise African capital at the end of last year, when it announced that its Infrastructure Acceleration Fund has secured commitments from 16 African institutional investors. These include some of the continent’s leading pension funds and insurance companies.
“We’re quite proud to have achieved the launch of this fund that is dedicated to infrastructure in Africa, which for the first time ever has mobilised capital essentially from local institutional investors,” says Chafari. The fund has so far secured $225.5m from its 16 African investors, plus the International Finance Corporation.
Many African countries have seen the assets managed by institutional investors grow considerably in recent years. An IFC study of seven African countries published in 2022 found that pension funds’ assets under management grew by an average of 65% between 2016 and 2020 alone.
However, pension fund managers typically prefer to invest in government bonds or the local stock market. Infrastructure assets have traditionally been perceived as riskier bets.
Charafi acknowledges that African institutional investors “need a bit of support to get familiar with the asset class”. But he adds that it “would make a lot of sense” for them to invest in infrastructure, given that the asset class delivers returns over a long time period and should in theory be ideally suited for funds with a mandate to make long-term investments.
Improving macro outlook
Another positive factor, Charafi says, is that African developers are increasingly well-placed to deliver projects. “Now we see a few really credible developers and investors building capacity in their home market and starting to expand.”
He highlights Madagascar’s Axian Group, Egypt’s Taqa Arabia and Morocco’s Nareva as examples of African players that are “on a par with international developers”.
“That’s another trend that I think we will see continuing because at the end of the day, who’s better placed to invest in Africa than Africans?” he asks.
Overall, Charafi is “reasonably optimistic” that 2024 will be a good year for renewable energy projects on the continent. The sector is benefitting from “post-COP momentum”, he says, with projects pledged at last year’s climate summit in Dubai now coming to fruition. Africa50 signed deals at COP28 to fund a major solar and battery project storage project in Mozambique that will include the continent’s first large-scale floating solar infrastructure, along with an electricity transmission project in the same country.
A modest improvement in the macroeconomic situation in most African countries should also produce gains for infrastructure investment, Charafi says.
“We think that the economic and financial environment is stabilising,” he says. “Probably the worst is behind us and we should see an improvement.”
“We see quite a bit of momentum from early-stage projects that were initiated in 2023, which should bear fruit in 2024.”
Ultimately, Africa needs to be ready to compete for investment in order to drive improvements to its renewable energy infrastructure, Charafi says. “There is quite a bit of money that is available globally for green projects. It’s just a matter for Africa to capture it.”