The Case for Investing in Africa’s Sustainable Future

As an energy transition focussed asset manager, we scour the earth to best risk adjusted opportunities, or for that matter those which we believe are mis-pricing the risks. “The concept of risk is completely invented to ensure that investment doesn’t come to Africa,” Gagan Gupta, who runs logistics and utilities across Africa, remarked to an investing audience earlier this year, which met with notable applause.

Since COVID passed, foreign direct investment into Africa has declined, yet it still stands to benefit from Western countries funding which has been set aside for green megaprojects. Germany has promised to invest over 4bn USD in green energy projects on the continent by 2030, including a green hydrogen plant in Mauritania. Britain has invested into a 200mn USD equity fund focussed on providing equity to climate-focussed companies, and of China’s 51bn USD pledge to Africa, clean -energy projects number 30 and counting.  

Africa’s need for infrastructure, energy security, and industrialisation is a global mega trend—but funding remains far below what’s needed.

However, Africa’s need for infrastructure, energy security and industrialisation is a global mega trend, and whilst the pledges above are substantial, will not land a glove of the amount of capital ultimately required. As Phillpe Valahu of Private Infrastructure Development Group aptly remarked, “Industrialisation is not going to take place on solar panels”. Irrespective of the green funding available, its not enough to prevent a group of 18 African countries from partnering with the African Export-Import Bank, to raise over 5bn USD to fund fossil fuel projects.

 “Industrialisation is not going to take place on solar panels.”

– Philippe Valahu, Private Infrastructure Development Group

In a continent where over half a billion people do not have ready access to electricity, droughts, flooding and desertification are a constant thorn in the side of progress of livelihoods and businesses to boot. In that regard, it is particularly vulnerable to climate risks. In combination, the combined challenges of climate and energy for the continent are overwhelming compared to the capital currently earmarked for them. Should further investment be made available a diverse energy mix providing cheaper power will provide a virtuous circle for the wider industrial base, generating jobs, growth and social cohesion from gigafactories, data centres and circular manufacturing industries.

“We are basically given a higher risk profile unfairly. One of the reasons that this is happening is because our balance sheets and economies are not valued correctly,”

- Hakainde Hichilema, the president of Zambia, said earlier this year.

The view that the cost of credit or risk pricing is unfairly elevated is a predominant across African regional economies. The continent’s leaders also plan to launch a regional credit scoring agency to produce credit assessments free of some of the historical biases that the Western establishment agencies are belaboured by, in the minds of many.

We believe in appropriate discount rates, and even with those that fairly price the economic fundamentals of certain African regions, there are opportunities to generate supersized risk adjusted returns from sustainable impact investments, that are not commonly found in developed markets.