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New class of African financial investors - expert

The South African Renewables Programme (REIPPPP) has attracted investors from all over the world and has also favoured the emergence of a new class of African financial investors.

According to Romain Py, an investment director at African Infrastructure Investment Managers (AIIM), the continent’s energy revolution is seeing rapid progress in off-grid and distributed power solutions that will enable African communities to leapfrog the old infrastructure and be at the forefront of new energy technology. Innovative financing models are accelerating this change.

So far AIIM has raised over $2bn across seven funds in the power, telecommunications and transport sectors in sub-Saharan Africa.

"Right now, the economic conditions for private equity investors are improving, with more deal flow and better pipeline visibility. Certainly, it’s a rosier picture than a few years ago when the global economy slowed, affecting Africa’s major economies," said Py, who took part in the recent African Utility Week in Cape Town.

"With a strong demand for new infrastructure - estimated to require around $170bn a year for the next decade, according to the AfDB - one of our industry’s biggest challenges is sourcing and securing the best investments that deliver value."

He said that, in the current global context of increasing amounts of capital chasing fewer attractive deals, and driving down returns in traditional markets, limited partners (LPs) are increasingly looking to new markets to achieve their return objectives – and Africa can offer this.

"We are seeing greater interest from the international LP market than at any time previously. It is, however, important to note that the African private equity industry is still at an early stage of development relative to the traditional markets. As a result, the key focus for the industry needs to be on educating the various stakeholders," said Py.

For instance, there is a large gap between perceived risks and actual residual risks for deals.

There is also a need to educate governments on the requirements for increased private sector participation and consistency of policies and regulation.

"Investors look not only for well-structured and transparent procurement processes, but more importantly for scale and a 'programmatic development' approach, which will allow them to drive price down," he said.

"To reduce its power deficit, Africa needs to unlock large-scale investment in its power sector. This will require the implementation of reliable domestic policy frameworks and the development of the right institutional capacity."

In his view, it will also require well-structured and transparent procurement processes and a “programmatic development” approach to build the credibility necessary to attract international investment on the scale needed.

"Renewable energy has become an increasingly attractive alternative to fossil fuels, as renewable energy tariffs have approached or decreased below grid parity in a number of sub-Saharan African countries, providing sustainable and affordable electricity," said Py.

"Africa has vast untapped renewable energy potential, with 8 of the top 35 developing countries with the highest in renewable energy reserves (normalised by annual domestic energy consumption) located in Africa. As a result, renewable energy is expected to make up 40% of sub-Saharan African generation capacity by 2040 (compared to 20% in 2012), accounting for almost half of the growth in overall power supply in the region."

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