Panel
London Summit 2015 - Creating an Enabling Environment for Growth in Africa (I)
Milken InstituteHenry Obi, Chinelo Anohu-Amazu, Gachao Kiuna, Scott Mackin, Ali Mufuruki, Ebele Okobi
- Discussions regarding African development, including the creation of a naval environment and responses to China's economic slowdown, are projected to continue for 30 to 60 minutes.
- Sub-Saharan Africa's power generation capacity is estimated to be equivalent to Spain's 47 million population or Norway's, excluding South Africa, creating a critical gap where presidents rely on power delivery for reelection despite a lack of capitalized developers.
- A firm intends to bridge the development risk gap between junior developers with concepts and operational capital, having previously sold three renewable projects in South Africa without an auction and now developing approximately 2,000 megawatts of power in Ghana and Cote d'Ivoire.
- Significant capital is expected to become available for operating plants, with investors increasingly willing to assume development risk to secure a seat at the table as deals reach financial close, signaling a period of tremendous growth in deal execution.
- The continent is characterized as 54 distinct markets with varying risk profiles rather than a monolith, requiring investor education to address ignorance regarding differential risks and the direct correlation between connectivity via power and economic standing.
- Innovative approaches are needed to connect people to technology to foster creators, exemplified by a partnership with Facebook and UTELSAT using satellites to provide backhaul and a rural internet pilot launching next month in central Tanzania.
- Current internet access stands at 19.6% with only 1.6% annual growth, necessitating the transition of pension funds from opaque systems to contributory pay-as-you-go models managed by private sector arms to reach a potential 32 million accounts in Nigeria.
- Pension funds, currently holding $30 billion in Kenya compared to $100 billion in South African public worker funds, are expected to provide "skin in the game" for foreign investors, though government discipline is required to prevent liquidity from being siphoned into bonds yielding 20-22% returns.
- Achieving a 10% growth rate over 25 years, necessary to reach middle-income status as envisioned in Kenya, requires domestic investment rates of at least 20% of GDP, with capital primarily originating from domestic direct investment rather than foreign reliance.
- Agriculture, wholesale, and retail trade account for more than 50% of GDP in most African countries, and significant returns are anticipated only from mastering basics in these sectors, manufacturing, and infrastructure, as no other market offers the 20% equity IRR associated with power plant construction.
- Technological innovation faces challenges due to a stigma against failure, yet opportunities remain vast for those willing to educate themselves, with the current view of a sustainable consuming community described as an illusion amidst a labor market where 20 million young people join annually against 0.5 million jobs created.
- A 30-year Moody's study indicates a 2.2% default rate for African power projects compared to 9.6% to 9.7% in the U.S., supporting the prediction that investors must adopt five to seven-year business plans and seek sustainable edges rather than short-term exits.
- The traditional unitary power system is deemed non-functional, necessitating a long transition toward distributable, captive, and self-generated power, while pure infrastructure private equity is expected to become a commodity relative to those moving up the value chain.
- Risks include utility companies failing to pay investors, with one Tanzanian investor owed over $100 million, and political priorities often favoring handouts, tourism, and telecommunications over the critical need for electricity and infrastructure.
- Governments are advised to be avoided in favor of technology, while investors are urged to forget hype and act quickly as the opportunity is real but temporary, with a specific infrastructure firm preparing to list in London within a couple of weeks after raising $3 billion in capital.
- The consensus warns that without serious investment in electricity, power plants, and agriculture, the continent cannot become sustainable or wealthy, and the current labor market conditions will become impossible to manage within a few years.