When infrastructure investment is a sexy asset

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Desie Heita

Windhoek-Investing in developmental infrastructure is again the sexiest thing among fund managers, in these days when the world economy is again very much unpredictable. And Africa, ever lagging behind other continents in infrastructure financing and development, is again the most attractive continent for infrastructure financing. By comparison China is pumping about 9 percent of her GDP into infrastructure development, while Africa is investing between 1 percent and 2 percent of its GDP. And that clearly shows why there is inefficiency and productivity lag in Africa, says Eos Capital’s executive chairperson, Johannes !Gawaxab, and Andrew Johnstone, founder and CEO, Phoenix InfraWorks.

Johnstone is an infrastructure investment specialist and was in Namibia at the invitation of Eos Capital that this week held a public session on private equity and infrastructure development in Namibia. His firm Phoenix InfraWorks was established to mobilise capital into climate and infrastructural outcomes in effective and innovative ways.

Not only does investment in infrastructure bring real returns to investors, it also brings development where it is most needed, says Johnstone. “Infrastructure has the ability to change human lives,” he says, pointing to the correlation between the country’s good infrastructure development and the improvement of a country’s human development index.

So it’s not about returns but sustainable contribution to the world in which we live, he says, adding that the most successful pension funds are those that care for the needs of its members.

Johnstone speaks of infrastructure investment with such benevolent adjectives: It is “an application of oneself and capital” with the push to create an outcome “that really changes lives”. At one point he describes the profession as a “vocation”, which is what it may be to him, seeing that he has been doing this for the last 20 years.

!Gawaxab points out that in Africa and Namibia there are in particular a number of potential investment areas such as water, airports, rail and student accommodation. Due to the economic squeeze Namibia and the southern Africa region is experiencing, !Gawaxab is estimating Namibia’s budgetary requirement for infrastructure development at about N$200 billion. !Gawaxab is also sceptical of the projected windfall from Southern African Customs Union earnings that was expected for this financial year, saying much of the hope was based on the South African economy growing above 1 percent. With the downgrade of South Africa to junk status, and the economy growth now estimated at 0.8 percent, or below, !Gawaxab doubts whether SACU earnings would be as much as earlier predicted.

“I do not know. Personally I have my doubts,” he says. Hence, he says, “alternative sources for funding of infrastructure have become as critical as never before as infrastructure boosts economic productivity, helps create jobs, improves trade flow and improves the overall competitiveness of countries.” Nevertheless, Johnstone is also aware of the public and government’s aversion to public-private partnership arrangements that come with private investments in infrastructure development. He is fully aware of what often go wrong in infrastructure development, and he fires them off – changing political agendas, social issues, with the exact example of how a toll-fee highway in Nigeria went dead just after a new government was elected (it took years to resolve), or how power lines in Mexico and a power generation project in Kenya did not work because of the community’s displeasure.

Thus, in an era where populist sentiments call for more government roles and control to protect the working class, Johnstone says there should be proper government regulations in place, especially for social assets, which are often monopolistic in nature that would protect the masses from excessive prices or an uncontrolled environment.

“People do not like to pay for things they believe they shouldn’t pay for,” he says, referring to roads and water infrastructure. Also in such instances governments, and their equity partners, ought to earlier on address the community, “recognising that development is only good if people seeing it happen are going to benefit, and feel the benefit”.

South Africa Public Investment Corporation is also now looking at Southern Africa, having burnt its hands in a number of deals in West and East Africa – “I have scars to show you,” says PIC CEO Dr Daniel Matjila – and because PIC has also found that in economies with a reliance on commodities things do not go well when the economy tanks, as it did in the last three years.

“We are refocusing to start in SADC where we know everyone,” says Matjila whose fund is worth about N$1.9 trillion, and 5 percent of that is reserved for investments in Africa.

Matjila also points out that the days of asset managers spending times at the golf course are gone, as current economic headwinds require the executives be in office, hands on, as opposed to old days when they allocate into asset class and lay back waiting for the returns. He is also putting focus on small enterprises.

“We know they are riskier but we need to know how to manage those risks” that there is a real catalyst to the economy. He also speaks about “making money while we are doing good.”

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