Gulf Fund Courted as Africa Runs $170 Billion Infrastructure Gap

(Bloomberg) -- Africa’s spiraling infrastructure needs are prompting one of the continent’s key development finance institutions to seek out backing from beyond the region.

Africa Finance Corp., which already counts 31 nations, or more than half the continent, as members, is looking to bring new shareholders on board as part of a strategy to deliver fast-track growth.

In a joint interview, AFC Chief Investment Officer Sameh Shenouda and Sanjeev Gupta, its executive director for financial services, said the bank is courting sovereign entities in the Gulf and Europe to widen the scope for funding an infrastructure shortfall that it estimates at as much as $170 billion across Africa each year.

“We are in discussion with a large European sovereign fund and we are in discussion with one of the largest Gulf-based sovereign funds,” Gupta said. “Both are at an advanced stage.”

Established by the Nigerian central bank in 2007, investment-grade AFC is on a mission to serve as an alternative to African Development Bank for finding solutions to the continent’s infrastructure gap. Its current shareholders also include African member countries and some of the continent’s lenders.

The urgency to widen the pool of investors is growing after Africa in 2020 suffered a 16% decline in foreign direct investment to $40 billion, a level last seen 15 years ago, according to the United Nations Conference on Trade and Development.

$550 Billion

But while the global pandemic and lower commodity prices have put public finances under pressure, a report last year by consultant McKinsey & Co. estimated that international investors interested in African infrastructure projects could have as much as $550 billion in assets under management.

Investors from the U.S. account for 38% of such potential funding, followed by the United Arab Emirates and China.

Abu Dhabi’s biggest sovereign wealth fund already said last year that Africa is among areas where it’s looking to generate greater returns. Saudi Arabia’s Public Investment Fund has meanwhile invested around $4 billion in industries ranging from energy to telecoms in Africa, with the kingdom looking to channel another $1 billion this year through another of its sovereign entities, according to Crown Prince Mohammed bin Salman.

By comparison, the AFC has invested more than $8.7 billion in 35 African countries since its founding. It’s planning to increase its balance sheet to $10 billion in the next three to five years.

For the AFC, the fundraising pivot beyond Africa represents “a shift in strategy,” said Shenouda, who left as head of a Blackstone-owned energy group this year to join the Lagos-based bank. As part of the effort, it’s also moving away from concentrating on projects in West Africa and toward a footprint that covers the entire continent.

New Funding

A wider net is already reeling in investments. At the end of last year, the U.S. International Development Finance Corp., America’s development bank, provided $250 million to bolster the AFC’s capital base. The African bank also sold a $750 million Eurobond in April.

As it’s growing its reach outside the continent, the AFC also wants to enlist more African sovereigns. The goal is to maintain strong capital adequacy and low leverage even as it increases infrastructure spending, Gupta said.

The bank expects at least seven new African nations to come on board this year as shareholders, including three that have committed to invest equity and four that are completing due diligence on the AFC, he said.

The institution anticipates that new capital inflows in 2021 will align with its growth trajectory, Gupta said. It plans to invest more than $2 billion in new projects this year in sectors including logistics, renewable energy and technology.

Held back by the pandemic, it’s in a rush to make up lost ground. The AFC agreed with African Export-Import Bank to provide funding for a $430 million vaccine manufacturing plant in Nigeria that will help the continent deal with the virus, and now hopes to attract third-party investors to the project, according to Shenouda.

“2021 should basically be a back-on-course for us,” Shenouda said. “We expect to revert to our planned program on asset creation and catch up in terms of what we could not do last year.”

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