Africa50 cuts the infrastructure Gordian knot

Despite his relatively young age, Vincent Le Guennou can be considered a veteran in African investment. As one of Africa’s most prominent private equity investors, he has undoubtedly helped shape and grow the industry.

For two decades, as founder and co-CEO, he was the force behind the growth of Emerging Capital Partners. His next challenge, as CEO of Africa50’s Infrastructure Acceleration Fund, will be to re-shape the African infrastructure space.

Industry insiders describe him as someone who is brimming with ambition and driven by a strong passion to see Africa succeed. He was described by a former colleague as a great communicator and excellent at getting investors to buy into his vision – in other words, an expert fund raiser.

He joined Africa50 because he sees an opportunity to make a lasting impact in what is arguably the toughest sector to make a significant dent in: infrastructure.

The lack of hard infrastructure is a major constraint to the region’s economic growth, possibly lopping off three to four percentage points a year. Africa’s shortcomings in this regard, especially in road, rail and power infrastructure, have been well documented.

Even in mobile telephony and broadband, the scarcity of necessary infrastructure means that Africans pay some of the highest data costs as a percentage of GDP.

Le Guennou explains that the Fund intends to try and fill the infrastructure gap by investing in a number of key sectors, such as power, water, ICT, gas distribution, and also in social infrastructure projects in  healthcare and education.

His first few months will be dedicated to achieving the fund’s first close next year, which will raise part of the $500m set as his total target over a number of closings.

Given the size of the gap, is $500m sufficiently ambitious to be able to make a considerable dent

Le Guennou says that once you leverage that amount, the Fund will contribute to raising total financing of  $5-6bn worth of investments.

Individual investments, he says, are expected to be in the $40m range, with the company taking equity and quasi-equity positions.

“It will be a commercial fund looking for commercial returns,” he says. He cites the Azura-Edo IPP project in Nigeria as a success story he’d like to replicate.

What does he think about the oft-quoted statements that ‘there are just not enough bankable infrastructure projects in Africa?

“That is a facile excuse,” he says. “There are more than enough excellent opportunities on the continent, for a fund of our size. But this does not alter the fact that there is a need for further early-stage equity funding to increase the number of bankable projects,” he stresses. The Fund has no concerns about taking on more perceived risks than other financial institutions in Africa.

He expects a broad set of investors, from the traditional DFIs to private and institutional investors in Africa, Europe, North America and Asia to contribute to the Fund. He is also confident that despite fast-growing stock markets in Europe and the US, there is still appetite for emerging and frontier markets. “We are fairly optimistic that the continent will continue to attract international private sector investors provided that we come with the right product offering.”

Ironing out the wrinkles

One aspect of infrastructure investing that Africa50 is trying to remediate is the lead time between identifying an opportunity and reaching financial close, which at the moment is too long.

Le Guennou explains that the Acceleration Fund will go a long way towards achieving this because it will benefit from and complement Africa50’s other activities, which provide early-stage equity funding to help bring projects to bankability.

He also rejects the suggestion that investors are too risk-averse in Africa and will only invest in gold-plated, risk-free projects. Based on his experience in the private equity space, he says it’s important not to short-cut any process in terms of the quality of structuring, but rather be creative and innovative in mitigating risks and constraints that hold back greater investment: “I would rather be creative about mitigating risks than try to be bold and increase the level of risk that we are taking.”

One area under consideration is gas distribution. This leads to the thorny discussion about investing in fossil fuels at a time when the focus is moving inexorably towards greener energy. He says Africa50 sees gas more as a ‘transition’ fuel and transactions they finance will generally be mid-stream, with the aim of contributing to a low carbon economy. 

“Africa50 is developing a measurement system that will give projects scores based on development and environmental impact. The Acceleration Fund itself will have a climate strategy which will drive investment decisions; we will make sure that when we invest in a  project, it helps the continent become greener,” he pledges.

As such, the Fund will be able to meet ESG credentials that institutional investors today and DFIs, especially those in Europe and North America, are seeking.

Environment much better today

Le Guennou says that Africa50’s approach to developing early-stage projects, as well as its experience in the market, means that deploying the capital raised by the Fund should not be an issue at first close.

“We have already identified a number of transactions,” he says. “The idea is to go live with a number of projects so that we don’t have to face issues about how to deploy capital when you have the first close.”

Having been involved in the African investment space for two decades, what are his thoughts on the regulatory environment, which has at times been accused of moving too slowly, and thus adding to the lead time to bring projects to financial close?

“The environment has improved tremendously over the last 20 years and maybe even more in the last 10 years,” he says.

He credits a good deal of this to the work of the DFIs and the international finance institutions, “who have helped build capacity. We are now seeing huge infrastructure transactions close as a result. The trend is positive, and I view that as an upcycle.”

Le Guennou has been a leader throughout his career. After an impeccable education at French and American Ivy League institutions, he now joins an institution that has been created to think differently and unlock the infrastructure investment conundrum.

If he manages to cut the infrastructure Gordian Knot, develop a track record, and bring African and international institutional investors with him on the journey, the floodgates may open for what is arguably the most important asset class to sustain rapid African development over the next two to three decades.