AFRICA IS OFTEN TOUTED AS THE LAND OF OPPORTUNITY FOR PRIVATE EQUITY . HOWEVER , PRIVATE EQUITY PLAYERS LOOKING TO DEPLOY CAPITAL IN THE MARKET REQUIRE SCALE IN ORDER TO ACHIEVE THE DESIRED RETURN LEVELS FOR THEIR INVESTORS . BY JO EN LOW , TOM JAMIESON AND GORDON STEWART , PARTNERS , BRACEWELL ( UK ) LLP .

This is challenging , particularly in the renewable energy space , with relatively small projects , increased competition for new capacity driving down the power purchase prices , and the currency risk associated with the fragmented nature of the markets on the continent . This challenge may be successfully overcome by aggregating energy assets into scalable regional or multi-jurisdictional platforms .

The land of opportunity As early as the turn of the 21 st century , commentators had hailed Africa as an extraordinary growth opportunity . The main driver behind this is human capital – an increasing population , and with it , increased levels of migration from rural areas to urban cities , strong economic growth and political stability . This continues to be the case today .

According to experts , the population of sub- Saharan Africa is growing by 2.7 % a year , which if it continues at its current rate of growth , means the population will double by 2050 – representing more than a quarter of the world ’ s population . 1 The African Development Bank has estimated that the proportion of this group in the middle class , the segment of the population with the most spending power , is expected to grow to 1.1bn by 2060 . 2

Further , an increasing proportion of this population are migrating from rural areas to urban cities in search of better living conditions , education and economic opportunities . According to the African Development Bank , the urban share of Africa ’ s population has doubled from 19 % to 39 % over the last 50 years and by 2030 it is expected that the urban populations will increase by an additional 350m people . 3

This is driving economic growth . Real GDP growth , estimated at 3.4 % for 2019 , is projected to accelerate to 3.9 % in 2020 and to 4.1 % in 2021 . 4 The continent already encompasses 700 companies that have annual revenue of more than US $ 500m , with 400 companies that have reached over US $ 1bn . 5

Alongside this , public infrastructure is maturing and the political landscape is increasingly becoming more stable . According to the World Bank ’ s 2019 Doing Business index , half of the most progressed countries exist in Africa and one-third of all reforms recorded globally were in sub-Saharan Africa .

These factors are driving development , investment , innovation , skilled labour and higher incomes , which in turn , provides immense opportunities for the establishment and growth of businesses in various sectors including consumer goods and retail , energy , financial services and healthcare across Africa .

Renewable energy Africa requires energy to fuel this growth . A majority of countries in Africa are still experiencing power shortages and many households have no electricity at all . If Africa does not achieve wider access to reliable and affordable energy , economic growth and development on the continent will slow .

Africa is richly endowed with natural energy sources . However , a continued reliance on oil and gas along with traditional biomass combustion for energy sits uncomfortably alongside the need to both manage the cost of power and meet the ever-increasing regional and global pressure to transition to a sustainable future , as reflected in the United Nations 2030 Agenda for Sustainable Development and the United Nations Paris Agreement on Climate Change .

This is driving a firm policy commitment to renewable energy . Governments across Africa are increasingly seeing the provision of clean energy to the grid as something that will bring not only environmental benefits , but will also help boost economic growth by encouraging innovation in new technologies and driving employment . Countries such as Egypt , Kenya and South Africa are leading this effort , while others such as Cape Verde , Djibouti , Rwanda and Swaziland have also set ambitious renewable energy targets .

Public infrastructure is maturing and the political landscape is increasingly becoming more stable

66 Project Finance International March 10 2021