The African Development Bank estimates that between $130 billion and $170 billion is required for infrastructure development each year in Africa, leaving a gap of around $100 billion. However, the failure rate of infrastructure projects is high, making innovative funding methods necessary to meet these crucial infrastructure needs. Nearly 600 million people in sub-Saharan Africa lack access to grid electricity, highlighting the urgency of the situation.
To address the financing gap, Pan-African infrastructure investment platform Africa50 launched its Infrastructure Acceleration Fund (IAF) in 2021. The 12-year private equity fund aims to attract investors to drive transformative impact, create jobs, and accelerate Africa’s green industrial revolution.
The Africa50 IAF has four key target sectors for investment: power and energy; water and sanitation; transportation and logistics; and digital and social infrastructure. The plan is to have a balanced portfolio between majority and minority investments, with the aim of investing in mature projects and companies.
The first close of funding in the Africa50 IAF secured $222.5 million in commitments, with participation from 16 African investors, including sovereign wealth, pension and social security funds, insurance companies, banks, and development finance institutions. The hope is that the fund will set a precedent, creating a multiplier effect and attracting more capital to infrastructure in Africa.
Africa50 has an excellent track record, having made 24 investments across the continent since its inception in 2016. The organization has a shareholder base of many governments on the continent, as well as the African Development Bank and central banks. This carries a lot of credibility, helping to unlock capital when pitching to potential investors.
The Africa50 IAF has a double bottom line: projects have to deliver commercial returns for investors and achieve social and economic development, contributing to some of the U.N. Sustainable Development Goals. The long-term objective is to demonstrate that investing in infrastructure in Africa can deliver commensurate returns so that institutional investors on the continent become increasingly comfortable with infrastructure as an asset class and invest more money in it.
The Africa50 IAF has attracted mainly African investors so far, which is unique. African investors know their respective countries better and aid risk mitigation because they have more control over their environment. The organization is opening up the fundraising campaign outside of the continent to Europe, North America, the Middle East, and Asia.
The hope is that the Africa50 IAF will drive transformative impact, create jobs, and accelerate Africa’s green industrial revolution. When infrastructure is developed, it eases the lives of people and contributes to facilitating trade and exchanges, having a positive spiral effect.