Principal investing

AFC focuses on building integrated ecosystems around infrastructure across sectors/countries to develop end-to-end value chains to drive accelerated growth and development. One such example is ARISE Integrated Industrial Platform (IIP): a success story for industrialisation and beneficiation on the African continent.

Throughout the Covid-19 pandemic, global supply chains have faced significant disruption. An over-reliance on China as a key manufacturing hub has been exposed, with factory closures there raising the risk of supply chain disruptions for multinational companies – with delays, raw material shortages and increased costs faced. In this regard, the development of local manufacturing centres and capacity is critical to achieve more efficient and diversified supply chains, to reduce overall carbon footprint, and contribute to job creation and sustainable livelihoods, as key aspects of achieving sustainable development goals on the continent. It is a compelling case to position Africa as an alternative manufacturing centre, driving import substitution through agro-processing, manufacturing and domestic value addition of primary commodities.

This requires an innovative approach to creating, structuring and financing integrated ecosystems and industrial platforms that considers the end-to-end value chain around resources – input supply, logistics (in-land and sea), ready-to-develop land with utilities, and marketing/commercialisation services for hosted companies’ finished goods. The approach led to the establishment of a US$1bn wood-based export industry in Gabon i.e. Nkok Special Economic Zone (Nkok SEZ), a cornerstone asset of the ARISE Integrated Industrial Platform (ARISE IIP).

Nkok SEZ is the first official Carbon Neutral Industrial Zone in Africa and the world. The certification of Arise IIP's GSEZ demonstrates how businesses can drive climate action, setting an example for the private sector worldwide. With a bespoke de-carbonisation strategy and investments in low-carbon technologies, GSEZ shows that it is possible to enable low carbon industries. The certification provides a transparent third-party assessment for GSEZ carbon footprint and offsetting. In its efforts to mitigate greenhouse gas (GHG) emissions, GSEZ will also focus on increasing utilisation of timber and renewable energy sources to supply GSEZ with carbon-free electricity. Solutions for low carbon transport are also being assessed.

ARISE IIP is owned as a 50:50 joint venture between AFC and Olam International, through the construction of a special economic zone:

As part of its drive to address Africa’s vulnerability to climate risk, AFC has created an independent asset management arm, AFC Capital Partners, with a debut offering: the Infrastructure Climate Resilient Fund (ICRF).

The mandate of AFC Capital Partners is aligned to AFC’s in offering attractive investment opportunities to the global development finance and commercial investor community –seeking long-term returns through structures that protect African-built infrastructure from climate risks. The newly created fund will employ traditional project finance and private equity structures, supported by a blend of concessional finance, grants and ‘soft equity’. AFC Capital Partners forms a core part of AFC’s five-year strategy, as set out in 2018, to expand its suite of pragmatic and innovative funding solutions by mobilising capital to drive the development of infrastructure that is resilient to the impact of climate change.

AFC Capital Partners plans to raise US$500m in the next year and US$2 billion over the next three years. The ICRF will act as a direct investor and a co-investment fund to enhance the quality of African ports, roads, bridges, rail, telecommunications, clean energy and logistics in the face of rising temperatures and sea levels due to climate change.

AFC Capital Partners will enhance AFC’s firepower in driving integrated infrastructure solutions that are core to Africa’s development in the post-Covid era. The Infrastructure Climate Resilient Fund will enable us to support climate adaptation as well as projects that reduce carbon emissions and catalyse our continent to build back better, with more climate-resilient and sustainable infrastructure.

The continent that has contributed the least to climate change is the most exposed because of housing, transport, industrial, and energy structures that are ill equipped to survive storms, floods, droughts, wildfires, and other hazards from extreme weather patterns. According to the UN Office for Disaster Risk Reduction, without urgent intervention the cost of structural damage caused by natural disasters will increase to US$415 billion a year by 2030 from between US$250-300 billion now. Damage to rail tracks, roads, bridges, seaports, and power grids will add to an infrastructure deficit currently at US$130–170 billion per year. The UN Conference on Trade and Development estimated that a total of US$2.3 trillion worth of infrastructure is needed across Africa. Significant financing is urgently required to build physical infrastructure that will survive the forces of climate change. Much of this investment is compatible with competitive returns for investors through leveraging the expertise, relationships, and blended finance models we have tried and assessed for years.

Africa is often viewed as monolithic while, in truth, there is diversity in economic landscapes, ways of doing business, and opportunities. It is thus important to find strong ‘local’ partners like AFC, with a deep understanding of these dynamics to enable investors to do more – tracking trends and providing the flexibility for liquidity to play across the capital structure.

Platforms deliver an opportunity to aggregate assets across the continent, while diversifying portfolio risk, generating higher returns and providing institutional and other investors access to markets they haven’t yet cracked. AFC has achieved this through the ARISE platform with ports, special economic zones and infrastructure services, where we have deployed over US$500 million in the last 5 years – and catalysed additional investments of US$2bn from multiple investors including African Export Import Bank (Afreximbank), African Development Bank, GuarantCo, BGFI Bank and others.

We are also bundling new and existing solar, wind and hydro projects in several African countries into a single unit, with combined generating capacity of 1-2 gigawatts of renewable energy, with plans to list on the London Stock Exchange. We have identified that a number of European investors and oil companies are increasingly investing in this space but have not invested in Africa yet. Meanwhile, investors are interested in green energy opportunities in Africa but are unable to spend time scouting out relatively small 50-60MW projects.

Partnerships with governments are also key in supporting their national development plans and ambitions. Covid-19 has meant that government reserves and balance sheets have been stretched, shifting focus on priority sectors such as healthcare that have become constrained. This leaves little for government to invest in infrastructure and industry, which are core to supporting economic recovery.

As such, the private sector has to look to increasingly support governments through innovative sovereign lending solutions and public-private partnerships.