The prospect of money flowing into SA’s poor rail and ports infrastructure, coupled with fresh opportunities to capitalise on the commodity boom, are prompting private equity investors to focus more on logistics investments and less on energy infrastructure.
The move is driven in part by the ripple effects of the Russian war in Ukraine on coal supply, which have raised demand, said Langa Madonko, investment principal at Summit Africa.
“We are starting to see a shift away from just energy-focused infrastructure investing. We are seeing more thematic plays that are focusing on roads and ports, that’s logistics infrastructure,” Madonko said.
“Investors are taking a deeper look at the logistic value chains, which would be inclusive of ports, harbours, airports, roads and rail,” he said, adding that a significant number of foreign investors have found infrastructure attractive and positioned themselves to invest in that segment.
Founder and CEO of Africa Lighthouse Capital Bame Pule backed Madonko’s optimism about growing opportunities outside the energy sector across the rest of the continent. “We’re expecting to see much more non-energy investment, especially in the transport sector,” he said.
Equity financing, which involves selling a portion of a company’s equity in return for capital, has been focusing its financial muscle on energy-focused investments in a bid to solve the energy deficit challenges besieging SA. But the emerging trend is now more capital flows into logistics infrastructure.
“We have seen that we are not able to evacuate as much coal as we thought we would because of the challenges at Transnet,” said Madonko, who sits on the board of the Southern African Venture Capital and Private Equity Association. “That has made elements of the value chain such as logistics a whole lot more attractive for investors.”
The shift comes as the government recently promulgated changes to Regulation 28, seeking to encourage investment of pension fund assets into infrastructure projects.
According to the amendments, retirement funds will be allowed to allocate up to 45% of their investment assets to infrastructure, though this limit excludes debt instruments or loans either issued or guaranteed by the government. Regulation 28 will also have a specific definition for infrastructure.
Vuyo Ntoi, co-MD of African Infrastructure Investment Managers, said another factor is that Africa’s urbanisation rate is expected to be greater than that of India and China’s combined, which signals opportunities for investment in port logistics and the cold-storage chain.
Senior investment principal at Mergence Investment Managers Kasief Isaacs views affordable housing and water as attractive.
“Even beyond energy, the opportunities in SA are vast and readily accessible,” he said, pointing out that 6-million South Africans are expected to move to cities over the next 10 years.
The African Development Bank estimates that the continent’s infrastructure financing needs will be as much as $170bn a year by 2025, with an estimated gap of about $100bn annually.
Third Way Investment Partners MD Fulu Makwetla is also positive about the prospects offered by the Regulation 28 amendments, saying lower returns elsewhere mean pension funds cannot ignore infrastructure.
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