Infrastructure as an Asset Class in Africa
Investment in infrastructure has long been recognised as an important mechanism for fostering economic growth and development. With an estimated $130 billion annual deficit in infrastructure investment, Africa is in dire need of such investment. However, despite the clear socio-economic benefits, there is a lack of institutional investment in infrastructure. This paper focuses on public pension funds and SWFs in South Africa, Nigeria, Kenya, Botswana and Ghana. The South African retirement fund industry is very well established and is currently the eighth largest in the world (in dollar terms). The aggregate assets of South African retirement funds were valued at $318 billion in 2017. The Government Employees Pension Fund (GEPF) constitutes the vast majority of assets in the public pension fund sector. The GEPF has targeted infrastructure investment through its allocation to the Isibaya Fund. The level of investment in infrastructure-related funds is on par with the rest of Africa but could be increased to align with the rest of the world. This paper notes a number of challenges limiting pension funds and SWFs from investing in infrastructure, namely: the limited number of financial instruments; the lack of expertise in analysing infrastructure projects and associated risks, which affects the risk appetite of fund managers; the preference for traditional asset classes; the limited number of available investable infrastructure projects; a mismatch between available projects and requirements; and regulatory thresholds for infrastructure investments. The most pressing of these challenges include the limited number of financial instruments, the lack of expertise in analysing infrastructure projects and the limited number of available investable infrastructure projects. The paper also briefly summarises de-risking mechanisms available to address both political and macro-economic risks.